IvanV wrote: ↑Sat Sep 24, 2022 3:23 pm
A well-off person who gets £50k is not going to start up a market-stall.
Well, yes, but I was trying to work with the example given. I suppose they might give the 50k to their son or daughter to start a market-stall scale business. It's such a small amount of money that it'll be well spent as a learning experience even if the business fails (to get 50k from the tax cut you need to be earning £916,500 per year).
What a rich person might potentially do is set up a private capital partnership and look for an opportunity to invest in a promising business.
Yes, but then 50k is too small to be worth a special effort. It might be used to increase investment in an existing business they own, or just to buy more tuff (e.g. buy a new electric car).
But there is no shortage of capital to invest in this country,
Indeed. That's obvious from the very low interest rate - lots of money available cheaply to anyone who has a good idea.
The way small businesses are generally started in many countries is by people of modest wealth using the security of their houses to borrow money.
That's ok for people who own their own houses. In principle, someone could start a business by buying a bike and signing up for delivery jobs. Of course the practical problem with that is that the very same thing that makes it so easy to set up also makes it easy for everyone else, so the market is saturated with people doing the same thing, driving possible profits down to zero.
Obviously, as noggins realises, and set out in Economics 101, if you give money to less well-off people they have greater propensity to spend it.
Though investment is also spending. If you own a shop and decide to start doing home delivery, maybe you buy a van, which is spending money on the van. Similarly if you employ more people - that inherently involves spending money on their salaries. There are, of course, ways to invest without spending - for example by buying Premium Bonds, where the money just goes to the government.
And the things they spend on are more likely to be of local production. Though if production cannot be increased to meet what they want to buy, then it just stokes inflation.
Indeed that seems very likely to be the current position - with Covid affecting the supply chains around the world, as well as Brexit for the UK, and then war in Ukraine, it it's very difficult to increase supply.
That is why what Truss and Kwarteng have plainly done is hand money out to rich people, behind a faint camouflage screen of economically illiterate arguments. It's not very different from the kind of thing that goes on in kleptocratic regimes, really. The thieves max out the public debt by filling their boots.
The main difficulty I have in believing that it is being done to enrich the already rich is that the effect is so small. They're only getting about 5% extra, which only seems like a lot to people for whom the absolute amount is a lot. If you earm median wage, £50,000 extra after tax is a hige amount of money, but if you're already earning £1M it's less that the price of the sort of car you probably drive. Based on what politicians usually do, I think it's more likely that the policy is just stupidity in action.