How Tax Works...

Tax – a horrendous and boring subject!


How can I successfully argue that actually high earning bankers are not all bad, or that the wealthy actually do make a difference and we shouldn’t over –tax them? Well, this story hopefully explains things a bit and works for most people I speak to…by the way, stick with it if you are really left wing as a rich guy gets beaten up!

Suppose that every day, ten men go out for beer and the bill for the nights drinking for all ten of them comes to a nice round £100.00

If they are wholly representative of the UK electorate, and paid their bill the way they pay tax, it would go, on average, something like this:

The first four men (the poorest) would pay nothing.

The fifth would pay £1.00

The sixth would pay £3.00

The seventh would pay £7.00

The eighth would pay £12.00

The ninth would pay £18.00

The tenth man (the richest) would pay £59.00

For our story, these ten men drank in the bar every day and seemed quite happy with the arrangement of each enjoying the same amount of benefit and paying according to their means.

One evening the Barman said:

"Since you are all such good customers I'm going to reduce the cost of your daily beer by £20.00!" Drinks for the ten men would now cost just £80.00

Now, the group still wanted to pay their bill the way we pay tax, so the first four men were basically unaffected as they could still drink for free but what about the other six men - the paying customers? How could they divide the £20.00 windfall so that everyone would get his fair share?

They realized that £20.00 divided by six is £3.33. But if they subtracted that from everybody's share, then the fifth man and the sixth man, who were only paying £1.00 and £3.00 now, would each end up being paid to drink the beer!

So, the bar owner suggested that it would be fair to reduce each man's bill by a higher percentage the poorer he was, to follow the principle of the tax system they had been using, and he proceeded to work out the amounts he suggested that each should now pay.

Now the fifth man, like the first four, paid nothing - a 100% saving!

The sixth now paid £2.00 instead of £3.00 – a 33% saving.

The seventh now paid £5.00 instead of £7.00 – a 28% saving.

The eighth now paid £9.00 instead of £12.00 – a 25% saving.

The ninth now paid £14.00 instead of £18.00 - a 22% saving.

The tenth and richest now paid £49.00 instead of £59.00 – a 16% saving.

Each of the six was better off than before and the first four continued to drink for free. But, once outside the bar, the men began to compare their savings.

"I only got one pound back out of the £20 saving," declared the sixth man and he pointed to the tenth man, “but he got £10!"

"Yeah, that's right," exclaimed the fifth man. "I only saved a pound too. It's unfair that he got ten times more benefit than me!"

"That's true!" shouted the seventh man. "Why should he get £10 back, when I got only £2? The wealthy get all the breaks!"

"Wait a minute," yelled the first four men in unison, "we didn't get anything at all. This new tax system exploits the poor!"

The nine men surrounded the tenth and beat him up.

The next night the tenth man didn't show up for drinks, as he had moved to a foreign pub, so the nine sat down and had their beers without him. But when it came time to pay the bill, they discovered something important. Now if they paid what had been agreed they only had £31.00 of the £80.00 they needed. They didn't have enough money between all of them for even half of the bill!

And that is how our tax system works.

The people who already pay the highest taxes will naturally get the most benefit from a tax reduction.

Tax them too much, attack them for being wealthy, and they just may not show up anymore.

In fact, they might start drinking abroad, where the atmosphere is somewhat friendlier!

The Band In Heaven They Play My Favourite Song...

Who would be in your Heaven House Band?

Well there are some pretty significant anniversaries this year for prime contenders. John Lennon would have been 70 and its 30 years since he was gunned down in New York. John Bonham, powerhouse drummer with Led Zeppelin, died 30 years ago as well and Jimi Hendrix died 40 Years ago this very weekend past…so, my band in heaven playing my favourite song would be…

Vocals: Elvis Presley

I mean 56 Elvis, the real deal. The risk, the sex, the raw talent and that incredible Black/White Blues thing that every singer since has tried to get a piece of. That Elvis would have been at the forefront of any era and any music style and made it his own.

Lead Guitar: Jimi Hendrix

The God, the Greatest ever exponent of electric guitar playing and raw creativity. He practically invented the solo, the concept album and saved both the Fender Strat and the E7#9 chord from extinction. What a genius.

Rhythm Guitar and Backing vox: Kurt Cobain

Yes even more anger and cutting edge creativity from the Godfather of Grunge. The riffs, the melodies, the understatement followed by the overstatement, the pure pop of all that dirty rage. A pioneer, and keeper of the Elvis Flame, into the nineties and beyond. Listen to Unplugged for a sneak peek at his breathtaking range and hidden depths.

Bass Guitar: John Entwhistle

The Who were so much more than the sum of their parts. That bass solo in My Generation was completely new and is such a key counterpoint to Townsend’s down-stroke rhythm guitar angst taking the whole song up a gear. When the best Bass player’s work is done the band say we did it ourselves and when they look round he has packed up and gone – his work done.

