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Fantasy Budget: Richard Murphy’s plan for sustainable growth

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Ahead of the government’s medium term fiscal plan on 31 October, Richard Murphy has drafted a speech for the Chancellor on how to create long term sustainable growth.

26th Oct 2022
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Madam Deputy Speaker, this House must address some fundamental realities today.

  • The world economy is facing a recession because of Putin’s war in Ukraine.
  • The UK faces inflation for the same reason.
  • Our public services are under enormous pressure.
  • Threats like Covid have not gone away.
  • We are behind on our schedule to deliver sustainability.
  • And worse, millions in this country would face economic catastrophe if we were to copy the disastrous monetary policies now being pursued by the US Federal Reserve. If we raised interest rates as they are we would have millions unable to pay their mortgages and rents. As it is we already know that 8 million people are struggling right now to pay their bills, precisely because their pay is insufficient to afford them anything like a decent standard of living.
  • Those same interest rates that might devastate households might also cripple our invaluable SME sector putting millions of jobs at risk.

I know that there are those who will say I should be focusing on easing the concerns of the financial markets at this moment.

I have to tell those saying so that this is not my worry. The financial markets are big enough and well-funded enough, not least by £900bn of quantitative easing funding, to survive what is happening now.

As a result, I have this morning used the reserve powers afforded to me to instruct the governor of the Bank of England to reduce the official interest rate to 1% over the next three months. Nothing else can, in my opinion, keep people in their homes in the year to come, or companies in the business of employing people, which is vital if recession is to be avoided.

Having dealt with this issue let me set out my economic agenda.

My budget has as its priority those who are not in the fortunately robust position of our banks. So, my focus is on the 50% of the UK population who have below average earnings and who between them share 9% of the country’s resources, and not the top half who control 91%, or most especially the top 10% who control 43% of our resources.

My message is a simple one: it is that no country can survive such inequality and thrive, let alone be remotely fair, productive, entrepreneurial, or resilient. The stresses of trying to do so are just too great.

So, my aim is to increase the wellbeing of those in the bottom half of the economy. Unless we give them the spending power that they need then we are never going to see the revival we want in the fortunes of this country.

In that case what am I going to do?

  • First, all public sector staff with earnings in the lowest four income quintiles will get inflation matching pay rises: others will still be fairly rewarded.
  • I will increase budgets for the NHS, education, essential services and defence in line with inflation.
  • Those on benefits will get inflation matching increases, including pensioners, of course.
  • And to beat the recession that my predecessor’s declared policy of austerity and cuts would have delivered I am launching a Green New Deal. This is a plan to build a sustainable UK. It will create a carbon army of people employed in every part of the UK to insulate houses, install solar panels, build wind farms, and develop tidal energy as well as to build the sustainable transmissions systems, transport and flood prevention systems on which we must all rely. This will be the plan to keep this country going when nothing but government spending can. It will cost £100 billion a year.

How will I pay for this? The answer to that question is “quite easily”.

  • To pay for the Green New Deal I will require that all new ISA savings, whoever provides them, will now be in cash-based Green New Deal accounts, paying market competitive rates with the capital being made available to fund the investment we need. This alone will raise £70bn a year.
  • I will also require that 25% of all new pension contributions be invested in funds that create new jobs in sustainability in the UK or tax relief will not be available.
  • Together these measures will easily deliver the £100bn of capital funding the Green New Deal requires each year.
  • As for revenue spending, we have to stop pretending that this is possible without new taxes. We also have to stop pretending that anyone but the rich can pay these new taxes. Instead, and precisely because the richest in society have been so inordinately favoured in recent decades, we must now redress the balance of tax in this country to make it truly progressive, as it clearly needs to be if it is to be fair, which it is not at present.   

