Tuesday, March 18, 2008

Cigarettes and alcohol - a budget for 'families'

Cheltenham racing folk - beer and cigarettes

So that (below) was the news from England last week, when we were not talking about the economy and The Budget. Like the recent budget in Holland, it was supposed to be a budget for everyone, most importantly ‘families’, business, pensioners and so on … blah blah blah… It seemed to be more like a budget for a government trying to raise money to pay for all its financial commitments by increasing taxes everywhere. This was the reality, very different from the hype. Poor people will see a doubling in the amount of income tax they pay when the rate goes up from 10% to 20%. How nice. Then, if such poor person wants to smoke, drink or drive, he/she will be clobbered by price rises there. More if they drink than if they drive actually, because whereas the duty on alcohol was to go up the following Sunday, the already announced increase in petrol duty was delayed from April to October. Driving a private car, despite all the oil price rises and hikes in insurance rates has actually become cheaper under Labour (by about 10% in real terms) whilst if you are lucky to have any public transport in your neighbourhood, this has gone up about 15%-20%. So much for a green government concerned about climate change, as the current Prime Minister says he is.

Well, one good thing that they have done is to introduce a salesroom tax on 4x4 gas guzzlers, which should discourage people from choosing such big and unnecessary cars/vehicles – the Chelsea mothers brigade. Just as effective, if not more, should be the hikes in the congestion charge for such vehicles whereby they have to pay 15 pounds a day to enter London. Excellent!

My friend, Philip, said that London was the one city in Europe where they are seeing reductions in car use, mainly due to such measures. I begged to differ as I think that Amsterdam has doen a good job in reducing private transport, through narrowing roads, reducing the numbers of parking places and making residents pay for parking and restricting the numbers of permits. That, along with maintaining an excellent public transport system and creating cycle lanes all over the place (proper ones too).

So, the big social enemy seems to be drink, alcoholic drink, whereby beer needs to cost 3p a pint more, wine 14p a bottle and spirits 55p a bottle. Maybe a response to underage and anti-social drinking, but more a ready way to make lots of money on products with an inelastic demand curve… people will be drinking just as much, within reason, despite the price… and this can be done with the vague idea that the government is trying to protect the health of the population by encouraging them to drink less. Drink a bottle of wine a day, and the tax increase is a pound a week and 50 pounds a year, just the amount extra which pensioners (like my Mum) will receive extra this year (as a one-off) as contribution to their heating bills.

And, then we had the all of a major US bank, Bear Sterns and what happens to the economy once the financial system starts collapsing? We’ll be talking about more than a few pennies here and there. The unraveling of the US unregulated financial system, which has been financed by the Chinese, Japanese and Saudis has long been heralded, it was just a question of time. An interesting article in Dagblad de Pers today pointed out that the Dutch economy should be reasonably well insulated against shocks to the American system because trade with the US is less than 5% of the total export and the banks do not have a high exposure to the US banks and their financial instruments, although this remains to be seen… the Sunday Times mentioned the Belgian/Dutch bank Fortis as possibly being in trouble. Anyway, it is a good feeling, at least from this side of the channel. In the UK, it is quite probably a different story… we’ll see…


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