The Beginning of a Financial Crisis

Added: 2026-05-23

[00:00:00]Taxes go up, spending goes up even more.

[00:00:04]The deficit for April, 24 billion pounds, is a huge amount of money. And yes, it's gone up in part because of increased borrowing costs, but it's also gone up because of increased welfare expenditure. And this is at the heart of what's been going on with this government that it has raised taxation, lowered economic growth, and spent the money on its friends, on the people it thinks will support it. So you've seen out of work benefits go up. You've seen pay in the public sector go up. And you've seen the poor, hardworking taxpayer squeezed.

[00:00:46]Ultimately, this can't go on working. We know already that there are 6 million people in this country who work even though they would be better off on benefits. Now, in the case of those 6 million, you are relying on their personal drive, their personal ambition, their patriotism, their goodwill to carry on working rather than milking the system in the way they see other people doing. And that can go on for a time, but it can't go on forever. If people are better off on welfare than in work, they will ultimately have to go on to welfare. Because you can't say to your children, I'm going to make you worse off because I think it's my duty. In the end, you have to say, well, I need to improve the lot of my children. I need the much cheaper tickets to go to entertainments to go to the Tower of London and so on. If I'm on universal credit, then I get even with Rachel Reeves VAT cut by paying for it myself having worked. We have set up a system where work doesn't pay and we're relying on people's goodwill not to take advantage of that and this is not a sustainable situation. Our welfare budget is too big and it's become a lifestyle choice. But we've also created a situation where people working in the public sector are getting paid more and productivity is flat. So you're not getting anything extra for the amount you're paying. You're getting at best the same. But in many cases you're getting less than you used to be get getting because of working practices, working from home, shorter working hours. And there are failures across the public sector that are part of this. We read recently that HMRC is overt taxing savers because it's not doing its work properly to find out what their actual income is. It's sending them bills sometimes for a multiple of the interest income that they have received. I think they gave an example in the telegraph of somebody who was taxed on the basis of interest income of £3,000 who had actually got 94 of income. This is what happens when you lower productivity in the public sector and increase pay.

[00:03:04]There is no incentive for people to do a better job. It's also worth remembering that endlessly increasing taxation ultimately raises you less money. Why?

[00:03:17]Because the economy doesn't grow. This is where Wes Streeting's proposal for increasing capital gains tax is really very silly indeed. What you want with capital taxation, if you want capital taxation at all, is taxation that is so light that it doesn't stop transactions taking place because most capital transa taxation is voluntary. If I have an asset that has a significant gain on it, I'm not forced to sell it. I only sell it when I want to, when I think there's a better investment opportunity.

[00:03:54]But if you put the top rate of capital gains tax up to 45% and you've got £100 of gain, you then only have £55 left.

[00:04:06]Your next investment has to appear to be so good that you can nearly double it to get the £55 up to £100 just to be back where you started. So you don't sell your investment. you hold on to it because even if your investment goes down sharply, you're still better off than you would be if you sold the investment, paid the tax, and reallocated it. That's why capital gains tax don't raise significant amounts of money in any economy. It's because they're ultimately voluntary and you can't make them compulsory. The Democrats in the US talked about this on having a capital gains tax on profits that you may have made if you redeemed the asset, but that's impossible to calculate because equities change in value every day. Whereas the price of a house or something is hard to determine in a precise manner. So if you did that, you would take a big tax amount one year, but then the next year you'd have to pay people a refund as the asset had gone back down again. It's too complicated to do. It's why people don't do it. But on the actual gain, the realized gain, if you set it at too high a level, you raise no money because the transactions don't take place.

[00:05:25]And this is where we get to the situation of the doom loop. You see, we're now getting to the point where we are borrowing to pay the interest on our debt. And anyone knows from their own personal financial situation that once you're in a position where you're borrowing to pay the interest, you are in fact insolvent. We've got over a hundred billion pounds worth of debt interest to pay this year. We've got a deficit that is running in one month at 24 billion pounds. Though you can't simply annualize that. That means we cannot afford to do what we are currently doing. That means we need to look at the big areas of expenditure.

[00:06:07]And this becomes really important because austerity that came in in 2010 protected health, welfare, and education. But they're the three biggest areas of expenditure outside debt interest and particularly welfare and health cannot carry on growing as if there is plenty of money because there isn't. We need to reform the welfare system so that work pays and benefits don't become a lifestyle choice. We should not have increased benefits in line with inflation this year and we should not increase them in line with inflation for as long as the tax threshold is frozen. It is fundamentally unfair on taxpayers that they are worse off in real terms so that people on benefits can remain the same. It's just not fair. It's not right. We're going to have to look at whether the triple lock as it's currently designed is affordable. Or perhaps a better option is to raise the retirement age so that we can afford the pensions that we currently have, but for people who need the most, who tend to be older people.

[00:07:21]If we carry on going the way we are going, we will run out of money. If we keep on paying people more in the public sector to do a less good job, we will run out of money. And we should remember, this is a point I've made before, but it's very important that the tax take in the UK almost never gets over 38% of GDP and never remains above it for any length of time. And that doesn't matter whether tax rates have been 98% or whether they've been 40%.

[00:07:51]Actually, we sometimes got a higher tax take with lower rates. That seems to be the peak. Rachel Reeves and the OBR are forecasting that it'll go over 40%. It won't because taxpayers will not pay it.

[00:08:05]They won't do the work. They won't take the gains. They will arrange their affairs so they don't get squeezed too hard. That means the economy will shrink. That means the government will run out of money. And that means that a financial crisis looms unless we have a big change in strategy than not one being proposed by Andy Burnham or we're streeting. As always, thank you very much for watching and I hope I haven't made you too gloomy. As you can see, I'm off to watch some cricket. Uh, which is why I'm informally dressed for this particular video. Thank you again.