Yorkshire Post: Why taxing the rich could make us poorer

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Written by Dr Eamonn Butler, Director, Adam Smith Institute

Hope springs eternal in the breasts of politicians. None more so than Alistair Darling's in his Budget speech.

He conceded that Britain's economy was in a bad way. It would shrink by 3.5 per cent this year, rather more than the one per cent dip he forecast only in November. But hey, every country is in a bad way right now, and by 2011-12, the UK will be growing again at a record, rip-roaring rate of 3.5 per cent. Crisis? What crisis?

Unfortunately, British Budgets tend to unravel pretty quickly. Ever since the £5bn "stealth tax" on pension funds that Gordon Brown somehow forgot to highlight in his 1997 budget speech, and which helped to kill half of Britain's workplace pension plans, people listen to the Chancellor with more than the usual scepticism.

We only had to wait a couple of days before the Office for National Statistics punched a hole in the Chancellor's optimism. It reckoned that the UK economy had just suffered the biggest six-month fall since records began, in 1948, and much more than the Government
had assumed.

The International Monetary Fund piled on even more gloom by predicting that this year's drop in British growth would actually be 4.1 per cent, and that the economy would also shrink next year.

It is all bad news for a government trying desperately to borrow its way out of the crisis while soaking the "rich" by raising the top tax rate to a confiscatory 51.5 per cent.

There comes a time when short-term borrowing turns into a long-term problem. Already, with the increase in the top income-tax rate, the Government is beginning to look desperate.

This is all eerily reminiscent of Denis Healey, the Labour Chancellor of the late 1970s, who promised to "tax the rich until the pips squeak" with rates as high as 83 per cent on income from work and 98 per cent on investment income. In the end, he had to ask the IMF for an embarrassing bail-out.

The trouble with taxes is that raising them above a certain level becomes counter-productive. People will find it economical to hire expensive accountants to avoid paying the full amount. If everything else fails, they may take themselves and their money abroad to gentler tax jurisdictions, as the actor, Sir Michael Caine, just threatened to do.

The Treasury claims that the new 50 per cent rate will bring in £1.3bn next year, but the Institute for Fiscal Studies says it might not raise anything at all, since perhaps 70 per cent of top earners will either evade or avoid it. The Centre for Economic and Business Research thinks that as many as 25,000 top earners may leave the country, costing the Government – and the London financial market – hundreds of millions of pounds in lost tax revenues and investments.

Taking 51.5 per cent of people's earnings sends all the wrong signals. It suggests – absurdly – that the Government is better at spending our money than we are. Higher taxes will simply induce people to spend less and leave entrepreneurs with less for investment, neither of which will help Britain recover.

When Margaret Thatcher slashed the top rate to 40 per cent, high income earners actually paid more, and contributed a far bigger proportion of total revenues, than they had before. Even former Labour Prime Minister Tony Blair denounced the 50 per cent tax rate as "wrong, seriously wrong".

Interestingly, while higher income earners are supposed to bleed for the nation and businesses have been hit by the full force of the recession, government workers and their generous index-linked pensions have been left largely unscathed.

And what of the Conservatives? They are the clear favourites to win next year's election. It would then fall to David Cameron to sort out Britain's debt. Will he have the steel to bring the public finances back into order?

He has spent much of the last few years trying to make the Tories look kinder, gentler – majoring on social justice rather than tax cuts. He's even said that, although the new 50 per cent rate was a "pathetic piece of class-war posturing" rather than sound economics, removing it would "not be a high priority" for any future Conservative government.

Although Mr Cameron may have tried to rebrand the Conservatives, he still shares one of Mrs Thatcher's core principles – that a nation, like a family business, has to balance its books.

He must know that if he becomes Prime Minister and fails to deliver a leaner, sounder, less indebted government, his party will be finished. Even worse, so will be Britain.

Dr Butler is director of the Adam Smith Institute and author of The Rotten State of Britain: Who Is Causing the Crisis and How to Solve It, published by Gibson Square Books, price £12.99.

Published in the Yorkshire Post here

Wall Street Journal: Is Britain Finished?

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Written by Dr Eamonn Butler, Director, Adam Smith Institute

The country's only chance is a leaner, sounder and less indebted government.

