Economy

Today brings the news, distressing to some quarters, that HSBC is paying its chief executive Stuart Gulliver £7.2 million — making him the highest-paid banker in the UK for the financial year so far. The remuneration comes on the back of a 28 per cent jump in full-year profits, which means HSBC has bucked the dismal trend of other British banks.   Still, as you might expect, it’s the buoyant figures denoting Gulliver’s pay — and those of the top 170 members of staff — that are making the headlines, with calls for HSBC to explain itself. This is part of the regular drumbeat against financial ‘fat cats’ that’s been going on for months, so in that sense it’s nothing new.

Youth unemployment is approaching crisis levels in Britain. For almost two decades, Britain’s more flexible labour market had favourable effects on youth employment. But the re-regulation of the British economy has narrowed the difference between our jobs market, and that of the continent. Meanwhile the British poverty trap has been strengthened by a dysfunctional welfare state: British workers can in some circumstances keep as little as 5p in every extra pound they earn if they find work. Who would break their back for less than 50p an hour? We’re paying people not to bother, so little wonder that most of the employment rise — in the last government, and under this one — is accounted for by a rise in foreign-born workers.

With all these tax cut suggestions kicking about — and with the British economy desperately in need of some oomph — it’s worth asking: which would help growth the most? It’s not of course the only consideration, but it is clearly an important one as we struggle to find our way out of recession.   Fortunately, the OECD is on hand with two recent reports to help answer our question. The first, ‘Tax Reform and Economic Growth’, divides taxes into four broad categories and ranks them on how harmful they are to growth: This suggests that the Centre for Policy Studies is right — on growth grounds at least — to focus on cutting corporation tax.

Yesterday, Barack Obama set out his budget for ‘Fiscal Year 2013’ – that is, for the year beginning October 2012 (in the US, the fiscal year runs from October to September, rather than April to March as it does here). Of course, the federal budget has to be passed by both houses of Congress before being signed off by the President, so the final version will look very different to this one. It is better thought of as a statement of Obama’s intent, and his starting point for the negotiations between Congress and the White House. Nevertheless, it throws up a few interesting points, not least in how it relates to our own economic debates in the UK: 1. Deficit reduction.

There have been precious few people able to make sense of the crash. The main commentators didn’t see it coming — and so have focused their energies stressing how no man born of woman could have predicted it. But Nassim Taleb did. He has been a voice of sense, originality and common sense throughout, and David Cameron has been listening. The respect is mutual: Taleb even described Cameron as ‘the best hope we have left on this planet’ because he understood the dangers of deficits. If CoffeeHousers haven’t come across Taleb’s books, such as Fooled by Randomness and Black Swan, I can’t recommend them enough. I met him recently, and published the interview in this week’s magazine.

More evidence this morning that the government won't be dropping the 50p rate any time soon, in the form of an interview with Danny Alexander. ‘This is not the time to be looking to reduce the tax burden on the wealthy,’ he says to the Daily Telegraph's James Kirkup and Robert Winnett. This is a line that other ministers have deployed recently, and not just Lib Dems. And it suggests that the coalition is confident that HMRC's forthcoming review of the rate will say that it does indeed raise revenue. But the matter won't end there. The IFS recently said of the HMRC review that, ‘tax records for just one year after the introduction of the 50p rate are unlikely to provide a robust estimate of how much revenue the 50p rate will raise’.