The Missing Message

ON WESTMINSTER

CUTTING taxes in the UK and increasing government borrowing, without explaining there would be accompanying cuts in expenditure, was what recently spooked the money markets — Liz Truss’s mistake No1.

Reversing the decision to cut the highest rate of tax was No2. It made the government look chaotic.

She made one other mistake: she didn’t explain why she was cutting taxes, especially for the higher paid.

All past Treasury evidence is that the higher income taxes are, especially the top rate, the less revenue the government receives.

Tax avoidance increases, and the richest move themselves or their money abroad. It’s human nature. In the late 1970s the higher tax rate, under Labour, was 98 per cent. A mass exodus ensued. The International Monetary Fund (IMF) had to bail UK out.

Blair learned this great Thatcher lesson. Throughout his Labour reign, the top rate of tax was (wait for it) 40 per cent.

It was Brown who introduced a 50 per cent top tax rate, and Cameron who reduced it to 45 per cent. When all higher income taxpayers (including those currently paying 40 per cent and 45 per cent) paid just 40 per cent, they accounted for 60 per cent of the total income tax take!

In other words the lower tax rate payers’ percentage of the tax take was REDUCED. They consequently benefitted. Tax the higher earners more than 40 per cent and the pressure to increase taxes on the lower paid INCREASES.

It’s lower taxes that increase what the high earners pay, not higher taxes. Margaret Thatcher knew that, so does Liz Truss. Margaret explained it, Liz didn’t. That was her problem. Still, Liz was right. Her backbenchers need to shut up and ride the storm. Unity and sticking to what you believe wins elections, not chaos.