How Can We Fix The British Economy? With Paul Johnson From The IFS

August 01, 2024

Pod Save the UK

Pod Save the UK

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In This Episode

It’s been a tough few weeks for new Chancellor Rachel Reeves. In a speech to the House of Commons on Monday, Reeves declared that despite going in to government with gloomy prospects, the financial inheritance was much worse than she had expected. Naturally, this didn’t go down particularly well with the now Shadow Chancellor Jeremy Hunt, as the two traded barbs whilst invoking the opinions of THE name in British economics – Paul Johnson.

Nish and Coco sit down with the man himself, Paul, to talk about how deep the budgetary black hole goes and solutions for how the Government might tax their way out of it, whilst still meeting the difficult manifesto commitment of “no new taxes on working people”.

TRANSCRIPT

[AD]

Nish Kumar Big news Coco Rachel Reeves has declared her favorite song of all time.

Coco Khan Okay, yeah. Go on. Oh, we’re playing a game?

Nish Kumar I mean, I, I thought we were, but I would say it’s come off the rails almost immediately. This is the fastest one of these intros has been derailed. These things are supposed to be snappy. We always get told they need to be snappy. This is snappy, but my fingers are very wet.

Coco Khan All right. So the game is we are guessing money theme song.

Nish Kumar Yeah. Basically. Yeah.

Coco Khan My Neck My Back. Plot twist.

Nish Kumar Like is my neck, my back a money themed song?

Coco Khan No, but wouldn’t it be funny if that was Rachel Reeve’s favorite song?

Nish Kumar My neck, my back?

Coco Khan Okay. Yeah.

Nish Kumar I thought you were going to say Money, Money Money or Mo Money Mo problems.

Coco Khan Yeah. Those are good. Wu-Tang’s cash rules everything around me.

Nish Kumar Well. Now this is going to seem irrelevant. But, basically, according to this week’s speech, her favorite track is Supermassive Black Hole by muse.

Coco Khan Okay, you don’t seem happy about that.

Nish Kumar It’s. I would say this is one of the worst intros we’ve ever done.

Coco Khan Okay, I’ve got one. Let’s talk about tax, baby. Let’s talk about you and me. That works.

Nish Kumar Let’s just start the show. Today on Pod Save the UK we’re finding out how we could escape from the government’s financial black hole.

Clip Mr. speaker, the government published its plans for day to day spending in the spring budget in March. But when I arrived at the Treasury on the very first day, I was alerted by officials that this was not how much the previous government expected to spend this year. It wasn’t even close. In fact, the total pressures on these budgets across a range of areas was an additional 35 billion pounds.

Nish Kumar So that was the chancellor, Rachel Reeves, speaking in the House of Commons on Monday, declaring that the government’s budgetary inheritance leaves more than a little to be desired.

Coco Khan So for anyone that’s listening, we’re going to try and make this as comprehensible and hopefully fun for you.

Nish Kumar Yes, I mean, I, I think this based on the intro, this feels like a bad idea, but we could try and break down Rachel Reeves announcement through the lens of music based puns.

Coco Khan That way the producers have suggested some for us, so let’s give it a go. To start us off, the supermassive black hole, as we heard in that clip is 35 billion pounds. Some of it was already accounted for through reserve cash. For emergencies, that would be 9 billion pounds, an extra budgetary slippage of about 4 billion pounds. But Rees claims that key government commitments including asylum plans, rail service support, military support to Ukraine and, crucially, a lack of funding to pay reviews for public sector workers has left a hole with a price tag, which I believe is a reference to a Jessie J song. I don’t know that one.

Nish Kumar With all due respect to Jessica, I am not as aware of her oeuvre as clearly I need to be to understand to understand that particular part. All again, nothing but respect for Jessica.

Coco Khan Yes. And she’s made it clear this is read. So there’s no magic money.

Nish Kumar Tree, money trees. Kendrick.

Coco Khan Yeah. So that’s weird. So you’ve already done this one. So it’s going to be no money Mo problems.

Nish Kumar No money mo problems. Yeah. That’s the That’s Notorious B.I.G. Post 2008.

Coco Khan You know Bashi’s got a new record out called being poor is expensive. Oh really. Yeah I think that works as well for 15 times.

Nish Kumar So. Yeah that’s. Yeah. Well well what a fantastic of the way the record about the United Kingdom’s public finances. So in spite of there being no money mo problems, Rachel Reeves has announced an increase in public sector pay and has defended that by saying that the government spent over 1.7 billion pounds on industrial action. So this idea that, you know, we can’t we have to face down the doctors and talk tough on them. It actually ended up costing the country 1.7 billion pounds, which could have been spent on improving the salaries of public sector pay workers and thus averting the kind of chaos that we’ve seen in the last year and a half. So that money that went on industrial action was money for nothing.

Coco Khan Right.

Nish Kumar Dire straits.

Coco Khan Yes. Great.

Nish Kumar Again. Lovely band name, lovely description of the United Kingdom’s public finances.

Coco Khan So Jeremy Hunt wasn’t happy about that framing, claiming that the previous government denied increasing public sector wages without getting unions to agree to a productivity increase. Which, you know, like roses really smells like poo.

Nish Kumar That’s an outcast song. It’s it feels like a stretch. But we’ve got it in there.

Coco Khan Oh, you’re a big Andre 3000 fan.

Nish Kumar I’m a huge fan of. I would like to correct you that I’m a huge fan of Andre 3000 and Big Boi.

Coco Khan Yes. Okay.

Nish Kumar I’m a huge I don’t think I’ve ever been angry with anyone that when someone described Big Boi as the one from Outkast.

Coco Khan Oh, who said that?