Drums: John Henry Bonham

What more can I say. The drummer’s drummer; and a man who has, quite simply, re-written the drum pattern for rock music. A man whose absence meant the greatest band on the planet could no longer continue as they were and whose sound has been emulated and sampled a thousand times over. He chained groupies to his bed so they would still be there after the gig. He drank more than Keith Moon and Oliver Reed. He died the only true rock star death after 30 shots of vodka. He played the drums on When The Levee Breaks. Nuff said.

Keyboards: Don’t be silly.

So there you have it – a pantheon of genius and the band in heaven. Of course you may have Django Reinhardt, Jaco Pastorius, Buddy Rich and Frank Sinatra – but my band is way louder than yours!

Why we are all richer than The Sun King

1. This morning I got up from a bed made from Swedish Timber

2. I ate a selection of produce from local farms but Kenyan coffee and Californian Orange Juice

3. I dressed in Indian cotton and Australian wool with shoes made of Chinese leather and Malaysian rubber.

4. I read a book using paper made from Finnish pulp and Chinese ink

5. I switched on my computer manufactured from components sourced from Korea, America, Taiwan and China

6. At lunch I will eat bread made from French and Russian wheat with New Zealand Butter.

7. I will write my paper journal using a French fountain pen.

8. I will check investments from each continent on the planet except Antartica…

9. But my computer screen saver has pictures from there…

10. The headache tablet I took was researched, tested, produced, patented, packed, delivered and distributed in seven different countries.

This is the truth behind the myth that Globalisation is bad. Human beings have been interdependent since the Stone Age and it has always meant that one add one made more than two - Global Growth!

Poverty is fetching your water from a river not a tap, getting firewood from a forest not a shed, cleaning potatoes growing outside rather than buying them from a shop, catching a chicken to pluck, gut and cook - all before fixing the roof, changing the floor covering, whittling a needle to fix your clothes, making a pot to cook with…need I go on?

Wealth is how much you can exchange your time for. It is the ability to do just one thing and yet exchange it and gain from thousands of people who have done other things for your benefit.

Louis XIV, The Sun King, had 498 servants attending to his daily welfare. My guess is we have more.

Africa - Investment Opportunity?

Carrying on the theme of Africa, I was fortunate a few years ago to spend some time in Cape Town at a conference in a especially pleasant hotel over-looking the famous Table Mountain. Pre-dinner one evening, as the sun was setting in a way you only seem to get in that continent, I got talking to a Gentleman who introduced himself to me in English as Edward. He did also give his African name, which was far more resonant and musical, but it has slipped from my memory with time.

He discovered I was in investments and began to tell me about his home, Botswana. I was, in the space of an hour, educated considerably!

African’s challenges are manifold. Many countries are land-locked, isolating them from world trade and the road and rail systems are often neglected and deteriorating. They have an exploding birth rate and a high death rate from Aids, Malaria and other less known diseases such as sleeping sickness and guinea worm. Their culture is still scarred by disruptions caused by the slave trade and imperialism, where many countries were effectively governed by minorities who did little to encourage an entrepreneurial class.

The combination of imperialism, Marxism and aid dependence has seen the erosion of many social traditions and, crucially, institutions. Even their best economic chance, agriculture, suffers from price controls and stifling bureaucracy. Many countries also have one-off windfalls from the discovery of resources, leading to reckless spending and borrowing, corruption and the entrenchment of dictatorships.

Botswana, Edward taught me, had all these problems. When it escaped colonial rule in 1966 it had just 8 miles of road (its roughly the size of Texas)! It was drought-prone, had high population growth and its people belonged to 8 different tribes. Yet since 1966 Botswana’s growth has been greater than almost any other country. Its average citizens now enjoy a lifestyle comparable to Bulgarians, Peruvians and Thais. It has seen no hyper-inflation like Zimbabwe, nor debt default. Even its elephants are thriving!

How did Botswana succeed so spectacularly in a continent famed for the opposite outcome? Through good public institutions. Botswana was fortunate in that the British colonialists largely left it alone. Britain only colonised the country to avoid Germany or The Boers beating them to it. The ruling Tswana people had a strong democratic tradition within their tribe and were inclusive, welcoming other tribes in. This aided their collective defence efforts and led to common law and justice. Three chiefs even met Queen Victoria to keep Botswana out of the hands of Cecil Rhodes! They succeeded.

Finally, Edward told me, they have through this system of trust entrenched strong property rights and evolved an entrepreneurial and democratic society that has fuelled growth in GDP to rival many Asian countries. The key word is “evolved”. He told me much of Africa is like the Nineteenth century American West with no cohesive law to protect property ownership - so individuals do not find it easy to own property and then borrow against it to build businesses. Botswana has solved this.

I believe that Africa, with its demographic and resource advantages over the next twenty years, can become a great world power – I hope it does. It will not do this by receiving top down aid through global intervention; in fact for many countries these things will stifle growth. Africa must be trusted to evolve and helped to do so through trade, markets, investment, the law and property rights. We in the West do have much to offer, but it should be in ideas and support and not rather patronising aid programmes.

