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The trick Osborne missed

Steve Forbes, the publishing magnate and former presidential candidate, is fighting for a flat tax

3 December 2011

3:00 PM

3 December 2011

3:00 PM

The politically mobile American entrepreneur is a species which has no real equivalent in British politics. We tend to separate the moneymakers from the policy­makers at an early age. And that is what Steve Forbes, the publishing billionaire and former presidential candidate, thinks has gone wrong in Britain: our political class has lost its sense of enterprise, and has no ideas for economic recovery.

We meet in Claridge’s hotel: he’s in London for a visit cut short by his attempt to avoid the worst strikes since the 1970s. To him, this is just the most visible sign that Britain is regaining the status it had when he was young: ‘the sick man of Europe’.

‘The journey has begun,’ he says. ‘The only reason things look relatively good for sterling is because the euro’s just as bad, and the dollar’s just as bad. It’s like three weaklings competing — none of them are going to make the Olympics. And while Gordon Brown couldn’t raise income tax rates, he raised every levy he could.’

While he’s based in New York — he runs Forbes Inc and is editor-in-chief of Forbes magazine — he is a regular visitor to Britain and sees a steady decline. ‘One reason why London is so expensive is that everything is taxed to a fare-thee-well,’ he says, looking around the hotel foyer. Mayfair doesn’t seem to be suffering, I say. ‘Well, even in 1932 you had buildings. St Paul’s still looked nice,’ he replies. It’s about as upbeat as he gets.

It is Autumn Statement day, and when I ask what he would do if he were Chancellor, he answers without any hesitation. ‘I would put in a flat tax. I would set it at 20 per cent, and raise a few exemptions — even though my Treasury would howl. I’d just say: this is the new rate. And I’d cut the corporation tax to 20 per cent, maybe give Ireland a run for its money and cut it to 15 per cent.’

This is Forbes’s great cause: a tax revolution, where the same low rate applies to all — corner shops and multinationals, cleaners and millionaires. Economic growth would take off, runs his argument, people would have an incentive to earn more and declare more. So the tax would pay for itself.

As he knows, the idea of a tax revolution sounds mad — especially in the British political debate, where the argument at present is over whether state spending should be 1 per cent higher or lower. But this is his point: that British politics has become so deeply stuck in an intellectual rut that any new thinking sounds bonkers.

What’s really mad, he says, is the current policy of relying on deficits (George Osborne now plans to increase debt by more than Labour proposed before the election) while embarking on a massive programme of quantitative easing, or printing money. The side effect of these freshly minted bank notes is to devalue the pound, but in a way the Bank of England believes it can control.

Forbes is not so sure. ‘It just is the 1950s and 1960s on steroids,’ he says. ‘Printing money is not the way to wealth. You need an environment that’s hospitable to enterprise. You don’t create that environment by trashing your own currency.’ Yet this, he says, is the only idea the government seems to offer. ‘Talk to small businesses and ask them how the Labour years treated them, in terms of regulation. Have the Tories made much difference? Not really. Look at what they’ve done to taxation, look at what they’ve done to the pound itself. Very nice if you’ve already made money. But if you want to make money now, you find yourself in a very, very harsh environment.’

When Forbes first ran for president in 1996, the flat tax was his manifesto. It even won him the Republican primaries in Delaware and Arizona — but he crashed in Iowa, and then ran as an independent. His flat tax has had more success: it is now introduced in 23 countries, including Russia. The idea is now creeping into the American debate: most of the main candidates for the Republican nomination want a flat tax, or a version of it. The problem is as obvious here as it is there: advocating a reform that would benefit the rich.

As a former politician, doesn’t Forbes accept that — whatever the economic merits of a flat tax — it is politically impossible to introduce? ‘Getting things done in politics means figuring out how to use language and win the arguments that make things possible,’ he says. ‘As soon as they say “You’re favouring the rich,” then you say — as Thatcher did — “No, this is absolutely necessary” and explain why. If you’re not willing to make arguments, you’re always going to have the other side setting the terms of debate.’

At the very least, he says, Osborne should abolish the 50p tax rate. The Tories, he says, ‘didn’t fight it — or come up with their own version of the flat tax. They let Gordon Brown define the terms of debate. Osborne has ended up saying: “Well we have a time of sacrifice, and we must all play our part.” Now Whitehall wonders, “Why don’t we have more hi-tech companies?” Well, you’ve created an environment that is inhospitable to hi-tech companies, especially with higher capital gains tax.’

Forbes is so confident about impending disaster that he has a bold prediction for the future of money. ‘When the dust settles, the dollar will be re-linked to gold,’ he says. And Britain will look back on the great scandal of quantitative easing, he predicts, and tie the pound to the new gold-backed dollar so politicians can never again turn on the printing presses. ‘Once upon a time you had Byzantine gold coin, Spanish silver, the British pound, and then the dollar. The Romans should have taught us this, but every few years you need to re-learn the lessons. Governments cannot resist the temptation of trashing their money.’

Forbes is certainly an iconoclast, but it is impossible to write him off as a crank. The Republican party’s establishment tried. Almost 20 years later, aged 64, he is still a distinct voice in the American political debate. His record at predicting elections is better than his record when it comes to winning them. He believes a Republican will defeat Barack Obama in the next election — in which case, a version of his flat tax may very well be tested. But a British flat tax revolution may take a little longer in coming.

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