Nish Kumar That’s a completely different podcast. But let me tell you, they did get a full 45 minutes from me. About 15 of which was devoted to his verse of the song. Amazing.

Coco Khan To get a bit serious now, Rachel Reeves says that this means that the government needs to look for efficiencies, and this is smelling a little bit like austerity 2.0 because, you know, there’s no easy money.

Nish Kumar Billie Joel.

Coco Khan That’s Billie Joel anyway. So it’s all feeling a little bit like austerity 2.0 because there’s no easy money. It’s a first on the chopping block are some infrastructure projects which certainly cuts across the building message that Labour have been sending over the last few months. They’re also looking at recovering some of the dirty cash. Oh yes, we see we’re still doing it. That went out the door during Covid.

Nish Kumar Reeves also announced that pensioners will need to be means tested to receive the winter fuel payments, and hinted that the tax man, which is a bail sum. Yeah, I do know that one might be coming soon, but stands by Labour’s commitment to no new taxes for working people. So just to summarize sun’s music funds, Rachel Reeves is claiming that the, previous government have left a hole in the budget, because they had several. Of massive unaccounted spending. And now this has left the Labour Party with a kind of serious problem financially. I think in political terms, it’s sort of an attempt to create a kind of sense of delay and burn out the infamous night that was left in the Treasury when the previous Labour government left office in 2010. And a joking note that said, there’s no money left that was used by George Osborne and kind of became a millstone that hung around the neck of the Labour Party.

Coco Khan Yeah. And I think as well, like, you know, there’s been a lot of conversation in the media about that word austerity. Is it austerity if they’re giving public sector workers a pay rise? And to a certain extent, I think we’re sort of getting lost in the semantics. You know, to give a real life example, my local hospital, Whipps Cross Hospital, is in special measures. Labour promised that they would put some money into it and now they can’t. That’s my local hospital that affects everyone I know that affects me. It’s difficult to say to a normal person, your conditions won’t get better, but it’s not austerity. And in a way, even that conversation, I wonder if it’s it’s a political problem for Labour. But in terms of the public, I think, you know, it will all feel the same.

Nish Kumar Now, regular listeners will know that for the last few weeks, we’ve been exploring some of the big issues that the government needs to face over the coming Parliament. And every single person we’ve talked to, whether it’s on housing or education, it all seems to boil down to the same thing. Yeah, we need more money. And given this announcement this week, that’s going to be even more difficult. So after the break, we’ve got a very special guest to discuss the challenges that we face. And he’s hopefully bringing on some solutions too.

[AD]

Nish Kumar Joining us now on Pod Save the UK is the name in British economics here to help us understand Rachel Reeves statement, and to unpack some of the ways we might be able to get out of this mess. Is the director of the IFS, Paul Johnson. Welcome, Paul.

Paul Johnson Thank you.

Nish Kumar It’s your name that’s cropped up so frequently on this show. I go pretty much through its lifespan. It’s it feels weird. It feels like we’ve we’ve operated here.

Coco Khan So let’s give you a full intro. For those who don’t know, the Institute for Fiscal Studies is a leading independent economic research institute in the UK, which Paul has been director of since 2011. He’s also previously held government roles as former director of public spending at Treasury and chief economist at the Department for education, and he’s the author of Follow the Money How Much Does Britain Cost? And host of the IFS Zooms In podcast. Was that good? Was that comprehensive, Paul?

Paul Johnson That’ll do. Thank you very much.

Nish Kumar You have anything you’d like to add to that?

Paul Johnson Yeah, well, I lots per se but no, but I’ll boast about my most impressive performance ever, as I was actually in the Alumni University Challenge and won it. Oh. Well, the truth is, Frank cultural voice won it for the team, but it was. And that is the, you know, the crowning glory of my life. Nothing else counts.

Nish Kumar All of which is to say, I maybe didn’t even know about the university, but, the credentials that we did know about, suggest to us that if there’s one person who might have a good idea of the kinds of calculations the Chancellor is having to make right now, it’s pull. And politicians know this, which is probably why his name was used as a bit of a stick to beat the government with. In this clip from shadow Chancellor Jeremy Hunt replied to Reeves a statement.

Clip Paul Johnson of the IFS says the state of public finances were apparent pre-election to anyone who cared to look, which is why he and other independent figures say her argument is not credible and won’t wash.

Coco Khan But, not to be outdone, Rachel Reeves also invoked the name of Johnson in her reply to the Shadow Chancellor.

Clip The Shadow Chancellor mentions the IFS. Well, Paul Johnson for the IFS has just said that it appears that these overspend are genuinely unfunded.

Coco Khan So I saw you chuckling there. I mean it must be a bit weird that you’re being namechecked like this. I mean, it’s a bit of a namedrop. Sometimes I namedrop Nish to try. He’s like my famous friend.

Nish Kumar That’s an awful idea.

Coco Khan But, I mean, Paul Johnson is Rachel Reeve’s Nish Kumar, you know what I mean?

Paul Johnson Well, I certainly never been called that before.

Nish Kumar We referenced a couple of times during the election that I was concerned that you were having some sort of total nervous breakdown.

Paul Johnson That’s possible.

Nish Kumar Over constantly trying over, claiming that neither the conservatives nor the Labour Party were being honest about the true state of public finances. So did any of the revelations that Rachel Reeves brought to the house this week surprise you in any way?

