Mummy, What is This Man For?

Seriously, what is Alistair Darling for, what is his purpose?

Alistair Darling is threatening to land gas companies with a windfall tax unless they cut bills for their customers....It is claimed that he is frustrated that five out of the six big gas companies have announced substantial increases to bills within weeks of each other - despite warning last month that large rises could damage the economy.

Ah, diddums, the nasty capitalists won't do as you say so you'll hit their pocket books?

But grossly worse than this petulance is the fact that such a tax rise is entirely counter-productive. There's an economic point to be made: companies don't pay taxes. Only people pay taxes. This is a sub set of what is known as tax incidence (try here for a textbook explanation).

Who you get the the cheque from is not the same (necessarily) as who is actually bearing the burden of the tax. With corporation tax it is some combination of customers in the form of higher prices, workers in lower wages and investors in lower returns. Which bears what portion is complex to calculate but in open economies like ours the bulk is workers getting lower wages, then consumers facing higher prices and only last do the investors get the smallest share of the burden in lower returns.

All of which means that Darling's cunning plan is that as the companies are making profits too high for his liking (ie, the investors' returns are too high) so he'll tax them more. This will depress the workers' wages and raise prices to the consumers: that last being the behaviour which caused the tax rise in the first place, rising prices to consumers.

In short, he's going to make the problem worse, not better.

But then that seems to be what you get when you ask a lawyer to dabble in economics, well, when you ask a lawyer to do anything, in truth: a bigger mess than the one you started with.

Actions: Print this article   |   Email to a friend   |   Permalink   |   Comment

Post this entry to:   del.icio.us | Digg | Newsvine | NowPublic | Reddit

Advertisement

Spectator Business | Apollo Magazine

Corporate | Advertising | Privacy | Terms

Spectator, 22 Old Queen Street, London, SW1H 9HP

All Articles and Content Copyright ©2008 by The Spectator | All Rights Reserved