Earlier I was pounding on the pedals trying to catch up with my Pointer and doing my best to stop my lungs from exploding; as my legs turned to jelly, my thoughts turned naturally to the public spending cuts by the Coalition.
26 March 2011 saw the London “March for the Alternative” organised by the Trade Union Congress who has spent millions in the process. So what is the alternative?
1. Some like Mark Serwotka of the PCS Union say the rich and large corporations should pay more tax, legal tax avoidance schemes should all be shut down, illegal tax evasion should be tackled to close the “tax gap” and bankers should continue to pay the levy imposed by the Coalition. That way, no cuts to public spending would be necessary and the Coalition could also invest in apprenticeships, house-building and other job creation schemes.
2. Others like the Labour Party say there should be public spending cuts but they should not be so deep and they should be be effected over a longer period of time. In other words, increase the annual deficit (and cumulative National Debt) over the short to medium term in order to invest in jobs and hopefully growth. That way, growth and resulting higher tax revenue combined with spending cuts would reduce the deficit over time.
In other words, and simply, the country invests in people, creates jobs and opportunities for them, pays their salaries (in the public sector in the first instance) and then they become productive, pay their taxes, buy goods and services which then stimulate growth in the private sector (akin to the Fiscal Multiplier in Keynesian Deficit Spending)
There are various arguments against (1) above as in why we have the present tax regime (to attract investment/encourage growth) , the possible adverse effects of higher taxation (eg. Laffer Curve/flight of capital/lower tax revenue) and that if tackling tax evasion is easy, then successive governments would have done it; and also arguments against (2) above as in the loss of confidence in the UK by the bond markets resulting in a drop in credit rating and much higher interest payments on the National Debt, higher base rate and the resulting hit borne by people with mortgages and loans, plus possible sovereign debt crisis.
There is also an argument that the Keynesian Fiscal Multiplier does not work (via Adam Smith Institute).
But these arguments and others, eg. whether spending on public sector jobs is just recycling private sector tax revenue and therefore “non-productive”, have all been debated ad infinitum and there will always be people on different sides of the fence.
So what is my alternative for the union themselves to use? This is something I prepared earlier, during a mental break from chasing the Pointer on my bike. Do bear with me as it seems like a crack pot idea and is predicated upon all the unions in this country having neutral balance sheets (ie. in a much BETTER state than UK Plc), and they all want to help UK Plc:
1. The TUC or individual unions raise their membership fees by charging a higher rate or rates for those members who are working in better paid jobs, in a similar fashion as income tax. This will raise the unions’ incomes, but there is a chance they may lose some members.
2. The unions then borrow from the markets to sponsor house-building projects all over the country, creating apprenticeships and other jobs. They will pay the salaries of the apprentices and employees involved. How many apprenticeships or jobs will be created by this obviously depends on how much money the unions borrow to invest.
3. No tax/NI will be taken by HMRC from the union sponsored apprentices or employees. Instead they will pay back to the sponsoring unions what they would have paid in tax/NI, plus annual sponsorship fee of a certain % of their incomes. Like paying slightly more tax, or paying back a student loan if you prefer.
4. The sponsored apprentices and employees will continue to pay the unions under (3) above until the unions have sold the newly built houses from each project and hopefully recouped the costs of salaries paid, building materials purchased and interest the unions paid on their loans.
There are of course practical but not insurmountable obstacles to what I suggest but I merely refer to the principle. I would argue the above is somewhat analogous to what the unions suggest the Coalition should do.
So the unions should try my crack pot idea, practice what they preach with their own money and posteriors on the line….
…. as long as they don’t do what last government did – and carrying on with the house-building theme – starting from having no annual deficit in 2002, they borrowed more & more to invest in the UK Development Project, except they didn’t regulate some of the builders properly, spent too much at the builders’ merchants, sold some properties but didn’t pay down debt and then when lots of properties didn’t sell because of the burst property market bubble and toxic collaterals like subsidence & building defects, the revenue stream collapsed, leaving a big pile of IOUs to pay…
But there are no risks in further borrowing to invest in more public sector jobs, the credit rating will always be AAA, the fiscal multiplier returns are guaranteed by Nobel Economic Prize winners, the country will never run out of liquidity and therefore there is no need to cut spending, right?
Do you think the unions would want to suck it and see with their own money?