Paul Johnson Well, the big the big story remains the same, which is that there’s that that’s, complete uncertainty about what’s going to happen in the future, that there is not enough money in the plans to fund public services over the next 4 or 5 years. Some of what Rachel Reeves, said this week was actually quite predictable. We knew that there wasn’t the money in the public finance plans to fund anything more than about 2% pay increases across the public sector. The it was highly likely the paid review bodies would come out with something much more generous than that, given what’s been happening in the private sector and given how far public sector has fallen behind, saying 9 billion of that so-called 22 billion black hole, I think was was a choice and be predictable. The other big number in there was 6.5 billion of asylum costs. I confess we hadn’t spotted, as it were, but that was completely outside the Home Office’s budget. But again, actually, in truth, we knew that we spent about 5 billion on this last year. We should have known that it would be similar this year. So it was it was sort of available for people to see, but it was not at all transparent.

Nish Kumar To what extent is there an element of political pantomime to this? And, you know, Rachel is bringing all of this now to the house and the way that it’s been done, it does feel a little bit like a sort of revenge tactic for the Conservative Party. Bringing up the Liam Byrne note, saying that there’s no money left at their politics at work here in the way that this economics policy is being announced.

Paul Johnson Oh, I think undoubtedly. I mean, if you trace the, the, the way that, the Labour Party was talking about this in the run up to the election where, they were very keen not to put any specific numbers either on their spending plans or on the challenges. And they were very clear that we needed change. They’re very clear, correctly, the challenges of the public services. But they were very keen not to be explicit about the scale of the challenge, because as soon as they are explicit about the scale of the challenge, they would have had to talk about tax increases. So I think what they’ve done is then come in and and then find a way of saying, look, the challenges are even bigger than we expected. And of course, as we’ve seen that in the last day or so, Rachel Reeves is now being quite explicit that this will mean tax rises in the autumn. Now, this was always obvious, I have to say. I mean, this is this is what we were. It was I was having that nervous breakdown you were talking about earlier. Got it really trying to make this absolutely plain in the run up to the election that neither side was being genuinely open with us. And whilst Rachel Reeves might be able to claim that there’s some news in what she’s saying, as I said, the big picture remains the same, which is that if you want to avoid cuts in public services over the next few years and you keep to the borrowing plans that she said are absolutely nailed in, then taxes will have to rise.

Coco Khan But is this not more austerity? The departments are expected to make 3.1 billion in savings. That sounds like cuts. That sounds like austerity. Would you say this is austerity?

Paul Johnson No, I don’t think we’re in. I don’t think we’re in a world of austerity at the moment, in the sense that spending is clearly rising. I mean, this is a big increase in public sector pay, which certainly wasn’t what was happening during the austerity years. So and actually under the last year, since 2019, we haven’t had what you would call austerity. I mean, the last government actually increased spending a fair bit. The the issue for this government is that unless they increase planned spending quite a lot next year and in subsequent years, then we would be returning to some form of austerity, because under the plans bequeathed by Jeremy Hunt, there would have been some cuts to public services. Now, I don’t think that’s what’s going to happen. That’s clearly not the mood music.

Coco Khan It’s so fascinating here. Well, technically, technically, since 2019, we’ve not had austerity. I’m sure in people’s lived experience that wouldn’t try. You know, I think actually particularly in the last 3 or 4 years and certainly since the pandemic, the feeling of austerity has remained.

Paul Johnson I mean, you’re absolutely right. I mean, obviously there were deep cuts through the, through the 20 tens. And, for example, spending in local government is still 20% down on where it was in 2010.

Nish Kumar And it’s sort of seen the councils going bankrupt.

Paul Johnson Exactly. So even if spending hasn’t gone down, it still feels pretty, austere. I knew, though, that the coverage for social. Care is much less good than it was. The justice system is. And everyone can see that is absolutely struggling that the courts have got huge backlogs. The prisons are full. And that’s not because we have had cuts in spending over the last 2 or 3 years. It’s a, it’s a it’s an incremental effect of, of cuts over a, over a long period of, you know, the backlogs, from Covid of lack of investment in these things and even in the health service, which has seen by far the biggest increases of any public service in spending. But, you know, we’ve got these huge, huge waiting lists. And so it feels like austerity, even if you look at the numbers and actually the amount of money going in has been going up.

Nish Kumar The repeated line throughout the speech was, if we cannot afford it, we cannot do it, which admittedly is a mantra I should probably adopt when it comes to buying first edition Bob Dylan vinyls. But there are a lot of economists that argue that this sort of credit card slash household income analogy doesn’t really apply to how state finances works. Why do you think the stress has been put on the idea that a government finance is the same as a household finance?

Paul Johnson It’s clearly different between households and governments. Governments have always borrowed and will always borrow, and governments can tax people in the way that I can’t say no, you can’t tax me for your, you know, your vinyls. And at a particular moment in time in, you know, recessions, the financial crisis, Covid, governments can borrow enormous amounts and, and can keep the economy going in a way that is completely inappropriate and impossible for households. And it’s really important to understand. One of the reasons that we’re struggling a bit at the moment is we are paying so much in interest on the debt we’ve already accumulated. So why? One of the reasons that actually we’ve got quite high levels of tax at the moment, and it doesn’t feel like we’re spending enough, is that so much of that spending is going on, on the debt interest on the debt that we’ve previously accumulated. What one thing we do know is households and governments may be different, but you can’t have the debt just going on up forever and ever and ever, because then that becomes eventually unsustainable. And that’s why I think the the Rachel Reeves has taken on the last government’s mantra of saying she wants debt to be falling, at the end of the next, at the end of the next five years. Now, you could have chosen a different kind of target. But whatever you do, you can’t. You’re not unconstrained. And I think it’s really important to understand that all of these things are choices. If you are unwilling to tax more and you have some constraints on borrowing, you can’t do anything and everything or whatever you want.

