Tuesday, April 28, 2009

Britain's budget doublethink

Something we've just noticed (well, it's been pointed out to us by Tom Lines). Much attention has been paid recently to the new 50p tax rate in Britain's budget, raising taxes on high earners, pleasing many who worry about inequality (as we should). And Britain's Prime Minister, Gordon Brown, had pledged to work hard against tax havens. Yet in the same budget, something completely different emerged, which is likely to widen wealth and income inequality across the world. It is a classic example of Doublethink as Lines notes. The FT gushes:

"The UK has introduced a “tax elected funds regime”, which ensures tax is only paid by investors in a fund, not the fund itself, bringing the UK into line with more competitive jurisdictions."


Followers of this blog will know exactly what "competitive" means in this context. To recap: there is good competition (producing incentives for firms to produce better goods at lower cost) and bad competition (a race to the bottom.) The FT is enthusing about the pernicious, unhealthy kind of competition. It then adds:

"Separately, the UK government has created a “white list” of instruments that funds are able to invest in without running the risk of this activity being classed as “trading”, a ruling that potentially made a fund subject to capital gains tax. This clarifies the use of derivatives, favoured by many hedge funds and an increasing number of Ucits III mutual funds."

So we not only have doublethink in the substance of the budget, contributing to the erosion of the taxation of capital around the world while simultaneously enacting a headline-getting 50p tax rate on high earners. But we also have term "white list" for the most abusive instruments, adding an exquisitely Orwellian finishing touch.

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