I propose:

  • Introducing a top rate of income tax of 50% on earnings over £150,000.
  • Introducing VAT on private education, healthcare and the sale of houses to be used as second homes.
  • Charging capital gains tax as if it is the top part of a person’s income.
  • A capital gains tax charge on the final lifetime sale of a property used as a home by a surviving spouse or civil partner, with necessary protection for carers, with such property then falling out of inheritance tax.
  • That all tax reliefs, including on pensions, charitable contributions and for any other purpose will be provided at the basic rate of income tax.
  • That there be five new top-end council tax bands in England and Wales to create equity in this charge, and that the ratio of payment required from lower bands will be reduced.
  • That there will be an investment income surcharge of 15% on all investment income above £5,000 a year, increased to £50,000 for pensioners, with the explicit aim of replicating national insurance on earnings.
  • That national insurance be charged at full rate on all earnings from employment over £100,000.
  • That close company rules be reintroduced to prevent the accumulation of unearned wealth at low tax rates in private companies

The aim of these measures is quite economically explicit. I want to move wealth out of the hands of those who save it in speculative but nonproductive ways and move it into the hands of those who do not only need it as a means to survival, but who will also spend all or almost all of the benefit they secure, so providing our economy with the stimulus it needs to create long term sustainable growth for the combined benefit of all who live in this country.

Nothing less than what I suggest can do that. As such I commend this statement to the House.

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Replies (42)

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By Hugo Fair
26th Oct 2022 09:26

Well ... everything that's needed to be a politician - absolutely no connection between espoused intentions and proposed actions!

The 'Green New Deal' is the only eminently sensible component - and is of course therefore the one with least detail (straight out of the Chancellors' handbook). What is missing from it is the medium/long-term aspects of investment in (state-owned) research & development - with the intention of making Britain the literal powerhouse (via IP) of the world over the next century.

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By User deleted
26th Oct 2022 09:45

Interesting ideas, but I believe that much more radical changes are needed.
Firstly I would scrap all indirect taxes including VAT, RFL, Fuel duty, Petrol & tobacco duties, TV Licences (the TV tax), Inheritance tax, stamp duty, the lot. That would allow me to fire thousands of civil servants thus saving the nation a fortune in salaries, inflated pensions etc. Why should people living on £150/week pay the same tax on things they buy as a millionaire?
I would also abolish National Insurance. It’s a tax on earnings so just add it to income tax.
I would also abolish the NHS, Labour’s sacred cow and the biggest drain on the nation’s finances. Other countries have insurance based health care, and you can actually see a doctor under their system.
No I haven't costed it out but it should, I believe, be the direction of travel.

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Replying to User deleted:
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By RickyRoark
26th Oct 2022 11:40

ENDORSED

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By Mike18
26th Oct 2022 14:07

Baloney!

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Replying to Mike18:
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By User deleted
14th Nov 2022 13:51

Such an intelligent response, no argument, no alternative suggestions, just an insult. A luddite response.

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ghm
By TaxTeddy
26th Oct 2022 09:53

Surely - all Budgets are fantasy budgets now?

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By Gerry Brown
26th Oct 2022 10:20

I think this has merit. But why have ISAs? We have Personal Savings Allowance - isn't that enough?

I'd like to see a reduction in pension tax free cash. Perhaps the first £50,000 could be tax free and the remainder taxed at (say) 10%

The use of 'excluded propety trusts' for non-doms should be ended and perhaps a reduction in IHT business and agricultural reliefs - back to 50%?

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By johnjenkins
26th Oct 2022 10:26

Problem, Richard, all the clever people will move elsewhere. So you'll have no one to create growth.
Many years ago Paul McCartney was asked if he would move (as other celebrities did when tax was high) to a tax haven. He replied "my accountant has told me that I would have a job spending all the money I have now let alone what I will earn in the future". Unfortunately Paul belongs to an Industry that wants us to spend money with no growth.
I like all your spending bits but, as always, it's how you pay for it that's the problem.