Nish Kumar And that that’s the sort of problem, isn’t it? Because ever since the election on this show, what we’ve what we’ve been trying to do is highlight a kind of specific issue in the country that a new sort of incoming government is facing and how they might have to tackle it. And so we’ve talked to people who are experts in the health service. We talk to people in education. We’ve we tried to kind of get a sense of where these kind of key bedrock issues are. And the reality is whether you’re in housing, health care or education and every single person says the same thing, we don’t have enough money. And it seems to me that the the money has to come from somewhere. And is there a way to do it without raising some taxes?

Paul Johnson No, I don’t think there is. I mean, let’s compare the UK to a lot of Western European countries France, Germany, Scandinavia, the Netherlands, they all spend more on their public services than we do, and they all tax more than we do. And those two things go together. So if we want the level of public services that are provided in those countries, then we will need to accept that we pay higher taxes than we do now. But of course, the Labour Party have been absolutely clear that they won’t. And, you know, they went into the election saying, we won’t reverse that and we won’t increase national insurance, won’t increase, income tax will increase VAT went increase corporation tax. Now the problem is those four taxes make up three quarters of all the tax revenue we have. So if you’re really constraining yourself not to raising them, then you’re into much more complex territory in terms of getting money from some of the other taxes. And you can get some money from that. Some of those other taxes, there are allowances and loopholes. I would refer to them, at least in inheritance tax and capital gains tax, for example, that you might want to close. That will get you a small number of billions. You know, billions is quite a big number. But in terms of, you know, the state spends up more than a thousand billion, it’s probably not enough to make the difference. It’s also quite uncertain how much you get from that. And then to some extent, they’re a bit riskier in terms of raising the revenue than those big ones, which unfortunately, in my view, Labour seem to rule out.

Nish Kumar Let’s drill into a couple of those areas that you just mentioned in terms of capital gains tax. So just to clarify, capital gains are the profit a person makes when they sell an asset like a house. So capital gains are not.

Paul Johnson An owner occupied house.

Nish Kumar Not an owner. Yes. Not an owner occupied house. A second property essentially, a capital gains tax, a tax on the money made on that sale. So if somebody. Bought a house in London for 50,000 pounds when they were in their 20s, and that house is now worth 4 million pounds when they sell it. The capital gains would be on the 3.95 million pound profit that they made through the inflation, the house prices. Are we not necessarily taking full advantage of the potential in capital gains tax?

Paul Johnson Well, we should change capital gains taxes. And let me play. I mean, there are. So for example, if you just hold onto an asset until you die, then there is no capital gain that tax to be paid by your person who inherits it. So this is both inefficient in the sense that people hold onto things longer than they perhaps want to, or longer than is good for the economy, because if you just hold onto it forever, that’s just no capital gain. Yeah. To pay. So I think we should fix that. The rate of capital gains tax is significantly less than the rate of income tax, and certainly less than the rate of income tax plus national insurance. So if I earn 10,000 pounds, I pay a lot more tax on it than if the value of some asset I have goes up by 10,000 pounds. Certainly seems unfair to me as someone who relies entirely on my earnings. Yeah. But it’s also not efficient. So there’s a case for equalizing those rates. That said, at the moment you pay tax on gains which are just inflationary. So, if the value of your asset just goes up in line with inflation, you still pay tax on that. So I think, if you want to, as I think you should, if you want to equalize the rate of tax on capital gains or the rate of tax on earned income, then you also need to at least make an allowance for those inflationary games.

Nish Kumar There’s been a real political fear about doing anything to inheritance tax, for fear that they’ll essentially be labeled as kind of death, death tax collectors, basically. But there is a strong argument that the inheritance tax system also needs to change. How does it work at the moment and how would you like it to see it reformed?

Paul Johnson Yeah, it’s a it’s it’s not straightforward at the moment. So one of the problems, I mean, actually one of my favorite, phrases in the whole of taxation is an American, thing against inheritance tax where they say, no, no taxation without respiration.

Nish Kumar But I also love the fact that you have a string of favorite tax rates.

Paul Johnson Oh, yeah. It’s a bit sad, isn’t it?

Nish Kumar You’re talk to someone who spends all his money on first edition Dylan vinyls, I don’t think I’m in a position. I’m in a glasshouse. I won’t be throwing stones.

Paul Johnson So in Harrison’s tax, it’s slightly complicated because there’s a there’s an initial, and I’m, I get these precise numbers wrong. Allowance. You don’t pay any tax on the first 300 and something thousand. I think it might be 325,000 of money that you leave. Then there is an additional amount that you have for, an owner occupied property. And if you leave it to your spouse, there’s no tax. And when your spouse dies, you can add up the allowances. So the upshot of all of that is if you’re a couple, and you have a house, worth up to 1 million pounds, then you can actually leave 1 million pounds tax free. Although the headline tax free allowance is 300 and I think 25,000. Right. It could be a bit more than that. So it sounds like it’s going to hit a lot more people than it is, because 300 and something thousand, certainly for someone living in a house in the South East doesn’t sound like an enormous amount, 1 million pounds if you’re a couple and you’ve got a house, sounds like rather more, the rate, the first pound that is tax is taxed at 40%, which is a actually quite high rate. I mean, 40% of everything above the allowance is a pretty high rate. It’s pretty high by international standards. So you could fiddle around with any of that. The real problem with inheritance tax is it is so easy to avoid if, you’ve got more money than the money in your house. And you do see this in government statistics, the average rate of inheritance tax on a 10 million pound inheritance is a lot less than the rate of tax on a 2 million pound inheritance. And that’s because if you got lots of money outside of your house, you can simply by unquoted shares on the, so called a market, no tax, by farmland, no tax, own a business, no tax. And there’s lots of other ways which are way beyond my understanding to avoid inheritance tax. If you’re properly rich and, you know, if you’re properly, properly rich, you’ve got billions of pounds, you would certainly not paying 40% on those, on those billions of pounds. So there is definitely a case for ironing out some of those inconsistencies. And I would argue, unfairness is, and some of those complexities, without necessarily increasing the amount of inheritance tax that someone with, you know, what you might think of as a relatively modest inheritance of, you know, half 1 million pounds of money, a half 1 million pounds is quite a lot. But, again, for someone owning a house in the South East, it wouldn’t sound, like, so much. The last thing it’s worth saying is if you. Got enough money. It’s very easy to avoid inheritance, actually just giving the money away while you’re still alive. And that’s, you know, as long as you give it as gifts to their children, as long as you managed to live for seven years, there’s no tax, at all. And so, you know, when, you know, my, one of my predecessors about, about four wrote a book about tax. He said, if you are healthy, wealthy and well advised, then basically you don’t end up paying an inheritance tax on that. That I think is the is the fundamental unfairness with the system.