Hope springs eternal in the breasts of politicians. None more so than in Alastair Darling, Britain's chancellor of the exchequer, as he delivered his annual budget speech to Parliament last week.

He conceded that Britain's economy was in a bad way. It would shrink by 3.5% this year, rather more than the 1% dip he forecast only in November. But hey, every country is in a bad way right now, and by 2011-12 the U.K. will be growing again at a record, rip-roaring rate of 3.5%. Crisis? What crisis?

Unfortunately, British budgets tend to unravel pretty quickly. Ever since the £5billion "stealth tax" on pension funds that Gordon Brown somehow forgot to highlight in his 1997 budget speech and which helped to kill half of Britain's workplace pension plans, people listen to the chancellor with more than the usual skepticism, waiting until the number-crunchers expose the real figures a few days later.

We only had to wait a couple of days before the Office for National Statistics punched a hole in the chancellor's optimism. It reckoned that the U.K. economy shrank 1.6% in the last quarter of 2008, and another 1.9% in the first quarter of 2009 -- the biggest six-month fall since records began in 1948 and much more than the government had assumed. The International Monetary Fund piled on even more gloom by predicting that this year's drop in British growth would actually be 4.1%, and that the economy would also shrink next year, when the chancellor had counted on a turnaround. It is all bad news for a government desperately trying to borrow its way out of the crisis while soaking the "rich" by raising the top tax rate to a confiscatory 51.5%.

Another popular British sport is watching the government default on its borrowing estimates. The last time the government managed to stay within its own budget deficit forecast was in 2000. Recently, the difference between planned and actual borrowing has become spectacular. In his 2008 budget, the chancellor figured he might have to borrow £70 billion between now and 2011. Last week, his estimate was five times that -- £348 billion. By 2013-14 he will need £703 billion of debt finance, twice as much as he forecast just five months ago. Britain would be borrowing for the next 22 years -- and that's on Mr. Darling's heroic economic assumptions, which can't possibly be met.

* * *

Britain's Labour leaders have been keen to blame bankers, particularly American ones, for the country's woes. To some extent, though, Labour leaders have brought this crisis on themselves. They saw financial services, not manufacturing, as Britain's future and encouraged it. Financial wizards left Manhattan for London, attracted by the lower taxes and easier regulatory environment. The City's financial market boomed, contributing 8% of GDP and 15% of all corporate taxes. But Britain's heavy reliance on financial services left it seriously exposed when the banking crisis finally hit.

Add to this the imprudence of the public sector and private households. Over the past 10 years, Britain has grown on the back of government and consumer spending, both fuelled by debt. But while households are now cutting back and paying down their debt, the government is spending and borrowing even more.

There comes a time when short-term borrowing turns into a long-term problem. Britain's government debt is still triple-A rated, but a recent auction of U.K. government paper failed to sell in full and some traders already price it lower than some commercial companies' debt. Britain's government could find it harder and more expensive to borrow the huge amounts it seeks.

Already, the government is beginning to look desperate. Mr. Darling plans to hike the top income tax rate from 40% to 50% (plus 1.5% compulsory National Insurance contributions) on people earning more than £150,000. By scrapping certain tax deductions, those making more than £100,000 would also have to pay higher taxes.

This is all eerily reminiscent of Denis Healey, the Labour chancellor of the late 1970s, who promised to "tax the rich until the pips squeak" with rates as high as 83% on income from work and 98% on investment income. In the end, he had to ask the IMF for an embarrassing bailout.

The trouble with taxes is that above a certain level, raising them is counterproductive. People will find it economical to hire expensive accountants to avoid paying the full amount. If everything else fails, they may take themselves and their money abroad to gentler tax jurisdictions, as the actor Michael Caine just threatened to do.

The Treasury claims that the new 50% rate will bring in £1.3 billion next year, but the Institute for Fiscal Studies says it might not raise anything at all, since perhaps 70% of top earners will either evade or avoid it. The Center for Economic and Business Research thinks that as many as 25,000 top earners may leave the country, costing the government -- and the London financial market -- hundreds of millions of pounds in lost tax revenues and investments.

