Part I of our interview with UKIP’s economic envoy
UKIP is a party on a roll. Its leader Nigel Farage has been running around the country, snapping up press opportunities like a possessed Polaroid, while the party’s polling figures have kept on roaring upward. According to the latest major polls, some 18% of Brits say they will vote UKIP at the next general election, while the party scooped up 25% of the vote in this month’s local elections in the wards it stood in.
But as the political outsider, plenty of questions remain about UKIP: about its manifesto, its policies, and what kind of role UKIP will play in the future – indeed, whether it has a future at all.
All of the major parties are cobbling together pledges for the 2015 elections. But UKIP, as the self-branded “common sense party”, knows it must make a clear case to voters if it wants its surge to continue. After all, a rolling stone gathers no mass appeal.
Godfrey Bloom is the man charged with making much of this happen. As a former investment banker – who never tires of talking about his 35 years spent working in the City – Bloom is the economic powerhouse behind the Farage freight train. The Osborne to Farage’s Cameron, if you will.
Just like their rival Conservative double act, the two UKIP bigwigs share a fair few similarities. They’re both loose-lipped ex-bankers, with a weakness for pinstriped suits and having a tipple or two too many. Oh, and both are long-serving UKIP MEPs, hell-bent on breaking away from Brussels.
Unlike Farage though, who wins favour for inspiring a good chuckle, its Bloom’s job to make sense of the national economic figures that long ago stopped making sense to just about everybody.
But as impassioned as he may be about transparency and “dispelling any black holes”, speaking to the 63-year-old MEP for Yorkshire and the Humber is a bit of a run-around. Conversation can digress into a rampage of ideas and attacks on political incumbents, and at times even his own party – a party Bloom freely admits faces challenges and divisions, and whom leading can feel like “herding cats”.
On the one side, there are the Old Labour supporters in the north who were long ago alienated by the jazzy urban theatrics of Blair, and on the other there are wealthier Home County traditionalists who feel David Cameron has betrayed the essence of the Conservative Party. Bloom, however, seems certain he can find a common ground based on respect for “common sense.”
How exactly UKIP will implement this no-nonsense approach is rather less straightforward.
Talking tough on taxes
One such “common sense” objective is a mass simplification of the tax system, headed by UKIP’s long-term commitment to introduce a flat tax.
Earlier this year Bloom openly began backing a 25% flat tax, which is now a stated proposal on the party’s website. It is likely aimed at bringing middle-income families that have so far largely shunned UKIP into its growing fold, but is far from official policy.
“I am advocating a [25%] flat tax,” says Bloom. “In order to have a flat tax, which is going to take away the problem of evasion and avoidance, it has to be cheaper to pay the tax than set up an offshore company or do all the things that people do to avoid taxes.
“And on this I am an expert. I spent 35 years in the City showing people how to invest money in trust funds and offshore funds in order to diminish – quite legitimately and legally – their tax,” he adds.
At the last general election, though, UKIP backed a 31% flat rate, which left the party open to attacks of elitism, even as it tried to ally itself with the average voter. Under the old proposals, many Brits – the majority whom are in the UK’s basic tax bracket of 20% – felt that they would be paying more, rather than less, despite UKIP’s pledges to slash VAT and to do away with supplementary taxes like National Insurance.
The problem is that even if the majority of Brits are left paying less – which may well be the case with a 25% rate – Brits on the whole want to see the rich taxed more. In other words, the 25% rate is not a vote winner, which leaves the party in a political pickle.
Farage has now flip-flopped on the idea, recently telling media he has converted to adopting a 40% top rate because “that is seen to be fairer. Whether that’s right or not, I think it’s seen to be fairer.”
“The [Conservatives] increase the national debt by 10% a year through sheer incompetence and they are 75% in deficit, but they are still spending like drunken sailors on shore leave.” – Bloom
But Bloom insists that regardless of Farage’s reputation for getting his way in the UKIP camp, the flat rate policy has not changed.
“No, Farage hasn’t [introduced two tier taxation]. I am the spokesperson,” says Bloom. “That miscommunication comes about because we have a proposed policy that is not going to be ratified until after an economic meeting in late June.”
At this meeting, Bloom swears he will push for the 25% rate, which he believes is the maximum that can be charged before everyone from oligarchs to ordinary orthodontists starts offloading offshore or transferring to trust funds. Farage, meanwhile, now looks likely to back the tax that is “seen to be fairer”.