Coco Khan So I know you were saying earlier about like, you know, we had this idea of how can we not target these super wealthy people, but doesn’t work like that. Are you sure we can’t, even if we just got you, you got a few of the men. I mean, it sounds like there’s money to be, like you brought back here.

Paul Johnson Yeah, well, there’s. I mean, there’s no doubt some money. Actually, some of the things I’ve been talking about in terms of inheritance tax and capital gains tax would get some money, from them for sure. But you do have to be careful here. I mean, one thing it’s worth saying is, if you look at the very, very richest people in the country, those with the highest levels of income, a third of them were born abroad. So I say that because relatively easy for them, potentially to move back abroad. And, you know, the changes to the, the, regime for non-dom, people not domiciled in the UK, it’s very, very hard to know how much that will actually raise, how many people will change, you know, are they going to be in the UK or not? We I mean, we don’t know. And it may well be a, you know, a risk worth taking, but these are not riskless. When the other option is to is to it is to impose some kind of wealth tax. So take people with assets more than 10 million pounds. You you put up an annual tax of 1% on that.

Coco Khan I mean that 1% is less than interest. So, they won’t even notice it.

Paul Johnson One of the things if you look around the world, you don’t see many or indeed any countries which raise lots and lots from these sorts of wealth taxes. So, so yes, you can do we can get some more from inheritance taxes. We can probably get some more from wealth tax on capital gains taxes. But I’d be surprised if you could get as much as we’ve just lost from making the cuts to National Insurance contributions.

Nish Kumar Well. So in 2020, the LSE’s wealth commission found that a one off wealth tax payable on all individual wealth above 500,000 pounds and charged at 1% a year for five years, would raise 260 billion pounds if the threshold for wealth was set higher at about 2 million pounds, it would raise about 80 billion pounds. I guess the argument for something like that, that seems like quite an extreme measure, but is a sort of essentially a one off wealth tax that’s charged over a five year period. Is that in the kind of previous half decade since the pandemic, we’ve seen a lot of wealthy people accumulate money through a combination of not spending as much during the pandemic because everyone’s lifestyles were forced to change, and also with the kind of, the sort of sudden rise in interest rates, a lot of stagnant money savings actually started earning quite decent returns. It can you see an argument, given the context of the pandemic and its impact on the economy, for a kind of one off wealth tax?

Paul Johnson Well, I think I mean, the first thing it’s worth saying is one off taxes are very, very different things from permanent things. And, you know, 80,000,000,001 off over five years isn’t going to touch the sides in a sense, because it’s a it’s a one off.

Nish Kumar The 260 billion might.

Paul Johnson Well, I mean, you try as a politician, you know, imposing a tax on, you know, people’s pensions on houses, over that level. I mean that maybe that’s possible. It strikes me as being extremely unlikely. And of course, most of that money nearly. I mean, let’s be clear, if you’re talking about wealth, over half 1 million pounds, 80%, at least of that wealth is in the, houses that people own and the pension pots that they’ve got. So we are talking about, a tax on people’s houses and a tax on their pensions. If you’re talking about, assets over 10 million, it’s a totally different thing. And if you’re talking about one off as opposed to annual, again, these are totally different things. So people often seem to be lied. What they’re talking about in terms of wealth taxes. So there is no doubt some some possibilities there. I mean, we certainly we’re not in a world of getting 200 billion a year or anything remotely like it. We might be in a world of being able to get some billions a year. And one thing I should say is, I mean, I mean, where we where I always start with this. Let’s start with the wealth taxes we have. So look at council tax. The council tax is utterly scandalous in the sense that it is based on property values of more than 30 years ago. Now it’s regressive in the sense that the more expensive your house, the smaller the fraction you pay. On it, and you run. The result is that the council tax on Buckingham Palace is about the same as the council tax on a three bedroom semi in Blackpool. It’s absolutely bonkers. Most other countries, including the US, will have taxes which are much more proportional to the value of the property, and you can end up paying very large amount. So that is a wealth tax if you tax annually the value of people’s. Houses as a lot of countries do, and you do it properly, then that is probably quite a good and efficient way of raising money from, you know, people who write a 10 million pound mansions around here where we are in Boston Green, probably.

Nish Kumar Yeah. I mean, it’s, I think something like council tax. Why do you think there is. No, because, I mean, I, I sort of. Even if I don’t necessarily agree with it, I can follow the logic that, you it’s a difficult conversation to start to have with people about income tax, especially if it’s on, you know, assets, you know, especially if you’re talking about people who have 500,000 pounds in back. I can see where the political pressure might be. But why then sort of very little political will to address the issue of council tax. I mean, especially when. You know, all our local councils are literally collapsing around us. Like, why? Why is there no will to sort of address something like that?