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Replying to johnjenkins:
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By Brodders
26th Oct 2022 10:45

the usual threat that has no basis in reality

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By johnjenkins
26th Oct 2022 11:05

You've only got to see what IR35 has done to IT workers to get "reality".

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By Brodders
26th Oct 2022 12:11

as usual, absolutely no connection between your arguments - nonsense "logic". Yawn

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By johnjenkins
26th Oct 2022 14:26

Perhaps I should have been a politician then.

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By AndyC555
26th Oct 2022 13:12

"all the clever people will move elsewhere."

Whether they were clever or not, I don't know but an estimated 60,000 millionaires left France (according to research group New World Wealth) between 2000 and 2016 as a result of wealth taxes (the impôt sur la fortune or ISF). When these people left, France lost not only the revenue generated from the wealth tax, but all the other taxes too, including income tax and VAT.

French economist Eric Pichet estimated that the ISF ended up costing France almost twice as much revenue as it generated. He concluded that the ISF caused an annual fiscal shortfall of €7bn and had probably reduced gross domestic product (GDP) growth by 0.2 per cent a year.

Here in the UK we've never had wealth taxes but did come close...Denis Healey, Labour chancellor in the mid-70s, wrote in his memoirs: “We had committed ourselves to a wealth tax; but in five years I found it impossible to draft one which would yield enough revenue to be worth the administrative cost and political hassle.”

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By johnjenkins
26th Oct 2022 14:30

I meant to put entrepreneurs but I couldn't remember how to spell it. It would be interesting to find out the ratio of income to loss with IR35.

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By ireallyshouldknowthisbut
26th Oct 2022 15:16

I don't recall the massive influx of millionaires when the tax rate fell from 50% to 45%.

I think the biting point is around 60-65%.

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By Nebs
26th Oct 2022 10:34

Isn't it amazing that every man, woman and child in the UK, with the exception of a mere 650, know exactly what to do to cure all the problems faced by the country.

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Replying to Nebs:
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By johnjenkins
26th Oct 2022 11:02

Brilliant

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Replying to Nebs:
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By User deleted
26th Oct 2022 11:11

Yes - shoot the 650 would be the starting point for most people.

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By vstrad
26th Oct 2022 10:43

Presumably, Richard's definition of rich is someone who earns more than a professor of accounting.

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By Justin Bryant
26th Oct 2022 11:00

No mention of RM's imaginary (fantasy) £100bn tax gap surprisingly.

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Replying to Justin Bryant:
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By AndyC555
26th Oct 2022 12:16

Ah, yes, the famous 'tax gap' calculations of Richard Murphy. As was pointed out at the time, these figures were a little...er...imaginative, described in parliament as "deeply and systematically flawed" with the most hilarious of those flaws being remarked on at the time by then Treasury Minister David Gaulke.

"The Tax Research estimate of tax debt is £28 billion. That is a snapshot figure of all tax owed to HMRC on 31 March 2009, which does not represent the actual losses to the Exchequer from non-payment...Only the tax debt written off as uncollectable by HMRC is an actual loss to the Exchequer from debt. That is therefore the amount that HMRC uses in its estimate of the tax gap, which in the 2007-08 tax gap figures was not £28 billion but £3 billion"

And at a stroke £25bn disappears from Murphy's tax gap.

You might have thought that an accountant would know the difference between debts and bad debts. But apparently not.

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By RickyRoark
26th Oct 2022 11:39

Noted Communist Richard Murphy weighs in.

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Replying to RickyRoark:
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By AndyC555
26th Oct 2022 12:03

Murphy will deny he's a communist, pointing out that whilst he wants to dictate to people what they learn at school, what they do with their savings and expand the role of the state into just about every aspect of your life, he would allow private enterprise.

So long, of course, as the private enterprise acted in the interests of the state.

So a bit more like the policies employed in Germany in the 1930s.

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By RickyRoark
26th Oct 2022 12:58

Considering Richard is a proponent of MMT, I would say 1920s Germany is more appropriate.

