Those of us interested in matters political feel a strange compunction to listen to speeches uttered by those who might be in position to turn their desires into law. Today it was the turn of Miliband the Millionaire Marxist. Today he showed what commentators on the radio seemed to consider his true colours.
The speech itself was actually quite interesting with a sickly amalgam of sentimental sob stories, prices and income policies straight out of HG Wells' time machine, a novel variation on British Jobs for British Workers, proposals to nationalise land and wholescale criticism of the very policies he personally supported and put to the British people at the last two general elections (and some which he helped to create as a Labour Party policy advisor in the election of 2001).
How refreshing it would be to hear a senior politician say "We introduced a policy which didn't work, we took a lot of advice, considered it carefully and thought it would work but we were wrong. We are very sorry for our mistake and understand what you are entitled to doubt our judgment. Nonetheless we now put forward a different policy and ask you to consider it carefully". But no, for Miliband his previous policies are all the fault of the current government and he is and always has been right. This fundamental and transparent dishonesty is displayed by the leaders of both main parties, less so by the leader of the third party, but is shown in full measure by the leader of the fourth party (the current Deputy Prime Minister). One day they will realise people see through them and laugh at their inability to admit they make errors of judgment - we all do it, usually several times a day, and the absurdity of these superannuated oafs pretending to be different does them no favours.
At the core of every one of Miliband's policy initiatives announced today is the belief that government has magical powers to influence the private sector economy for the good. Now it goes without saying that different people will have different ideas of what is "for the good", but my point is valid regardless of anyones opinions on that. You see, I ask what government can do and it is the answer to that question that explains why magic has nothing to do with it. The answer is obvious provided you start from the correct position.
The private sector comprises businesses providing goods and services (usually but not necessarily for profit). By definition these businesses incur costs in making their goods and services available and can continue in business only for so long as the selling price matches or exceeds all the costs (they can, of course, run at a loss for a while but will eventually have to fold when lines of financial support are exhausted). A business that makes a profit can do various things with it - retain profits for investment with a view to expanding the business, pay a dividend to investors and/or a bonus to staff, retain it to provide a cash buffer in case things turn south, give it to the Battersea Dogs' Home and more.
From that starting point it becomes clear that the only things government policies can affect are costs, selling prices and profits. Don't get it wrong, don't think government can do anything that affects a business other than to influence costs, selling prices or profits. It cannot.
We had examples of policies intended to affect all three of these in Mr Miliband's speech.
Small businesses are to be taxed less. The idea is to reduce costs by reducing the amount of tax that must be paid as everyday overheads. He promotes this as a benefit being provided to small businesses by his government. It is nothing of the sort. He is proposing reducing an impediment to business that the current government, and the government of which he was previously a part, impose on business.
He said this is a way to create more jobs. For once I agree with him. If you reduce the costs of business the prospect of profit is increased and, inevitably, so is the prospect of that business expanding and taking on additional staff. The same applies to all cost imposed by government as overheads - land taxes, employer's National Insurance contributions, VAT and countless regulations that require expenditure to be incurred (usually pointlessly) on monitoring compliance with random targets and standards that have no substance beyond the egotistical commands of single-issue bigots.
For big businesses he wants to take more of their profits in tax. No reduction in costs for them, jobs that might be created by reducing the costs of big businesses are of no interest to him. To the Millionaire Marxist big business is just a cash cow, to be milked and punished to the fullest extent possible. How ironic it is that his plans require the big businesses he despises so much to make the largest profits possible.
Having said that, taxes that apply before sales are made increase the prices businesses have to charge to break even. An example I have given before is of a furniture manufacturer that spends £50 on raw materials and £50 on labour to create a table, leaving aside other overheads the table cannot be sold at £100 to achieve break-even. Because VAT at 20% will have to be added the sale price must be £120. There might not be a market at that level, although there might be at £105 or £110. If you get rid of VAT and tax profits instead the business has an increased chance of expanding and creating more jobs. Get rid of land tax (business rates) as well and and pre-sale costs fall further. I am all in favour of taxing profits and dispensing with all taxes that stress profit-margins.
Mr Miliband has put on the metaphorical hat he bought when supporting the policies of East Germany in his youth and decreed that electricity and gas prices will be frozen for 20 months if he becomes Prime Minister.
Give me strength. Government dictating sale prices of any goods or services is a truly desperate policy. Some of us are old enough to remember the prices-and-incomes policies that formed a cross-party consensus in the 1960s and 1970s. Lest anyone does not know how it operated, by law prices and incomes could only be increased by the maximum figure dictated by government. Yes, you read that correctly. No matter how much the cost of imported raw products increased, that increase could not be passed on to customers if it resulted in the finished product going up in price by more than the percentage the government decreed to be acceptable, the manufacturer had to bear the cost or go bust. No matter how much more profit a business earned in one year compared to the last, employees could not be given a pay rise greater than the percentage decreed by government. It was utterly mad.
Yet Mr Miliband obviously thinks it wonderful because he wants to do it again. The first basis on which he sold it is entirely meritworthy, he claimed to want to keep energy costs down for the little people. So say all of us, except those who supported the appalling Climate Change Act 2008 that requires the cost of energy to rise again and again. Oh hang on a moment, the Climate Change Act was the only major piece of legislation piloted through the House of Commons by a certain Marxist Millionaire called Miliband when he was in government. No qualms about hitting the little people in the pocket then, so what has changed? If what has changed is that he has become an honest politician he would want to repeal all parts of his own legislation that increase cost for Mr & Mrs Ordinary, but no. He wants to punish energy companies because they make profits. It is no more sophisticated than that, as he admitted when giving the second reason for this proposed policy.
He does not understand profit - he doesn't need to because he and his slimy brother inherited a fortune through careful tax avoidance and has oiled his way onto the political gravy train so there is no need for him to understand anything about anything other than his own self-interest.
The full consequences of freezing electricity and gas prices cannot be foreseen although some things are pretty obvious. Prices are likely to rise in advance of the freeze at least to counter 20-months of inflation, investment by the energy companies is likely to be reduced because they will have less money to invest and the pressure for crippling price rises once the freeze is lifted will be difficult to resist since 20 months of investment activity will have to be caught-up as soon as possible to try to keep the lights on.
The Labour Party professes the desire to seek full employment. For decades their means of seeking this has been to increase tax and create public sector jobs of little or no value. Despite that unemployment has been higher at the end of every Labour government than at the beginning. The only realistic chance of increasing employment is by reducing government impediments to business - both taxes that increase day-to-day overheads and taxes that reduce the funds available for investment. You cannot expect a Millionaire Marxist to understand that, and poor Mr Miliband is no exception.