Paul Johnson Well, I mean, it’s it’s always been seen as politically, politically difficult as, I can’t remember whose memoirs it’s in, but, there was a conversation in the apparently in the Cameron government in the 20 tens that, one of the ministers had gone to Cameron saying, you know, this Labour idea of a mansion tax seems like a good idea. Why don’t we, why don’t we have a higher rate of tax on properties worth more than 2 million pounds? And cameras response was all donors went where it worked but there’s there’s a there’s a broader, issue, which is, you know, some people would lose and some people would lose quite a lot of money each year if you, introduce this, that is always politically difficult and, and unpopular.

Coco Khan Can I ask you a question based on something I read on the internet which have what could possibly go wrong? Nothing. Nothing? Nothing. All the best things have been, you know.

Nish Kumar QANON real

Coco Khan People have been throwing around this phrase Treasury brain.

Paul Johnson Right?

Coco Khan Right. And I wondered, as someone who worked in the Treasury, can you explain what it is? And do we believe that this current Labour government maybe is suffering from this?

Paul Johnson It’s a funny phrase. I mean, I mean, one thing I would say to people in response to that is that the Treasury.

Coco Khan Where but first, can you say what it is?

Paul Johnson Well, I don’t know really, but I think I think what people mean by it is that they think the Treasury is always programed to say no to, spending decisions, or spending options, even when the case that people feel for that spending is very, very strong. And there’s clearly some truth to that. I mean, that’s the Treasury’s job. And it does actually, in fact, influence the way that you think. If you’re in the Treasury because you have the education Department of the Health Department, Justice Department, local government pound, they’re all coming to you asking for money. And all of them may have a very, very good case for their money. But if you buy that, there is some limited amount, that there have to be choices.

Coco Khan But I was under the impression part of that was that Treasury. I’m talking about it like it’s a medical condition and.

Paul Johnson It can be.

Coco Khan Part of Treasury by any side. Obviously everything is reduced down to numbers. So like a rail project, for example, obviously it makes sense to build high speed rail from London because London is where there’s loads of wealth and lots of people, but that just means that London gets everything in other parts of the country debt. And so, there’s this unquantifiable element that’s sometimes missing, and the Treasury brain would say, well, show me the numbers on that. How how do you quantify regeneration in terms of people’s wellness, in terms of opportunities that will be down? How do you quantify those things?

Paul Johnson But there is lots of evidence about things that do and don’t work in terms of regeneration, regional government and on on all those sorts of things. And, I mean, my view is that there is a case for, taking a punt on some stuff. So, for example, one thing that I think would help a lot would be, but I can’t prove it. I really can’t prove it. It will be to significantly decentralize the British state to have more decisions made at local levels Manchester City region, Birmingham City region, Newcastle City or what have you. Give them more power over how they spend staff, potentially give them more power over their revenues. That takes a lot of the decisions away from the Treasury in the center of government, and some of them will screw up and some of them will do well. But one of the reasons that we have such an unbalanced economy is that we’ve got a very unbalanced power between the center and the regions, and that would begin to overcome some of the issues that you’re describing. And one of our problems is that, you know, we end up taking decisions about very local things. Yes. Right in the center, Whitehall, and sometimes in number ten or the Treasury rather than even in the department. So I think, I think if there’s one bit of treasury brain that you might want to lobotomized, it’s the It’s, it’s the bit that says we have to be in control of everything. It’s, and it’s sort of it will be to say, you know, look, we can agree on the amount of money that goes to a region or a department, and then we’ll step back and you do what you want. Now, that treasury brain is very much we’re not going to do that because, my God they might waste it. Whereas actually and of course, you know, because that means that, you know, people have lost the skills or the, experience of doing it, and there’s clearly some risk of that happening, but that that’s the bit of treasury brain that I think is, is potentially damaging the bid of treasury brain, which says, look, that, you know, there is only so much money and we have to divide it one way or another. Yeah. Unless the politicians are willing to accept higher taxes and, you know, within the Treasury, no. Politicians will continually be offered options for if you want some more money, Minister, here are ways of doing it. And usually the politicians say, well, I don’t want to do that I because I won’t get any votes, I’ll do that. So I mean, those, those are the, those are the choices. I mean, that’s politicians brain, which is they don’t want to increase taxes. And, you know, a combination of treasury brain and reality is you because I, we were saying earlier, you can’t just increase debt forever. So, so they have to work within constraints, and you have to have someone in government who is saying there are constraints on, on this stuff. In the end, the politicians make the decisions about how to trade off those constraints. But, you know, we can’t have everything, you know, so I’m obviously affected by Treasury.

Nish Kumar Finally, as we established at the start of the show, the government and opposition are now definitely listening to you. To be clear, they weren’t during the election campaign because you were saying things like, you’re all talking ballocks. Again, I’m paraphrasing, but during the election campaign, they were very keen to not engage with things that you would like. Now that the election campaign is over, based on Parliament this week, it is very clear that people are listening to what you have to say. If you had one thing, you. Wish they would consider talking about that they’re not talking about when it comes to taxation. What would it be?

Paul Johnson A very specific thing would be. I think that our taxation of housing is a disaster. And we’ve already covered the fact that council tax is ridiculous. I also think stamp duty is incredibly, damaging. This government is very focused on fixing housing. So sort out the taxation of housing, get rid of stamp duty, and and make, council tax up to date and proportional to the value of the House bank.

Nish Kumar We look forward to next week’s PMQs. That somehow gets brought up.

Coco Khan Excuse me, my friend Paul said.