Taking 51.5% of people's earnings sends all the wrong signals. It absurdly suggests that the government is better at spending our money than we are. Higher taxes will simply induce people to spend less and leave entrepreneurs with less for investment, neither of which will help Britain recover.

When Margaret Thatcher's government slashed the top rate to 40%, high income earners actually paid more, and contributed a far bigger proportion of total revenues, than they had before. Even former Labour Prime Minister Tony Blair denounced the 50% tax rate as "wrong, seriously wrong."

Interestingly, while higher income earners are supposed to bleed for the nation and businesses have been hit by the full force of the recession, government workers and their generous index-linked pensions have been left largely unscathed.

And what of the Conservatives? There has to be a general election in Britain before June 2010, and with an 18-point lead in the polls, they are the clear favorites. It would then fall to party leader David Cameron and his colleagues to sort out Britain's debt mountain. Will he have the steel to bring the public finances back into order?

He has spent much of the last few years trying to make the Tories look kinder, gentler -- majoring on social justice rather than tax cuts. He's even said that, although the new 50% rate was a "pathetic piece of class war posturing" rather than sound economics, removing it would "not be a high priority" for any future Conservative government.

But that's because although Mr. Cameron may have tried to rebrand the Conservatives, he still shares one of Mrs. Thatcher's core principles -- that a nation, like a family business, has to balance its books. Already he is calling for a "government of thrift" where civil servants get paid for "producing more with less, not less with more." Like the Iron Lady, he warns of the evils of debt and inflation.

He must know that if he becomes prime minister and fails to deliver a leaner, sounder, less indebted government, his party will be finished. Even worse, so will be Britain.

Mr. Butler is director of the Adam Smith Institute and author of "The Rotten State of Britain: Who Is Causing the Crisis and How to Solve It" (Gibson Square Books), published last month.

Published in the Wall Street Journal here

CNBC: Dr Madsen Pirie on the budget

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Published on CNBC here.

Spectator: What to expect in the Budget

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Written by Dr Eamonn Butler, Director, Adam Smith Institute

After a decade of reckless spending, the government’s kitty is bare and its debts are mounting. In November, Alastair Darling said the economy would shrink just 2%, but predicted, Micawber-style, that it would turn up in mid-2009. Well, the economists’ consensus is that it actually shrank 3.7%, and that it’s hardly going to turn up this year at all.

Unemployment’s already 2 million, heading for 3.2 million. That’s a lot more people drawing benefits and not paying taxes. And there’s those expensive bank bailouts to pay for. So the Chancellor is borrowing wildly. Again, the economists’ consensus is that he borrowed £160 billion in 2008-09 and will need another £167 billion this year. That’s a whopping £100 billion more than he anticipated in November. It’s borrowing on a scale not seen since World War II. Then, we were fighting a war. Now, we’re just borrowing to pay off our debts.

The Institute for Fiscal Studies says the national debt could climb to 73% of GDP – 84% if you add the bank bailouts. That’s scary (scarier still if you include the future costs of nuclear decommissioning, PFI schools and hospitals, and civil servants’ gold-plated pensions).

Getting out of debt like that will take years – even if spending is cut back. But with places like Derbyshire putting their council tax up 8.7% and Whitehall’s generous budgets being set until 2011, there’s scant chance of that.

Still, after June 2010 it will be the Tories’ problem, so expect Darling to announce giveaways and gimmicks (like electric cars) now, and large tax rises that bite after the election. But what we really need is to slash regulation and tax on the people who, unlike politicians, can really create jobs – investors and employers.

Dr Eamonn Butler is Director of the Adam Smith Institute and author of The Rotten State of Britain.

Published in the Spectator here

Telegraph.co.uk: The secret life of the 'guerilla gardener'

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Tom Clougherty, of the Right-wing think tank the Adam Smith Institute, agrees that the rise of guerrilla gardening is a direct result of the interfering state. "It is absurd the amount of hoops you have to jump through when you are doing something most people would appreciate," he says. "If people want to make their community cleaner and more beautiful, they should be supported."