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By Mike18
26th Oct 2022 14:25

Noted reactionary calls progressive a commmunist as usual.

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By RickyRoark
26th Oct 2022 15:00

Progressives, communists, socialists, Marxists. Call them what you want - They all belong in the same camp.

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By Mike18
27th Oct 2022 11:04

So you belong in the camp with every extreme right wing (un)think tank.

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By nandrou
26th Oct 2022 11:44

'Fantasy' is right. All the ideas to increase fiscal drag on the economy and none based in reality to promote growth.
Richard seems to forget that savings are actually the 'I' (investment) component in the GDP formula. His solution is always to tax more. And yet here we are with the highest tax burden since the 1950s with nothing to show for it.

A senior researcher at the IFS stated back in 2019 that ‘...our tax revenues are ever more reliant on a small group of high-income taxpayers. It is average earnings, rather than top earnings, that would be taxed markedly more if the UK adopted the tax system of a typical higher-tax country.’

Scaring away high-income taxpayers to other countries, increasing the tax burden on average taxpayers during a cost-of-living crisis, and reducing efficient market-based investments in favour of less effective state spending, would be akin to shooting ourselves in both feet.

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By Mike18
26th Oct 2022 14:22

"highest tax burden since the 1950s with nothing to show for it".

Shouldn't the tax burden rise every year if public services are maintained, never mind improved. Richard Murphy is right to highlight the catastrophic decline in the economy being caused by the increasing inequality of income and wealth. Marginal Income Tax rates in the 1970's were as high as 83%. There is room at the top, and you can alos tax Capital Gains and Inheritance more heavily!

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Replying to Mike18:
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By nandrou
26th Oct 2022 16:32

Mike18 wrote:

Richard Murphy is right to highlight the catastrophic decline in the economy being caused by the increasing inequality of income and wealth

No. The Gini coefficient shows inequality falling in the UK these past two financial years.
If tax increase advocates cannot get the basic facts correct, their speculation on how best to deal with complex matters with regard to the economy can be safely ignored.

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Replying to nandrou:
By Mike18
27th Oct 2022 11:09

Great to see dubious figures of the last two years contrasted with the reality of many decades. Inequality will always have its defenders.

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Replying to Mike18:
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By AndyC555
26th Oct 2022 16:46

"Marginal Income Tax rates in the 1970's were as high as 83%"

And according to HMRC, in 1976, the top 1% of earners paid 11% of all the income tax paid to the Treasury.

Today they pay around 30%. How much more of all the income tax would you like them to pay?

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By Mike18
27th Oct 2022 11:02

Marginal is the key word.

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By AndyC555
26th Oct 2022 11:57

"I will require that all new ISA savings... will now be in cash-based Green New Deal accounts, paying market competitive rates with the capital being made available to fund the investment we need. This alone will raise £70bn a year.

I will also require that 25% of all new pension contributions be invested in funds that create jobs new jobs in sustainability in the UK or tax relief will not be available.

Together these measures will easily deliver the £100bn of capital funding the Green New Deal requires each year."

The "competitive rate" he suggested on his blog was 1%.

And, no, it won't raise the £100bn he refers to because people tend to invest where they want to and not where Mr Murphy wants them to and investments with no future and little return just won't be attractive.

"with the capital being made available to fund the investment we need. This alone will raise £70bn a year."

Murphy, of course gets it completely wrong as he only looks at what is invested in ISAs each year and ignores what is withdrawn. There isn't a net £70bn being added each year to what's in ISAs. In some years, more is WITHDRAWN than is invested. If Murphy's plans are so idiotically funded how can anyone take him seriously?* Unless of course he's planning that you won't be allowed to get your money back until he lets you.

* Actually, Charles Mackay writing in "Extraordinary Popular Delusions and the Madness of Crowds" in 1841 knew the answer to this....