Nish Kumar I’ve been told the Parliament’s in recess, but.

Paul Johnson Apart from that.

Nish Kumar I expect this first PMQs to be somehow the Labour and conservatives both.

Paul Johnson I think you need to rebroadcast the podcast just before.

Nish Kumar Paul Johnson, thank you so much for joining us on Pod Save the UK.

Paul Johnson Thank you.

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Nish Kumar We’re recording this on the afternoon of Wednesday, the 31st of July. A couple of days after a horrific attack, in Southport that’s left three children dead. Just absolutely awful. And our hearts go out to the families of all of the victims. Things then escalated. There was a huge, far right protest, that sort of devolved into a riot where a number of police officers were attacked. We don’t have a number of injuries at the moment. It’s a still unfolding situation. And clearly, everything that’s happened, with the attack in the aftermath is absolutely horrific. And really, the focus should just be on the victims families at the moment. Was incredibly important to stress, at this time is it is incredibly unhelpful for people to fill, an information void with speculation. And the reason an information void exists at the moment is the police have taken a suspect into custody. There are legal guidelines that prevent names from being released, and those legal guidelines exist for a reason. It is just a very, very cast iron legal principle in the way that you report on these things. Unfortunately, in that information void, lots of incredibly unhelpful people have said incredibly unhelpful things. Nigel Farage just released a video which sort of speculates if information is being withheld from us. Once again, none of us want to talk about this man, but he is a member of Parliament and as such, he should be bound by more conventions than you would think would exist in reality. He’s asked a string of questions, none of which are helpful. All the speculation at the moment is deeply unhelpful. And also, it’s worth restating a point made by the Labour MP and former guest this show, Jess Phillips, about Farage’s questions that he is posing on this issue. Jess, on Twitter said this Nigel Farage could yesterday have had the questions he claims are unanswered answered. If he had bothered to turn up to Parliament and asked them during the statement on the incidents in Southport, he didn’t turn up. He drifted instead. He is not something we want to return to this often, but at the same time he is a member of Parliament, adding speculation to a situation that is still unfolding and that the press and the collected media are reporting on within legal guidelines around reporting is profoundly unhelpful. We should be used to this. But, from Nigel Farage. But at this point, he is an elected member of parliament, and I do believe serious examination needs to be undergone of his conduct.

Coco Khan Absolutely. You know, it’s fascinating. You hear people talk about many politicians talk about that law and order. But the thing about law and order is you can’t cherry pick it. Like due process is part of law and order. And withholding this person’s identity is part of that process. We don’t know how any of that is going to play out. And I imagine some of the issues that this has touched upon are only going to keep appearing. And, it’s going to be something that we’re going to be looking at in the future.

Nish Kumar Okay, let’s move on to our WTF moments of the week. A section that was supposed to be covering the, strange goings on in the UK news, but since the 4th of July has been exclusively a repository for information about the Conservative Party, who sort of continued psychodrama around who’s going to lead. It is playing out on a week to week basis. So, six candidates have declared, at the time of recording, those six people, James Cleverly, Kemi Badenoch, Mel Stride, Robert Jenrick, Priti Patel and Tom Tugendhat.

Coco Khan So two campaigns certainly dropped like he’d been loading up on his fiber. I promise there’s a reason for this, profane analogy. His campaign announcement proudly proclaimed the following. So see if you can you can guess where the the issue is. Together we can unite the party, rebuild trust, defeat Labour for those playing along at home. Take the first letter of those four lines and baby, you dropped a turd.

Nish Kumar Oh God. I hadn’t spotted that listening to you read it out. Oh, God. Have these people not heard of an acrostic? And he changed it. Did he change it to conservatives under New Tugendhat? Because I can see one clear problem with that one conservative.

Coco Khan Oh, yes. Yes, we did that.

Nish Kumar Should we consider other subliminal messages about the personalities of the people running a Robert Jenrick could be determined, impactful, compassionate and knowledgeable.

Coco Khan But yeah, I see what you’re doing there in terms of the spelling, but everything you said was incorrect. And so then if that would work.

Nish Kumar Priti Patel could be excited. Vigorous ideas led.

Coco Khan Yeah, this is good. I mean, this is turning into a spelling segment a little bit.

Nish Kumar It’s probably worth talking a little bit about Kemi Badenoch. So leadership bid. She is sort of often touted as a favorite, amongst conservative party members because and and the bookies because those two things are directly linked. Because ultimately the new leader of the Conservative Party is going to be elected by Conservative Party members. Her leadership announcement is one of the strangest things I’ve ever read. There really is like a dream like quality to this prose. It was an Op-Ed she wrote in The Times that was sort of part of her official campaign launch. I’m just going to read this, dude, we deserve to lose. Because the past decade. Source twist and turn in the wind, unsure of who we were, what we were for, and how we could build a new country. She went on to say. Alongside this, we failed to spot forces lining up against British values. We sought to build an increasingly liberal society. But liberalism has been hacked so far, so dreamlike. But then things got really strange, she wrote. Under the guise of politeness and good manners, free speech and freedom to dissent is curtailed, exemplified by Labour scrapping the Higher Education Brackets Freedom of Speech Act. In its place, we have a coarsening of language and promotion of a postmodernism that can best be described as joyless decadence. We must renew.

Coco Khan A lot to take in that.

Nish Kumar We should be loved.

Coco Khan So much to take in.

Nish Kumar Its. Postmodernism that could best be described as joyless. Decadence is real. Pot life. It’s real. It’s right wing pot life.

Coco Khan It just takes me back to university. That’s the sort of stuff that we would talk about, you know, ways of approaching literature. What lens do we apply a post-modernist lens, since that’s the sort of thing that I would hear in class being like, well, the problem with applying the postmodernist lens is that it’s joyless and decadent and is disassociated from the class structures or whatever you might think.

