Editorial Comment
Militant Remainers like to exaggerate the fiscal risks posed by leaving the EU but, as the Office for Budget Responsibility’s latest report suggests, it is the domestic policy errors made in the past decade that have left us in a perilous position – not Brexit. The deficit is down from its peak, but “net debt is more than double its pre-crisis share of GDP”. Moreover, the share of tax paid by the top 1 per cent – nearly one third of the entire tax base – has risen as their share of total national income has actually fallen.
This situation is as careless as it is unjust. Treating a small number of taxpayers as a veritable cash machine leaves Britain vulnerable to shocks. What happens if there is a stock market crash? Or if Labour looks likely to win an election – prompting panicked businesses and individuals to flee abroad? European countries are already cutting taxes to attract them. The mobility of capital in the modern era renders tax-and-spend all the more foolish. And yet the OBR’S report is published at a time when more and more politicians – both Labour and Conservative – are demanding higher spending financed by higher taxes on the rich. This populist spasm is economically illiterate.
Logic dictates three possible solutions to a shrinking tax base. First, tax the wealthy even more, which would cause capital flight and bleed the national finances dry. Secondly, tax the poorest more to balance things out. This would be a highly regressive measure that would undermine Tory efforts to reduce the welfare bill by making work pay. Thirdly, the Government could simplify the tax code and reduce the taxes paid by business and high earners to encourage them to stay in Britain, which would also turbo-charge the economy through the Brexit transition period, generating greater revenue for the Treasury.
To obsess about the tax arrangements of the rich is to miss the bigger picture: Britain is spending more money than it could ever hope to take in. The OBR warns that any unfunded giveaways in the near future would not only undermine the Tories’ fiscal objectives but also “add to the longer-term challenges”. What is needed – just to keep the nation’s head above water – is growth. Brexit can in fact help achieve that, if Brexit is accompanied by a bold, Conservative programme of deregulation, tax cuts and, crucially, free trade treaties.