“During seasons of great pestilence men have often believed the prophecies of crazed fanatics, that the end of the world was come. Credulity is always greatest in times of calamity. Prophecies of all sorts are rife on such occasions, and are readily believed..."

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paddle steamer
By DJKL
26th Oct 2022 12:03

Regarding these investments in Green projects via pension contributions, unless there is a credible vast supply of investable entities with decent returns/prospects that qualify as such investments you are going to have a wall of money chasing a limited pool of investment possibilities, this will inevitably lead to market mispricing and if so the subsequent losses for investors are near inevitable. (Bit like the real values of AIM shares/VCTs etc)

Given what will imho be near certain losses I think I would just stop investing into my SIPP , after all it is really just a tax deferral scheme rather than a tax free scheme and getting the other 75% invested to catch up the losses on the 25% looks a hard ask.

Also given politicians involved we will first have 25%, then 35% etc at which point stuff it, I will just provide for my retirement via another route. Of course in 30-50 years time HMG will be picking up means tested support for all those who have insufficient savings and were discouraged from saving, frankly we ought to be making pensions more attractive not trying to deter people.

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Replying to DJKL:
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By AndyC555
26th Oct 2022 12:07

"subsequent losses for investors are near inevitable."

It's said that losses only occur when you realise your investment and you're assuming that Murphy's plans allow you to do that. I suspect that once invested, you'd never see your money again.

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Replying to AndyC555:
paddle steamer
By DJKL
26th Oct 2022 12:19

Son of 3.5% War Stock or 2% Consols, perhaps.

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By AndyC555
26th Oct 2022 12:59

The more one reads this, the more demented it seems. take this:

"create a carbon army of people employed in every part of the UK to insulate houses, install solar panels, build wind farms, and develop tidal energy as well as to build the sustainable transmissions systems, transport and flood prevention systems on which we must all rely."

How many people is Murphy imagining will be needed? Where will he get them from? Who will train them? What timescale does he put on this? What are his costings? Where will these wind farms and solar panels go? What are his backup plans for when the wind doesn't blow and the sun doesn't shine? Without these details it's just empty posturing with a wish list.

He might as well say "my budget will ensure that we all live happily ever after. The End"

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Replying to AndyC555:
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By User deleted
26th Oct 2022 13:26

"create a carbon army of people employed in every part of the UK to insulate houses, install solar panels .........".

And what, according to Murphy, happens when I tell them to get off my land and shove their insulation & panels where the sun doesn't shine? Will I find myself in a "re education" camp next to a crematorium?

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Replying to User deleted:
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By AndyC555
26th Oct 2022 16:36

"And what, according to Murphy, happens when I tell them to get off my land and shove their insulation & panels where the sun doesn't shine?"

Clearly such an attitude would be the result of uncoordinated thinking and you would be sent to a camp where you could learn to concentrate.

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By Paul Crowley
26th Oct 2022 15:47

Murphy's Law?

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By tedbuck
14th Nov 2022 13:11

Just about par for the course.

Actually people work hard to save money and gain wealth for their retirement and if they cannot achieve that aim they will go elsewhere.
Taxing Capital Gains is a tax on inflation which HMG controls so encourages them to allow it to happen.
Of course a tax on my home when I am gone will really help my family. Inflation should be controlled and not encouraged by low interest rates so this perso wants to reduce them again to allow more house price inflation to get a bit of CGT when I snuff it. Never mind all the people priced out of the housing market because of the low interest rates encouraging inflation. He's on a par to the nitwits in the BofE who simply cannot see it o0r daren't admit it. And tax the 'rich' people earning over £150,000 - in London with house going for £1.9 million for terraced accommodation. He must live in the same cloud cuckoo land as Hunt and Sunak.
No mention of all the jobsworths sitting in HMG's office at our cost making rules to stop people working efficiently and so that they can be fined instead of taxed.. The politicians couldn't run a p**s up in a brewery or perhaps they are so busy having parties that they have no time for real work. Plonker!

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