Dear Spencer Livermore
As you know, you are one of my closest advisors. I’m about to do the 2007 Budget, and I really want to get rid of the 10p tax rate. Only I’ve got this nagging doubt that it might be a very bad idea. What do you reckon?
Best
Chancellor Gordon Brown’
This, we imagine, is what Gordon Brown might have written to one of his advisors in the run up to his final Budget as Chancellor. Spencer Livermore was the Treasury’s chief political and strategy advisor.
It emerged today that Livermore was opposed to scrapping the 10p rate. Sadly, however, Livermore is remaining tight-lipped.
"Advice given in private should stay in private," he said.
So I guess we’ve no option but to carry on speculating. Here’s what I reckon Livermore wrote back:
‘Gordon
You’re wondering whether to scrap the 10p tax rate?
Don’t do it. It’ll make poor people worse-off. They’ll hate us. Everyone will hate us.
Spence’
But, as we know, that wasn’t the end of the story...
‘Dear Spencer
I take on board what you’re saying. But I really, really want to scrap the 10p rate.
Hear me out. If I scrap the 10p rate, that’ll save a load of money. I can then use that money to bring the basic rate down from 22p to 20p.
So even though a lot of people will be paying more tax, I’ll still be able to present the whole thing as a tax cut.
I’m a genius.
Gordon
PS Who cares what the poor think anyway?’
And so it was that Brown scrapped the 10p rate in the 2007 Budget. And one year later, when the change came into effect, the 10p tax row kicked off.
Brown repeatedly asserted that scrapping the 10p rate wouldn’t make anyone worse-off. Now we know he was explicitly told otherwise by his own advisor.
Yesterday, in response to Bank of England governor Mervyn King’s gloomy economic predictions, Brown asked to be judged on his economic record. That seems a strange plea in light of what King said. Was Gordon listening?
King has forecast slower growth and higher inflation — not a pleasant combination. But Brown is defiant:
"I ask, and indeed expect, to be judged by this test: our stewardship of the British economy and building a lasting prosperity by releasing untapped potential."
Given that Brown refused to acknowledge that increasing some people’s taxes would make those people worse-off, I don’t think he’ll pass this test.
"If this were an episode of The Apprentice," says our penny share specialist Tom Bulford, "and the task was Running The Economy, Sir Alan would surely be jabbing his fat finger at Brown and Darling and barking: ‘This was a total bloody shambles! You haven’t got a bloody clue! You’re fired!’"
Come the next election, when Brown finally is judged by the voters, I suspect the verdict will be clear.
Of course, this assumes Brown will still be leader by then. He insists he will be. Asked today whether any of his Cabinet colleagues are capable of leading the country, Brown replied: "Of course they are capable of doing the job. But I’m doing the job."
Will he still be doing the job come polling day? That’s a tough question.
Will he be doing it the day after polling day? That one, I feel, is much easier to answer...
Better than BRICs?
I asked Manraaj Singh this morning what he was planning to write about.
"Bricks," came the reply.
I was non-plussed to say the least.
"That’s very boring, Manraaj," I said. "And a bit weird. You’re an emerging markets analyst, not a builder."
Of course, it turns out I’d misheard him. Manraaj is actually writing about the BRICs — Brazil, Russia, India and China, the four biggest emerging powerhouses.
These four countries’ foreign ministers are meeting today for the first time under the BRIC banner. A term which began life as a Goldman Sachs acronym has evolved into a club made up of the four economies set to dominate the 21st century.
This is highly significant. It shows the BRIC countries are aware of their economic muscles, and are happy to flex them in public.
Manraaj has been following this trend for some time now. Last August, readers of his Profit Hunter service banked a 58% gain when they sold out of Brazilian bank Banco Itau.
Of course, I should point out that past performance is not a reliable indicator of future results. But this does show how Profit Hunter was ahead of the curve on Brazil.
And not just on Brazil, either. Right now, Manraaj’s readers have great exposure to China and Russia.
But while the BRICs continue to look hot, something else is getting Manraaj even more excited. All those smaller players — what Manraaj calls the Frontier Markets — that are coming up fast behind them.
"These are the new economic frontier," says Manraaj. "They’re riding on the coat-tails of the BRICs — and they’re in the very earliest stages of their economic booms!"
There’s a real ground-floor opportunity to be had now. If you’d got into the BRICs five years ago, you’d be laughing today.
Now you have the chance to ride the next wave...
Oil or Food — a stark choice for any government
Here’s a question. What do you do if rising oil prices make it impossible for most motorists to fill their cars?
If you’re the government of China, India, Iran and several other countries, the answer is simple. You subsidise the price of petrol. You set an artificially low petrol price, and you use taxpayers’ money to fund the difference between that price and the higher price of crude.
Of course, you can’t do this forever. It’s not sustainable. The trick is to gradually reduce those subsidies without wrecking the economy. The subsidy is a tool to protect the economy from sudden shocks, not from reality.
But now the subsidising countries have a real problem. Because it’s not only fuel that’s become prohibitively expensive — food has as well. The combined impact of food and fuel inflation is a politician’s nightmare. The prospect for social unrest is very, very real.
So... what to do? As Garry White explains in today’s Smart Commodities, they can’t possibly cut the fuel subsidy. But neither can they ignore the food crisis.
They’re in a bind. And it’s going to have significant implications for the world oil market...
Until tomorrow
Ben Traynor
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