Editorial Comment
The Government is on the verge of a historic mistake. The deficit is enormous – and the national debt has now reached some £2trillion – in part because of the Covid/lockdown economic shock, and in part because of Boris Johnson’s decision to spend a lot more. The Whitehall establishment is, rightly, deeply concerned about this, but is characteristically coming to the wrong conclusions. Instead of slashing unnecessary current spending (and also useless “investment” on the likes of HS2) it is pushing for massive tax hikes, which of course social democrats are always more comfortable with.
Even before Covid, Britain was approaching the joint second-highest tax-to-GDP ratio since 1969-70, dragging down economic growth and productivity. If there is one thing the centre-right had learnt since the Seventies, it is that cripplingly high levels of tax are bad for the economy and society; on that basis, the Cameron/May years had been a lamentable fiscal failure. Yet it is all about to get much worse: almost incredibly, the Treasury is actively considering and pushing a quintuple-whammy of tax increases that could easily end up being the greatest Tory tax rises in living memory.
On the table, right now, is an increase in capital gains tax (perhaps all the way to 40 per cent for some), an assault on pensions relief (with a relief probably capped to 20 per cent), a hike in petrol and other duties, a tax on online shopping and a “simplification” of inheritance tax that would almost certainly mean some end up paying more after a bereavement. Each on its own ranges from the disastrous to the highly ill-advised; together they are calamitous. They would hammer Tory shire voters, investors and the party’s traditional electorate in the South; crucially, they would further reduce what is left of Britain’s relative attractiveness as a destination for work and investment.
There is still time to step back from the brink. The Prime Minister and Chancellor must go with their instincts and rule out these tax rises. Whitehall mandarins should be ordered to go back to the drawing board, and find ways to save billions. In these pages, John O’Connell of the Tax Payers’ Alliance suggests scrapping the pensions triple lock, controlling public sector pay, closing quangos and reviewing a laundry list of state-backed schemes that deliver negligible benefit for the amount spent. There is an alternative: the Government must resist Whitehall groupthink, and launch a war on waste.