Nish Kumar Every so often you say something about your type of university that reveals you were paying much more attention at university but I can assure you I was not.

Nish Kumar Now, the reason that I say this is the most newsworthy element of the conservative leadership campaign is because it might be done, because there is a news story, that, it’s kind of, you know, fill in the papers up at the moment about, bullying and traumatizing, members of staff, from her private office, while she was at the Department for Business and Trade. Supposedly there was, such concern about it that there was an official town hall meeting where the working culture was raised.

Coco Khan We also saw another strange piece of messaging from leadership hopeful James Cleverly, following on from his Warhammer 40 K self outing a few weeks ago.

Clip Suns out. Knees out.

Coco Khan What you saw there was a video from James Cleverly walking down the street. It’s sunny. So he turns to camera and he says, oh, sun’s out. Obviously the follow up is normally comes out, but he doesn’t show us his guns. Instead, the camera pans down to his legs where he is in shorts and he says, knees out. I suppose it’s funny, although a politician showing you their legs, it’s it’s all a bit weird. Is that helpful video for a campaign?

Nish Kumar I’m wearing shorts. I do lose respect for people when I see them wearing shorts in a business. In a business context, yeah.

Coco Khan He’s not in a business context, although as I’ve said before, but.

It’s a campaign Video. He’s kind of he’s in the middle of campaigning for the Leadership of the Conservative Party. Put up a pair of trousers on, brother.

Coco Khan Oh my God, maybe it was a thirst trap.

Nish Kumar What?

Coco Khan Showing the legs.

Nish Kumar What?

Coco Khan Now it makes sense.

Nish Kumar Anybody thirsty for that? A couple of weeks ago. We actually talked about James Cleverly, his, enthusiasm for Warhammer 40 K, and we sort of posed the question, did that seem on brand? We had some fantastic analysis from Alister Michael, a in on at Clever Warhammer figures, and that apparently they are incredibly on brand. So Michael notes that Games Workshop, the company behind Warhammer, created the setting of Warhammer 40 K in the 1980s as a satire of Thatcher’s Britain. And I’m quoting Michael directly here. We’re awaiting empire. If humanity has conquered the stars and crumbled into ritual, religious, xenophobic regression, lashing out at Eddie at everything they encounter with the stars. Michael goes on to state that James Cleverly is many figure says a lot about him. Cleverly, mini is a space marine who in the 40 K mythos, according to Michael are the most by the book officious pricks of the stagnating empire. And Michael goes on to say, if a head boy could become a super soldier, that’s what this would be. Absolutely amazing. Michael, thank you so much for my games workshop. Knowledge is very, very superficial. A best thank you for going into this amount of detail. He also actually notes that 40 K. Unfortunately, as a lot of listen, I’m a big sci fi fantasy fan in other areas and unfortunately, quite depressingly, there is also a huge right wing community of people that exist within that fan base, and they’ve been very frustrated by games, workshops, attempts to diversify representation within the universe. And they’ve apparently fought back against their left wing oppressors by putting Donald Trump’s head on top of space Marines. What up? What an absolute shame. Can’t we enjoy anything without these people. Ruining it with his bullshit? In any case, at the mention of Donald Trump is a good moment to shout out our sister show Pod Save the World. Last week, United States President Biden passed the baton to Vice President Kamala Harris for the 2024 presidential bid.

Coco Khan And in last week’s episode, the hosts, Tommy Vito and Ben Rhodes, dived into what Harris’s foreign policy could look like based on her record and experience in the Biden administration. And this will obviously have some huge implications for us in the UK.

Nish Kumar It’s always just such a great podcast, but especially at the moment. If you’re looking to digest the latest news from America’s government in terms of its foreign policy, head to the Pod Save the World feed to listen now and make sure to subscribe so you never miss an episode. And if people that will have a fortigate community want to start making Kamala Harris figurines, oh my guess that would be useful. Counterbalance.

Coco Khan What can you do? How far can you? I don’t know this game. Can she, like, have a weapon of coconuts? I like lobbing coconuts ahead.

Nish Kumar I guess there’s one person we have to ask. Michaela. Please. Ebola. Is it possible for a Kamala Harris figure eight to lob coconuts out? And that’s it. Thanks for listening to Pod Save the UK. Next week we are going to be live from the fringe. One of the shows is sold out, but we have the final few tickets for our second show on the 7th of August. Please do come down if you’re there. There will be a link in our show notes, and we also want to hear your thoughts. We want to hear, your feelings about Warhammer 40 K. Email us at PSUK@reducedlistening.co.uk or drop us a voice note on WhatsApp. Our number is 07494 933444. Internationally, that’s +44 7494 933444.

Coco Khan And don’t forget to follow at Pod Save the UK on Instagram, TikTok and Twitter. And if you want more of us, make sure you subscribe to our new YouTube channel. So search pod save the UK or click the link in our show notes and hit subscribe to make sure you get uninterrupted pod-o- vision.

Nish Kumar Pod Save the UK is a Reduced Listening production for Crooked Media.

Coco Khan Thanks to senior producer James Tindale, assistant producer Artemus Irvin and digital producer Alex Bishop.

Nish Kumar At the music is by Vasilis Fotopoulos.

Coco Khan Thanks to our engineer Ryan Macbeth.

Nish Kumar The executive producers are Anoushka Sharma, Dan Jackson and Madeline Herringer, with additional support from Ari Schwartz.

Coco Khan And remember to hit subscribe for new shows on first on Amazon, Spotify or Apple, or wherever you get your podcasts.

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