Yet while avoidance is a massive issue, many of the ultra-wealthy do still contribute significantly to the national economy. The highest income tax rate (which has fallen to 45%) now affects an estimated 267,000 people, and the very top earners – the 8,000 or so individuals earning more than £1m – pay a total income tax bill of £8.1bn. That’s 0.01% of the population, providing 5% of the total £154.8bn income tax revenue.
Similarly, although UKIP is firmly for abolishing inheritance tax for ideological reasons and because “hardly anyone pays it” and “everyone tries to avoid paying”, in 2011/2012 it raised £3bn.National Insurance, which would also be scrapped, meanwhile raised a further £100bn.
It’s precisely UKIP’s pledge to cut all these taxes, while wowing to plug the nation’s spiralling debt, that have left it open to criticism of not getting its figures right.
Tory MP Charlie Elphicke has accused its “whacky” economic policies of creating a £120bn “financial black hole”, while Foreign Secretary William Hague famously attacked UKIP for offering “quick fixes […] with a magic wand.”
With borrowing still going up though and the Conservatives themselves running a budgetary black hole, possibly even as large as the one they accuse UKIP of producing, it is easy for Bloom to hit back.
“Hague doesn’t understand numbers. I do. I am a professional. I do this for a living,” says Bloom. “I don’t need people like him telling me that the numbers don’t work. They increase the national debt by 10% a year through sheer incompetence and they are 75% in deficit, but they are still spending like drunken sailors on shore leave.”
Then again how exactly – aside from his City background – does Bloom hope to succeed where Cameron and co have clearly failed?
Cutting the public sector
Well, for starters, Bloom cites savings that will be made in welfare spending and education, although no exact details of the cuts have emerged as yet. Overseas aid, expected to reach £11.3bn in 2013, will also be abolished, and payments to the EU stopped. [Read Bloom’s views on our relationship with the EU tomorrow on LondonlovesBusiness.com.]
“They are public sector jobs, so they are taking money out of the economy and wealth creation. I hope hundreds, thousands of jobs will be lost.” – Bloom.
Government spending on things like quangos will also be cut, from around £60bn today to no more than £10bn, explains Bloom, who remains nonchalant about the mass redundancies such cuts would create.
“They are public sector jobs, so they are taking money out of the economy and wealth creation. I hope hundreds, thousands of jobs will be lost,” says Bloom.
“You will never understand UKIP until you understand this point. Public spending takes money out of the economy, it doesn’t put it in.”
The crux of his taxation argument rests on the belief that lowering taxation will “almost instantaneously” help us return to growth.
“Never make the mistake that reducing tax reduces revenue,” says Bloom. “If you look at the history books [and the terms of President Warren Harding (1921–1923) and John Calvin Coolidge (1923–1929)]you will find that the economy starts to recover almost instantaneously when you reduce your tax rates. Paradoxically your revenue either flat-lines or goes up. There is not a single historical precedent that doesn’t show that.”
Indeed, from 1913 to 1921, the US saw the top rate of income tax soar from 7% to 73%. Over that period growth varied wildly but in total averaged an anemic -0.3% to 0.3% depending on estimates. However, once the top rate of tax was cut to 56% in 1922 and then again to 25% from 1925 to 1928, growth returned, averaging 6% for the eight-year period.
This sounds convincing, but the figures are deceptive. The first period housed the First World War, which froze world trade, and diverted manpower, while the roaring 20s that followed created a stock market bubble of such epic proportions that it produced an economic crash the like of which the world had never seen… until now.
And a good ol’ fashioned sprinkling of banker bashing
The chaotic, economically sclerotic years that have followed on from the 2007/08 banking crisis are widely seen as having provided the catalyst for UKIP’s charge onto the centre stage. Before, it would certainly have been much harder to win the public over on issues of immigration and the EU. But if you have been lulled into a false sense of calm that we are emerging from the rubble thanks to regulations that demand banks shore-up their reserves and curtail their risk-taking activities, Bloom urges you to think again.
“[Our national debt] is much nearer 200% of GDP. The figures are as bad as Greece,” – Bloom
“Look at what is on the UK balance sheet! No one is even talking about public funding and public sector pensions,” says Bloom. “If I presented PLC accounts without accounting for my pension liabilities I would go to prison. It is illegal. Yet the Chancellor does it every year.