Published on Telegraph.co.uk here

Daily Mail: With recent police activity, anti-terror adverts and CCTV everywhere no wonder we're all scared stiff

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Written by Dr Eamonn Butler, Director, Adam Smith Institute

Big Brother state? Britain has more CCTV cameras than the rest of Europe put together

So it has now become one of the main causes of anxiety. Among all the other worries that people face  -  the recession, crime, hospital superbugs and terrorism  -  a new fear has emerged: that of the Big Brother state.

According to a survey by the Mental Health Foundation, we are a pretty fearful lot. In fact, more than seven million of us are living with some sort of anxiety problem.

And the proliferation of surveillance equipment such as CCTV cameras (of which we have more than the rest of Europe put together) only makes people more worried of the very things the cameras are designed to tackle: crime and terrorism.

It is ironic that something which is supposed to put our minds at rest has exactly the opposite effect.

But there is also a darker side to the proliferation of monitoring equipment which should also be a cause of great concern to us all.

The evidence can no longer be ignored that after a decade of New Labour, Britain has become a far worse place for honest citizens to live their lives as they please, away from the eyes and ears of the state.

In the name of 'efficiency' and 'national security', our civil liberties have been systematically eroded.

We have calmly allowed our rulers to grab enormous and unprecedented power. They claim it is needed to protect us from criminals, but in fact they are using it to bully and enslave us with a litany of regulation and red tape.

Police and other state officials have turned from our servants into our masters.
Ian Tomlinson

A policeman pushes Ian Tomlinson, who later died, during the G20 protests: 'Police have turned from our servants to our masters', says Eamonn Butler

We have granted these sweeping powers to our rulers on the understanding they would only be used against the most determined and brutal terrorists.

But, in fact, they have been used to browbeat ordinary, honest, tax-paying citizens  -  particularly when they oppose the Government's point of view.

Now they can be used to check on your rubbish bins, an extension to your home, or even that you do actually live where you claim to live when applying to a local school.

If Taliban extremists ever did bring Britain under their control, you might imagine that the first thing they would abolish would be our right to free speech. But they wouldn't need to. We've already done it for them.

It's already a crime to demonstrate your views peacefully, or heckle a politician, or even wear a T-shirt making fun of one.

Meanwhile, the Freedom of Information Act, which is meant to allow us access to what is happening, is under threat of being watered down to the point of being pointless.
Home Secretary Jacqui Smith

Home Secretary Jacqui Smith is behind plans for a 'super database'

The 7/7 bombings showed that terrorism is a real threat; so is organised crime.

But as Dame Stella Rimington, head of MI5 from 1992 to 1996, has made clear, it is far better to deal with those risks rather than frighten people into accepting new laws that actually enslave us.

Typically, the Home Office has defended its approach as 'proportionate'  -  which simply shows that it has no concept of how authoritarian it has become.

Home Secretary Jacqui Smith is behind the plans for the new 'super database' to record all our emails, internet searches and phone calls, just in case one of us might be a wrong 'un.

If the police do pick us up, she wants to keep us under interrogation for up to six weeks without trial.

That's worrying, because now the police can arrest us, not just for serious crimes, but for even the most trivial reasons. And with the hundreds of sweeping laws New Labour has brought in, or the 3,609 new offences that it has created since 1997, there's quite a choice.

The police  -  plus 1,407 other official bodies  -  can now impose on-the-spot fines for things as trivial as dropping an apple core. Refuse to pay up and you'll be arrested and tried.

Now, even photographing a policeman could land you with a ten-year jail sentence.

Under Section 76 of the 2008 Counter-Terrorism Act, any picture 'likely to be useful to a person committing or preparing an act of terrorism' is strictly banned.

A new series of ominous TV adverts certainly does nothing to allay people's fears, but rather increases them. The sound of a normal street scene is described as 'the sound of a bomb not going off' because someone had reported some suspicious activity.

While being alert to threat is commendable, there is the danger of making people afraid of just about anything.
TV licensing

Fear: Even TV licence adverts are designed to frighten people into submission

And if you do fall foul of these sweeping new powers, once arrested, your DNA will be swabbed and added to the largest DNA database in the world, with 4.8 million samples.

Youth is no defence. Of the 722,464 swabs taken in 2006-7, some 350,000 were taken from children under 15.

