Hi Dad,
Just heard this fascinating interview with John Caudwell. I’d be interested to hear what you make of it, especially his views on taxation:
http://www.bbc.co.uk/programmes/p02mvyh3

Matt

Dear Matt

I have just listened to it – very interesting indeed.

He is instinctively a good man, with a homespun philosophy on wealth, politics, economics and business generally. As a result, he is not an intellectual theorist, and much of his personal belief structure is instinctive rather than based on economic “truth” or principle.

Views on taxation

This is particularly true of his views on taxation. He is promoting a “conscience-based” taxation model which effectively would redistribute created wealth altruistically and voluntarily. This is heart rather than head – I sympathise, of course, but it provides no reliable basis for raising the taxes which society needs. What we cannot expect him to understand is that “redistribution” via taxation becomes necessary only when government itself has completely failed to understand the economics of wealth creation and the source of taxable wealth.

Gross income (turnover) of a business MINUS what it pays other businesses when it buys their products and services (their turnover) is its Added Value. The combined Added Value of all businesses in the country is the nation’s Gross Domestic Product (GDP), or the total wealth created in a year.

Identifying “taxable capacity”

The Added Value of a single business, after paying all Employees whatever the labour market requires for that quality of skill, expertise, knowledge, experience and industry, represents what is left for (i) providing a reasonable return to the entrepreneurs (risk-takers), (ii) re-investment in the business, expanding and, crucially, saving; and (iii) taxation. This amount is the business’s “taxable capacity” – and if the government attempts to levy taxes beyond taxable capacity, it kills the business.

If taxes were raised on this basis all the current complexity would disappear – no tax avoidance, evasion, transfer pricing or use of shelters. And many ridiculously harmful taxes like VAT and employment-based taxes would also be abolished.

This is not my invention – it is a modern distillation derived from the writings of Adam Smith and David Ricardo.

Interfering with natural law – always a mistake!

On one issue Caudwell is absolutely “spot on” – he is right that the minimum wage should be abolished. It, together with all the fashionable hype about the evils of “zero-hours contracts” (what we used to call “casual labour” – ie what you once did at the EW college!) serves only to create misery and unemployment.

I would love to hear his reasons on why he would vote “out” in a referendum on the EU.

Thanks for the stimulus!

Love

Dad