As I read round this subject I was surprised to see who Africa's best friend has been recently. Bob Geldof? Bono? No...it was George W. Bush! Shock!

Anyway, I hope to help by supporting funds actively investing in African infrastructure and banking, business and resources which should give a morally rewarding and satisfying return for all involved.

Don’t give them a sack of grain – give them Tescos!

Mosquito Nets and Mobile Phones

This is a pretty good argument for traditional bottom up economics replacing top down Government intervention when it comes to giving African countries aid and support – hope you get something from it.

Mosquito Nets

After the Davos summit Gordon Brown, Bono and Sharon Stone commendably used their celebrity, and in Brown’s case political experience and intellect, to actively promote aid for Africa. The symbol of this appeal came to be the $4 insecticide-soaked mosquito nets for children to sleep under safely in areas of central and southern Africa where malaria still represents a huge national scourge.

The problem was giving them away for free. Very soon many Africans, particularly in Mali, used these free nets as fashionable items to wear, as wedding veils or even used them as fishing nets. Malaria rates remained stubbornly high. It was eventually one American who decided to sell them for just 50 cents each in the poorest areas, subsidising this by asking an inflated $5 of richer urban Malinese.

As a result, in the poorer areas mothers who had spent half a day’s wages on these nets made sure they were put to the proper use and within a few months over 50% of children under five slept beneath safe nets at night. Malaria rates fell quickly afterwards.

Mobile Phones & Sardines

It was conventional wisdom that generally Africans were too poor to need mobile phones and many businesses labelled the continent as a future market rather than a current one. However, Africans soon embraced the new technology for the benefit it brought them despite the cost.

Use of the bureaucratic landline system in many countries was time consuming, unreliable and expensive but Africans found mobiles allowed quick calls to be made albeit at a price. That price became worth paying when they could phone ahead to assess demand for a product before setting off for the market. In one example fishermen arrived at a port with a huge sardine catch. Unfortunately the buyers had all gone and the catch was largely wasted. Yet just 27 miles down the coast, hundreds of buyers were paying a 50% premium to their local fisherman who had now just exhausted their own stocks.

After acquiring a mobile phone, which got a signal up to twelve miles out, the fishermen were able to ring ahead and assess the demand for their catch before setting off back for shore. This resulted in an 8% increase in annual profits and a 4% reduction in the price of Sardines – coupled with a huge reduction in wastage.

Everybody won…except the Sardines of course.

My Top Ten Electric Guitars

Top Ten Guitars – Ever




OK – it’s my instrument of choice, and so here are the greatest electric guitars of all time that I have actually played.

10. The Tokai Strat – come on, it brought great guitars to ordinary people with no money and made Fender start making the Squier. Surely must make the list!

9. The Gibson SG – Always thought they were massive based on the AC/DC “If You Want Blood” album cover…but Angus Young is just really small!

8. Gretsch White Falcon – Ooohhh…what can I say? Rockabilly or Jazz it delivers..and some.

7. Gibson ES 335 – As played by the peerless Larry Carlton and one or two others…superb.

6. Jimmy Page’s twin neck Gibson SG – because its Jimmy’s and it just says “SEVENTIES!”

5. Rickenbacker 381 V69 – Jingly Jangly Jam John and err…Pete.

4. PRS Custom 24 – not quite a classic yet but well on its way and the most wonderful instrument for versatility and quality combined.

3. Fender Telecaster - The original Fender guitar that kicks arse in the rock world. Led Zeppelin’s first album? It was largely played on a Telecaster. Then there are the country guitarists…and the blues….

2. Fender Stratocaster - Jimi, Hank, Stevie Ray, Eric, Jeff - they all made The Strat their axe of choice and to be honest it has to be Number One…except this is my list and I choose…

1. The Gibson Les Paul - whether yours is the era of Slash, Jimmy Page or early Clapton with the Blues Breakers you gotta love the original for pure design, tone and historic significance.

The Eighties were Fantastic and here’s why… in ten albums, ten films and ten miscellaneous items!

Albums

1. The Pixies - Dolittle

2. REM - Green

3. The Smiths – The Queen is Dead

4. Tom Waits – Swordfish trombones

5. Prince – Sign of the Times

6. Talking Heads – Remain In Light

7. Talk Talk – Spirit of Eden

8. Stone Roses – Stone Roses

9. AC/DC – Back in Black

10. The Clash – Sandanista

Films

1. Blade Runner

2. Ghostbusters

3. Airplane

4. The Fly

5. Highlander

6. Gremlins

7. Stop Making Sense

8. Rain Man

9. Purple Rain

10. Ferris Bueller’s Day Off

Miscellaneous

1. Rubik’s Cube

2. ZX Spectrum games

3. CDs

4. Boys from the Black Stuff

5. Miner’s Strike

6. John Peel

7. Live Aid

8. Pac Man

9. Trivial Pursuit

10. MTV





There. ..Wasn’t it fantastic?



If you can remember then you weren’t there – or something…