It took a six-month legal battle to get the DNA of one 13-year-old boy, falsely accused of writing graffiti, removed from the database.

In fact, the police are incentivised to make criminals of us, rather than prevent crime.

In London last year, three officers wasted half the night by holding a 19-year-old student for five hours before cautioning him for holding open the door of a lift in an Underground station.

But then police chiefs can get up to £15,000 in annual performance bonuses depending on how many people they spot-fine, caution or charge.

So be careful near the end of the month when they are trying to fill their monthly quotas.

The whole system encourages the police to go after the easy targets  -  the peaceful, unthreatening, decent majority  -  rather than the criminals and terrorists they should focus on.

The TV licensing advertisements sum up this nightmare as eloquently as anything.

We're told in no uncertain terms: 'Your town, your street, your home. It's all in our database. It's impossible to hide.'

Well, I agree that people should pay their taxes. But these bullyboy tactics wouldn't look out of place in Stalin's Russia.

It is impossible to hide. Britain has more CCTV cameras than any other country. The number of speed cameras alone has trebled in the past six years.

Some 800 organisations can have our phones tapped, including, of course, all those local councils who suspect you might be leaving your wheeliebins out too early.

There is something dark in New Labour's psychology that makes it regard such oppression as 'proportionate'. Its need to keep control of a perpetually wayward party mutated into a desire to control a bloodyminded public.

And New Labour really believed it knew what was best for us. If our traditional rights and institutions  -  trial by jury, habeas corpus, Parliament and the judiciary  -  got in the way, they could quite legitimately be swept aside.

This week, more than 100 climate change protesters were arrested before they protested about anything, but just because of what they might do.

So now we are defenceless against even more oppression. And that's not just my view.

In a speech at Exeter University recently, David Blunkett  -  the former Home Secretary  -  warned that a planned government 'super-database', storing people's emails, internet traffic and other personal data, would be a threat to individual rights.

And Sir David Ormand  -  Whitehall's former security and intelligence co-ordinator  -  has warned that the Government's plans to gather ever-increasing amounts of data on citizens 'will involve breaking everyday moral rules'.

The International Commission of Jurists has suggested that countries like Britain were doing the terrorists' jobs for them, enacting laws that undermine the very values and freedoms they claim to be protecting. Even at the highest levels, there is clearly unease at the extent of 'Big Brother Britain'.
Let's hope these alarms are loud enough to wake us up to the full horror of what we've created. No wonder we're all so worried.

Eamonn Butler is Director of the Adam Smith Institute and author of The Rotten State Of Britain published by Gibson Square Books.

Published in the Daily Mail here

BBC: Tom Clougherty on 'In Search of England's Green and Pleasant Land'

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Click here to watch Tom Clougherty on BBC on In Search of England's Green and Pleasant Land (14:00 minutes)

Expenses give MPs multi-millionaire lifestyle

FOR RELEASE: Monday 13 April 00:01

MPs' generous expenses, index-linked pensions and second-home allowances give them a multi-millionaire lifestyle that their constituents could scarcely dream of, shock figures reveal today.

The effective income of the average MP is £319,165 – nearly 18 times the pay of the average voter, according to Bournemouth University tax expert Richard Teather, who has also produced a 'fat-cat ranking' for each of our Westminster representatives.

In his report, for the independent think-tank the Adam Smith Institute, Teather takes MPs' basic salaries – ranging from£64,766 for backbenchers to £194,000 for the Prime Minister – and adds in their pension rights, another £17,357 for backbenchers, up to £52,059 for Gordon Brown.

But what is the value of all those expenses claims – from barbecues to bathplugs – that the rest of us would never have a hope of getting through our employers, never mind Her Majesty's Revenue and Customs? Teather says that to pocket what the average MP claims in expenses, free of tax and National Insurance, the rest of us would have to earn £228,215.

It all amounts to a total pay package worth £319,165 – and that is just the average. Welsh Secretary Paul Murphy tops the league table with a package of pay, pensions, and expenses worth £423,932 a year. That is more than 28 times the average income of his Torfaen constituents.

On the best interest rate currently available – 1.83% from Birmingham Midshires, you would need over £23 million (£23,165,683) to get an income matching Paul Murphy's annual £423,932. You would need over £17 million (£17,440,710) to earn in interest what the average MP earns from Westminster.

