The national debt really does matter
From the Budget, you'd think Britain's growing national debt won't have any consequences, says Merryn Somerset Webb – despite history suggesting otherwise.
We expected Philip Hammond's pre-Brexit Budget to be more of a stop-gap speech than a proper package of policies. And so it was. In this week's issue, John Stepek has pulled out some of the few interesting bits (the bits that will affect your personal finances in the immediate term are in this week's magazine). His key takeaway is a little bit boring, but very important.
The semi-abandonment of "austerity" reflects the new consensus among parties that debt doesn't really matter despite many thousands of years of evidence to the contrary. That's a very bad thing, as will become increasingly clear as our baby-boomers age, need exponentially more spent on their health and social care, but find that barring a wave of nasty new tax rises the money just isn't there.
Maddening as this all is, for me the most interesting bit of the Budget (relatively speaking) was the one genuinely new measure from Hammond the tax on digital services. This isn't set to be huge. It isn't due to come in until April 2020; will be set at 2% a year on the revenues of companies with "specific digital platform models" and turnover of more than £500m; and is only forecast to bring in £400m a year (which is unlikely to cover the costs of even the tiniest proportion of the new hips our boomers will soon be needing). But the money aside, there are two important points to make about it.
Subscribe to MoneyWeek
Subscribe to MoneyWeek today and get your first six magazine issues absolutely FREE
Sign up to Money Morning
Don't miss the latest investment and personal finances news, market analysis, plus money-saving tips with our free twice-daily newsletter
Don't miss the latest investment and personal finances news, market analysis, plus money-saving tips with our free twice-daily newsletter
First, it is all about globalisation. Existing tax rules were designed for a day when big firms had physical factories on the ground and paid tax where those factories were. They don't work so well when, as the Financial Times puts it, big companies "can choose where the taxable value they create is added and then domicile that value, quite legally, to where they will forfeit the least".
Second, it is all about the nation state. We have been told for a long time that in a globalised world there is nothing to be done to make multinationals pay the tax national governments want (and need), and that any action must be internationally backed the European Union is looking at a 3% levy, for example. Hammond clearly doesn't think that is so. Nor do the governments of Spain, Italy, Israel, India, Mexico, Chile and South Korea, all of whom are either discussing measures or have put some in place.
The multinationals tech and traditional have, as we have said before, had a wonderful few decades. They've paid tax where they have liked, they have leveraged the globalised labour market to their huge advantage, and they've paid almost nothing for the debt they've used to goose returns for shareholders. But those days are coming to an end.
Wages are rising everywhere (note Hammond's rise to the National Living Wage), interest rates have turned, and governments have had it with digital tax dodging. If you are looking for a message from the Budget, perhaps this is it: times are getting tougher for the world's big firms and we should invest accordingly.
Sign up to Money Morning
Our team, led by award winning editors, is dedicated to delivering you the top news, analysis, and guides to help you manage your money, grow your investments and build wealth.
Merryn Somerset Webb started her career in Tokyo at public broadcaster NHK before becoming a Japanese equity broker at what was then Warburgs. She went on to work at SBC and UBS without moving from her desk in Kamiyacho (it was the age of mergers).
After five years in Japan she returned to work in the UK at Paribas. This soon became BNP Paribas. Again, no desk move was required. On leaving the City, Merryn helped The Week magazine with its City pages before becoming the launch editor of MoneyWeek in 2000 and taking on columns first in the Sunday Times and then in 2009 in the Financial Times
Twenty years on, MoneyWeek is the best-selling financial magazine in the UK. Merryn was its Editor in Chief until 2022. She is now a senior columnist at Bloomberg and host of the Merryn Talks Money podcast - but still writes for Moneyweek monthly.
Merryn is also is a non executive director of two investment trusts – BlackRock Throgmorton, and the Murray Income Investment Trust.
-
University tuition fees will rise to £9,535 next year – what does it mean for you?
The tuition fee hike has angered many students, not to mention their parents and grandparents who often help with financial support. But will it make a difference to how much you repay in the long run?
By Katie Williams Published
-
Will platinum and palladium rise?
Analysis Platinum and palladium have lagged gold and silver recently, but the outlook is improving. Should you invest?
By David J. Stevenson Published
-
Beat the cost of living crisis – go on holiday
Editor's letter As inflation rages, energy bills soar and the pound tanks, what’s a good way to save money this winter? Go on holiday, says Merryn Somerset Webb.
By Merryn Somerset Webb Published
-
How capitalism has been undermined by poor governance
Editor's letter Capitalism’s “ruthless efficiency” has been undermined by poor governance, a lack of competition and central banks’ over-enthusiastic money printing, says Andrew Van Sickle.
By Andrew Van Sickle Published
-
Don't be scared by economic forecasting
Editor's letter The Bank of England warned last week the UK will tip into recession this year. But predictions about stockmarkets, earnings or macroeconomic trends can be safely ignored, says Andrew Van Sickle.
By Andrew Van Sickle Published
-
The biggest change in the last 17 years – the death of the “Greenspan put”
Editor's letter Since I joined MoneyWeek 17 years ago, says John Stepek, we’ve seen a global financial crisis, a eurozone sovereign debt crisis , several Chinese growth scares, a global pandemic, and a land war in Europe. But the biggest change is the death of the “Greenspan put”.
By John Stepek Published
-
The wolf returns to the eurozone’s door
Editor's letter The eurozone’s intrinsic flaws have been exposed again as investors’ fears about Italy’s ability to pay its debt sends bond yields soaring.
By Andrew Van Sickle Published
-
Things won't just return to normal – that's not how inflation works
Editor's letter You might think that, if inflation is indeed “transitory”, we just need to wait and everything will return to “normal”. But this is a grave misunderstanding of how inflation works, says John Stepek.
By John Stepek Published
-
Car hire and the strangeness of the post-pandemic economy
Editor's letter A global shortage of hire cars and unusually high hotel occupancy rates sum up the post-pandemic global economy in a nutshell, says Merryn Somerset Webb, with enhanced demand meeting restricted supply.
By Merryn Somerset Webb Published
-
Why we need to get a grip on our government
Editor's letter Our government is trying to do too much, enacting policies that are destructive to the private sector. It needs to drop the the feel-good nonsense and create policies that lead to long-term wealth, says Merryn Somerset Webb.
By Merryn Somerset Webb Published