What is the alternative?

I don't know about you, but I am confused. Very confused. I hear the TUC and what appears increasingly to be merely it's political wing, the Labour Party, calling and even 'Marching' for what they describe as 'the Alternative', but I fail to understand what it is that they want.

Ed Miliband appears to liken this campaign against the reductions in expenditure to the campaign by women suffragettes, the campaign for civil rights in the US and the campaign against apartheid in South Africa ... patently absurd hyperbole; but then what else is he to do? He's the leader of HM Loyal Opposition, he has to say something ... it may as well be patent nonsense and trying to explain what his alternative is clearly beyond him.

Ed Balls appears to have reversed his position on the deficit and now appears to believe that there is no structural deficit and that the answer to the problem of Government spending exceeding Government revenue is to increase Government spending ... so the Government spent more than it received when the good times were here and the answer is to spend even more now that we are in difficulty; not sure I understand that at all.

The TUC, looking at the website they set up for the so-called 'March for the Alternative', appear to believe that the answer lies in taxing the rich and getting big companies to pay more tax, in the creation of a Robin Hood tax and where 'we strain every sinew to create jobs and boost the sustainable economic growth that will generate the prosperity which is the only long term way to close the deficit and reduce the nation's debt'.

The last of these makes some sense - and in reality it is what all Governments are hoping for; and this Government is, in its own way, formulating policy towards what it sees as that goal.  Blandishments are fine in so far as they go ... but they don't answer the question; what is the alternative?

A financial transaction tax has been doing the rounds since the 70's. The only place where it has been tried, Sweden, was pretty much an unmitigated failure. The US attempted something similar with a withholding tax on currency transactions that led to the massive boom in the currency market in London and the creation of what has been described as the 'Eurodollar' market ... so that went well!

As to getting the rich to pay more tax - whether companies or individuals - sadly for the proponents of higher marginal tax rates, the most interesting data concerns the massive increase in the amount of tax paid by the richest in the UK when the top rate of tax was reduced first from 83% (and a 15% surcharge for so-called 'unearned income') to 60% (in 1979) and then to 40% (in 1988). This is both as a proportion of the total tax taken and in terms of the sums raised. Interestingly, this was reflected by the experience of other countries who reduced top marginal rates of tax and saw revenues rise as a result ...

As to tax avoidance, nothing is as simple as those who would like to portray it. If you set a law, people at the margins will be treated unfairly - ask the person who earns just over the thresh-hold of the higher rate or the new 'Additional rate' (50%) about how fair the incidence of tax is on them as a result of how the rate is set and in particular how the removal of allowances/tax credits affects them?

The truth is that it is in simpler and probably lower tax rates that higher compliance and less incentive to avoid will be achieved. There will be some harshness at the margins, but if you want to prevent situations where a bank can set off the capital gains it makes on the sale of a subsidiary when it increases the capital it holds, then it would probably make sense not to make specific rules allowing companies to do precisely that ... and there is no point in blaming the current Government for that one - that was done by Gordon Brown with Ed Balls egging him on ... to quote Michael Heseltine; 'it may be Browns, but it is all Balls!'