The Fattest and Leanest Cats

The top ten fat cats are all Labour MPs, including Hazel Blears, Jack Straw, David Miliband and Geoff Hoon – recently embroiled in the 'three homes' row –their total income boosted by their ministerial salaries.

Eight out of the leanest ten MPs are Conservatives, including Malcolm Rifkind, John Redwood and Sir Nicholas Winterton – perhaps now chastised after taking £66,000 in expenses for 'rent' on a home owned by his family trust.

The MP who cleans up most from expenses is Ann Keen (Labour, Brentford & Isleworth), whose £167,306 expense claims are worth a staggering £283,569 before tax and National Insurance.

The Keen family is remarkable. Ann's husband Alan Keen is also an MP, with a salary and expenses package worth £330,272, and her sister Sylvia Heal is an MP as well, with a package worth £338,294. That is more than £1m (£1,071,617 in fact) between the three of them.

The Regional Fat Cats

Welsh MPs are the fattest regional cats, with earnings equivalent to £323,068 – over 20 times the pay of their constituents.

The leanest are MPs from London, at £308,881 or nearly 15 times the pay of their constituents – but that is because many London MPs live too near to Westminster to claim a second-home allowance.

Fat Kittens

Along with the £1,000 fireplaces and £550 sinks, MPs' expenses also include the costs of assistants. Teather who is the Adam Smith Institute's Senior Tax Fellow, defends the inclusion of these staff costs in the figures, pointing out that MPs routinely employ family members to boost their household income.

The most blatant was Derek Conway, who claimed for his full-time student son, but the Institute asks whether even Jacqui Smith would pay a non-relation £40,000 a year for the administrative help that her husband provides. The rest of us are challenged by HMRC when we employ relatives, and have to show that their job justifies the pay. But MPs' affairs are dealt with by a special HMRC office in Cardiff, which seems to exempt MPs from this sort of scrutiny.

In addition, much of the work of MPs' assistants involves campaigning for their re-election. Critics of the Parliamentary expenses system see this as corrupt as those MPs who claim their full expenses allowance and then make large donations to their local Party – in effect, a taxpayer subsidy to their political grouping and their general election campaign.

Adam Smith Institute Director, Dr Eamonn Butler, says the figures confirm the claim of his new book, The Rotten State of Britain, that MPs have "conspired in an organized and systematic scam against the public". Richard Teather's figures show just how extensive that scam really is. Dr Butler commented:

"MPs are always embarrassed to raise their salaries, so they decided to take 'stealth salary' instead, as expenses. They organized their affairs to get the maximum benefit – making their sister's spare room their 'main residence' or charging 20p a mile for cycling to Westminster – never imagining for a moment that their expense chits would ever see the light of day.

"How wrong they were. And it is not just the huge range of goods and chattels that they've been claiming for, but the huge scale of the scam that appals their voters. To live like an MP, anyone else would have to be a multi-millionaire."

END

Parliamentary Fatcats 2009 by Richard Teather, with an introduction by Eamonn Butler: http://www.adamsmith.org/parliamentary-fatcats-2009/

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Sunday Times: Save the tax havens – we need them

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Written by Dr Eamonn Butler, Director, Adam Smith Institute

What is it about tax havens that makes the G20 leaders so keen to crack down on them? Outrage against all those Russian mafia bosses secretly laundering their prostitution and protection racket money through Luxembourg or disgust at Third World dictators being able to siphon millions of their people’s money into numbered Swiss bank accounts in case they need to make a quick exit one day?

Or is it just envy – the feeling of unfairness that billionaires can sip cocktails on their yachts off Bermuda, paying nothing in tax, while poorer mortals like us have to work and slave?

It’s probably a combination of all three, because G20 politicians have hated tax havens for so long that they’ve started to believe their own spin on the subject. But the business of tax havens is actually far more prosaic than any of these rather exotic images. And the real reason why our leaders hate them is that they simply can’t stand the competition.