“So we are very much higher than the 85% [debt to GDP]ratio that Moody’s put forward to reduce our triple A status. It is much nearer 200% of GDP. The figures are as bad as Greece. All you have to do is look at the Treasury statistics to see that. This is far more dangerous and appalling than anyone believes.”
In his publication – the Informed Voter’s Almanack – Bloom highlights that the UK’s external debt is almost 398% of GDP, while troubled countries such as Portugal and Greece are closer to 220% and 180% respectively. Heavily indebted Japan is under 50%.
This is undoubtedly scary stuff, but isn’t quite as alarming when one considers that other countries, even ones with admirable finances, also boast very high external debts. The Netherlands is on 344%, while Hong Kong, widely touted as the flat-tax and economic growth poster child, is on 334%. Luxemburg, the country detested for stealing away our multinationals, takes the crown with external debts of 3,443% of GDP.
The reason these places boast such high rates is not that they are about to plummet off the debt precipice (many have hefty budget surpluses), but rather that, much like the UK, they all have bloated banking sectors in relation to the rest of their economies. (External debt is the total owed by one country to foreign nations and includes private sector debt as well as government debt.)
Given Bloom’s pessimism for the current state of our financial services, though, this fact offers little reprieve. “This banking crisis is going to happen again – sooner rather than later,” says Bloom. “We have solved nothing.”
The over-valued assets on the books of many banks, and continued government interference, rank highest amongst his concerns.
“The government is lying. What they are doing now by increasing so-called reserves is that they are simply buying manufactured government debt. That is not real money. That is electronically created junk bonds issued by government,” he says.
“We have the wrong sort of regulation and we have the wrong sort of banking system. You cannot regulate financial services [… because] believing you have perfect knowledge of the market is absurd, and it is fatally flawed to believe that the regulators actually understand everything.”
Bloom blames government interference for inflation. “There is no inflation,” says Bloom. “Inflation is a game of government. It is an invisible tax. It is a way of taxing people without them understanding. Look at the inflation that we have had in the last 10 years. A loaf of bread has doubled in the last 10 years.”
“This banking crisis is going to happen again – sooner rather than later. We have solved nothing.” – Bloom
The Yorkshire MEP cites the 19th century, saying inflation was consistently low throughout that period, despite population and economic growth, largely thanks to low levels of government interference in the economy. It’s true that in 1914 a loaf of bread in England, cost the same if not less than a load in 1814, but at least some of this can be explained by Britain’s decision to stick to the gold standard, with a lack of gold acting as a deflationary check.
Irrespective of this, Bloom believes that UKIP could stop the inflation spiral – a sign of our “crony capitalism” system – by curtailing government action, notably quantitate easing.
“Why on the front page of newspapers when houses go up 10% [does]everyone say it is good news?” says Bloom. “Why then is the price of bread going up 10% bad news? […] It is good for a certain type of person but not another. […]
“The whole system at the moment is geared to benefit some people at the expense of others. The banks were bailed out at the expense of tax payers, ordinary little old ladies in an act of unbelievable obscenity.”
“There is no inflation. Inflation is a game of government.” – Bloom
Bloom instead proposes dividing the banking sector completely, into unaffiliated retail banks and investment banks (far beyond just ring-fencing). Retail depositors would not earn any interest – the bank would merely protect your money from burglars.
The investment banks would enable you to potentially increase your savings, but there would be no bailouts, and no rewards for raucous bankers. And this is where the ex-army officer starts to show off his populist flair.
For Bloom and Farage to say they can succeed in revolutionary ways sounds awfully like the intellectual musings of a protest party, not the guiding principles of a credible governing force.
No country since the 19th century, for example, has willingly managed to stave off inflation. High inflation was common throughout the 20th century and has in fact haunted humanity for millennia, often being cited a key cause for the fall of the Roman Empire.
Given UKIP’s still relatively embryonic nature, the ambiguities in their ideas may be welcome. They give the party room to manoeuvre and find its feet, now that it is at last being taken seriously.
Some of that ambiguity, however, is less welcome. Gaps leave UKIP vulnerable and scrambling to find a coherent set of values that will lock in its expanding base.
Much will depend on whether UKIP’s founding anti-EU ethos is strong enough to act as a unifying crutch while the party tries to get its house in order.
In part two of the interview we will look at Europe and UKIP’s electoral policy going forth.
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