Astonishing attack on Bank of England : 'Incompetent, sloppy and suffering from mental paralysis'

Recriminations and accusations abound as problems in UK PLC become increasingly evident..........

From todays "The Business Online" :

Astonishing attack on Bank of England : 'Incompetent, sloppy and suffering from mental paralysis'

By : Allister Heath November 20, 2005

THE Bank of England has been accused this weekend of incompetence, mental paralysis and disgraceful sloppiness in an extraordinary critique by a top economic consultancy.

The astonishing mauling, by leading London-based forecaster Lombard Street Research, uses unprecedented language and accuses the Bank's monetary policy committee (MPC), led by its governor Mervyn King, of producing research worthy only of the rubbish bin.

The attack, which comes as new figures reveal that the UK's economic performance has collapsed amid rising taxes and red tape, suggests a growing discontent with the conduct of economic policy in the City of London. Brian Reading, a director of Lombard Street Research, nicknamed last week's flagship quarterly Inflation Report on the prospects for the UK economy from the Bank "an un-believably incompetent and sloppy 'Inflated Report'."

He said that "the story it struggles to tell" is "drowned in detail and verbiage", despite being "essentially simple" and is an "exercise in futility".

"Any sensible person would by now have confined, unread, the 52-page Inflation Report to the dustbin," Reading said.

He accuses the Bank of England of being unable to make up its mind and of suffering from acute "mental paralysis". Reading added: "This report includes little if any analysis of recent monetary and credit growth. It provides absolutely no analysis of sector financial surpluses and deficits. In sum, it is a disgrace."

Lombard Street Research believes the Bank should focus more on the surge in the value of cash circulating in the economy and that it should be more decisive in fighting inflation. Usually, senior City figures are much more circumspect and deferential in their treatment of the Bank of England, even when they disagree with it.

The attack comes as the Centre for Economics and Business Research, another top consultancy, warns this weekend that the UK has collapsed to 19th out of 25 in the European Union economic growth league table in the first nine months of this year. The research deals a devastating blow to Chancellor Gordon Brown's claim to be presiding over a successful UK economy and will turn up the pressure ahead of the Pre-Budget Report on 5 December.

Fresh research seen by The Business this weekend reveals that the total tax rate on top earners is now about 60%, if employers' and employee national insurance contributions, income tax and indirect taxes such as value added tax are included. Cardiff University professor Patrick Minford said: "It turns out that the total tax system produces a top marginal tax rate of about 60%, which is the percentage of the wage paid by an employer taken by the state. Employees get £40 worth of goods and services valued at their true cost for an extra £100 paid for their labour by the employer."

If the UK grows by 1.7% year on year in the fourth quarter, as expected, it risks being overtaken by Poland and France and dropping to

21st out of 25, with only a handful of countries - Italy, the Netherlands, Finland and Belgium - doing less well. Even the struggling German economy overtook the UK during the third quarter, though planned tax rises from new premier Angela Merkel are likely to mean this will not last.

Jonathan Said, economist at the Centre for Economics and Business Research, said: "Although the UK's advantages of flexible labour markets, a high employment rate and greater product market competition largely remain, some of the UK's other economic policy advantages from the mid-1990s are being eroded."

The OECD estimates that general government receipts (largely tax) as a share of gross domestic product (GDP) have risen in the UK from 38.8% in 1996 to 41.6% in 2005. In stark contrast, government receipts in the euro zone have fallen from 47.5% to 45.7% of GDP. The gap in government receipts between Britain and the euro zone has fallen from 8.7 percentage points to 4.1 points. UK public spending has surged even more significantly, and is set to reach 44.8% of GDP next year, according to the OECD.

Said added: "As the UK moves towards a more European tax environment, it may not be surprising that our relative growth performance is falling back."

Brown is also under fire this weekend for claiming that lower public borrowing figures mean he will not have to raise taxes to balance his books; critics say taxes have already surged by stealth, with supposed anti-avoidance measures tantamount to large tax rises on business. The money is partly being used to pay for a continuing public sector jobs bonanza. Manpower's Employment Outlook Survey, a quarterly report into hiring intentions, shows that the balance of public sector employers looking to take on more staff for the end of the year is +8%.

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Reply to
Crowley
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On 20 Nov 2005 08:20:29 -0800, "Crowley" mysteriously appeared thru the usenet mist to inform us thus...

[...]

This suggests that he thinks i/rates should be higher... [...]