If you want to pay less tax – as about five billion of the world’s population doubtless do – you have two options. You can evade taxes, concealing your income from the authorities, which is, of course, illegal. Or you can avoid taxes, which is perfectly legal. You might simply claim the full deductions allowed by the tax authorities or maybe move your money into a place where taxes are lower.

It’s avoiders, not evaders, who are the tax havens’ staple customers. The image of drug money being washed through the Cayman Islands is the stuff of thrillers rather than reality. Criminals generally launder money at home because it’s far riskier to move it across borders. The bread and butter of tax havens is people like you or me, who put their modest life savings into a respected investment company in the Isle of Man. And we do it because that way our savings don’t get clobbered for capital gains tax every time our account manager decides to sell one batch of shares and buy another.

Few honest people have qualms against clamping down on criminals. But despite all the Godfather-style spin, it’s actually the rest of us whom the politicians want to clamp down on. They figure – correctly – that if we remain at liberty to put our money in the Virgin Islands or some other place where taxes are lower, we are likely to do just that. And our ability to escape puts limits on just how much they can tax us.

This explains why even Gordon Brown is calling for curbs on tax havens, despite the fact that many of them, including the Channel Islands, are British dependencies. Other countries want even tougher sanctions.

It’s pure financial protectionism. The G20 leaders signed a communiqué praising free trade and deploring anticompetitive barriers in goods and services. That’s because leaders don’t make goods and services. But they do make taxes and are really keen to keep out the competition in that sector. They don’t mind us shopping around the world for the cheapest goods, but they certainly do mind us shopping around for the cheapest taxes.

They have only themselves to blame. It’s not just that governments seem unable to rein in their bureaucracies and keep their costs under control. It’s that they have made taxes so complicated. The last time I looked, the UK tax code ran to 9,973 pages, and that was back in 2007. Complexity inevitably creates loopholes – which lean, nimble tax havens are delighted to help people exploit.

Many countries have lower taxes on foreigners who invest there. That’s because they figure their own residents are largely captive. But they know that international investors can put their money anywhere in the world, so countries have to make themselves attractive in order to pull them in. When you have two different tax rates for the same thing, however, you must expect trouble. And you get it. What happens is that domestic investors simply send their money to a tax haven, then send it back again as if it were “foreign" investment and pocket the difference in the rates.

You can’t blame the tax havens for this kind of wheeze. The root cause is high and complicated taxes. The surest way for the G20 to get rid of tax havens would be to cut and simplify their own taxes – to take on the competition directly.

Until they do, that competition serves a useful purpose for the public. It does make politicians think twice about adding to tax rates or complexity. In particular it limits the burden they can put on savings and investment – the engine of economic growth.

If tax havens boast some of the highest living standards on the planet, that’s got very little to do with money laundering. It’s because low taxes encourage enterprise, stimulate growth and promote personal freedom, too. Rather than trying to kill tax havens, wouldn’t the world be better if our politicians instead sought to beat them at their own game?

Published in the Sunday Times here

Mail on Sunday: The survey's shocking figures that show exactly how much MPs earn compared to an average constituent

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Nothing demonstrates more clearly the gulf between MPs and the real world of their constituents than the difference between their feather-bedded pay and conditions and ours.

For the rest of us to pocket the amount that the average MP claims in expenses, we would have to earn £228,215 before tax and national insurance.

None of us has a hope of getting past our bosses the sort of tax-free perks that MPs claim – never mind getting them past HM Revenue & Customs.

To calculate what MPs really get, we start with their salary, which – like you and me – they pay tax on. Then we add what taxpayers contribute to the MPs’ gold-plated pension scheme – 26.8 per cent of salaries. Pensions expert Ros Altman has called it ‘the most generous pension just about anywhere in the world’.

Then we add the expenses that MPs claim for things such as buying their second homes – and furnishing them in style from the infamous ‘John Lewis list’ – as well as their travel between those homes and Westminster and to and from constituency offices.

This figure includes what MPs claim in salaries for their staff and researchers, who are often family members and involved mostly in political campaigning. Then we work out what MPs would have to earn to take home that amount if – like you and me – they had to pay 40 per cent tax and one per cent National Insurance on the income.

This all shows that to live like an MP, the rest of us would have to be earning hundreds of thousands a year.

Published in the Mail on Sunday here