It's not clear to me what they suggest the difference is between a tax take of 41.6% and public spending of 44.8%. Is the difference made up of public borrowing ...maybe it's that the former is for 2005 and the latter for 2006?

[...]
Reply to
hummingbird

I was intrigued by:

This looks like a very misleading figure to me. It includes indirect taxes and taxes not actually paid by the employee, but probably doesn't include all income for a high rate earner (e.g., those subject to capital gains) and probably doesn't include deferred income (e.g., pensions).

To cap it ... what is the comparable figure for a non-higher rate tax earner?

Thom

Reply to
Thom

"Thom" wrote

Well, if you only consider income tax, NI (e-er & e-ee) and VAT then the rate on high-rate taxpayers is 55.5% (the extra upto 60% must be other taxes) and that on (mid-) basic-rate taxpayers is 49.4%.

Calcs :-

HiRT: 112.80 pays for an extra 100 salary (after e-er NI) which is 59 (after 40% IT & 1% NI) in the hand which buys 50.21+VAT of goods; (112.80 - 50.21) / 112.80 = 55.5%.

BRT: 112.80 pays for an extra 100 salary (after e-er NI) which is 67 (after 22% IT & 11% NI) in the hand which buys 57.02+VAT of goods; (112.80 - 57.02) / 112.80 = 49.4%.

Supposing that an employer spends an extra 100 on an employee's salary - the extra that a basic-rate taxpayer has to spend, is only 6.04(+VAT) more than the extra a high-rate taxpayer would be able to spend! [ 100 x (55.5% - 49.4%) = 6.]

Reply to
Tim

What extra? 55.5% is already "about 60%". :-) But yes, there's always council tax, business rates, import duty, and excise duty on fuel, alcohol, and tobacco.

Your figures are misleading because (a) they're based on marginal income, not total income, and so disregard the effects of the nil and starting rate IT bands, and the fact that a HRTP will have paid 11% NI on a fair slice of income, both of which will tend to increase the difference between total tax rates of H and B RTPs, and (b) they assume that all after-tax income is spent on goods and services on which VAT at the standard rate is applicable, which is far from the case.

Reply to
Ronald Raygun

"R> Your figures are misleading because (a) they're

That was deliberate. When the orig> ... and (b) they assume that all after-tax income is

Of course, but the figures were just for comparison.

Reply to
Tim

Fair enough. Naughty "Thom" for snipping the relevant detail, I hadn't read the unadulterated previous post.

The comparison may be unfair if you disregard any differences there are likely to be in the VAT profiles of the different taxpayers' spending characteristics.

It appears to me that higher earners would be likely to spend less than proportionately more of their income on VAT than lower earners, as they'd be putting more of their income into housing and, above all, savings.

But that's OK, since comparison on a marginal basis is already unfair anyway. :-)

Reply to
Ronald Raygun

"Ronald Raygun" wrote

Check again. It *was* in "Thom"'s post!

"Ronald Raygun" wrote

OK...

"Ronald Raygun" wrote

Really? I'd imagine they'd be able to put just as much, if not more, (even proportionately) into housing. After all, any "fixed costs" are using a smaller proportion of their earnings...

But then if people all spend around (eg; change the multiple as you see fit) "4 times salary" on their houses (or equivalent in rent), then the proportion would be the *same*.

"Ronald Raygun" wrote

Those savings will either need to be spent later, or therefore "wasted".

Reply to
Tim

Sorry. Correction: Naughty Tim for snipping the relevant detail. It's *Thom's* unadulterated post I hadn't read. Jolly decent of you to own up.

That's what I said. The more they put into housing, as a fraction of their income, the less VAT they pay as a fraction of income, because there is no VAT on housing.

Not 4 times salary. I meant how much of *the year's* income is budgeted for housing, i.e. spent on rent or on interest and capital repayments, not on direct purchase price.

Indeed. If. I was speculating that it's likely that wouldn't be the case. Just a feeling I have, I'm not offering any evidence. People who can afford to, are likely to spend proportionally more on housing than on VAT-able fripperies, because as far as fripperies are concerned, they already have more must-haves and should-haves than they know what to do with.

But not necessarily on VAT. Even pensioners have housing costs. Wasted? Inheritances? Surely not.

Reply to
Ronald Raygun

"Ronald Raygun" wrote

Ermmm - even inheritances are "spent" aren't they? - By the beneficiary!

Reply to
Tim

But again not necessarily on items which incur VAT. The whole lot might be spent on IHT. :-)

Reply to
Ronald Raygun

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