The Tories’ obsession with raising taxes shows they have lost their way

We’ll soon be handing over record amounts to HMRC – and the hikes could be political suicide

So, let me get this straight: the Tories are planning to go into the next general election promising to increase taxes. Not just by a little bit, but by many, many billions. Not just any taxes, but those that target the more successful, upwardly mobile families, the kind the Tories used to consider to be their people. And not just at any time, but as we supposedly exit the European Union, a disruptive moment which will require a radical, laser-like focus on competitiveness and productivity.

What, exactly, is wrong with this Government? Normally, politicians dump their principles to win elections, but the Tories seem to be planning to dump Toryism the better to be defeated. Theresa May’s decision to spend more on the NHS is just about understandable: we are stuck with a gigantic, 1940s-style health behemoth with the taxpayer as its only source of funding, yet the Government has no mandate and no appetite to do anything truly radical.

The NHS’S productivity has shot up since 2010, but there’s not much more that can easily be wrung out from the current, unresponsive structures. It is possible, with a huge amount of effort, to radically turn around very big private firms – Tesco appears to have just done that. But nobody is really in control of the NHS and nobody ever will be; there are no more levers to pull, and bureaucratic reorganisations inevitably fail. Mrs May was trapped: we are at that point in the politicaleconomic cycle when NHS funding moves from relative famine to relative feast, if only to avoid total collapse.

But she should have set Philip Hammond a simple challenge: find the money without increasing taxes. Either create it by growing the economy faster (a supply-side plan would help), or reallocate cash from elsewhere (primarily by cutting spending on other projects, but also by paying as little as possible to the EU after we leave). Or, in extremis, borrow a bit of it (less unacceptable with the deficit now at 1.8 per cent of GDP). There will be a short-term Brexit fiscal boost only if the economy holds up, hence the vital importance of forcing the Treasury’s defiant declinists to start focusing on competitiveness and growth again.

Instead, the Prime Minister appears to have given the Chancellor near carte blanche to hike taxes. He will now be egged on by Tory Remainers with a political death wish to “prove” that there is no Brexit dividend. He may freeze the personal allowance, dragging 400,000 more families into the 40p tax rate in a couple of years. This is madness and shows that the Government has lost its way.

Taxes are already at their highest level as a share of national income since the savage recession of 1981-82. Any further increase would put us on course to overtake the peak reached in 1969-70. How could a Tory government bear to smash that sorry record? Especially one that continues to spend on vanity projects such as high levels of foreign aid, HS2 and various subsidies to business.

Opinion polls can mislead when it comes to tax, in the same way that reputable long-term surveys purported to show that there was no support for leaving the EU. The truth is that people really don’t like paying more tax themselves, even if they are happy to see those much better off hand over more to HMRC. The politician, party or cause that is seen to promise the lowest taxes for the bulk of the taxpaying electorate almost always wins, a “law” of British politics that has received too little attention.

Don’t the Tories remember how the poll tax proved politically fatal for Margaret Thatcher, and how the Tories finished off Neil Kinnock with their double-whammy, “tax bombshell” campaigns? Or how Tony Blair stole the low-tax mantle in 1997 after John Major lost all credibility on that front, and the stunning way David Cameron defeated Ed Miliband by pledging a law guaranteeing no rises in income tax rates, VAT or national insurance before 2020? Miliband’s Mansion Tax and the prospect of a Labour-snp coalition hammering England also did for the Labour leader in 2015.

Brexit was partly a fiscal issue, a point which Remainers cannot seem to fathom. Even the young and right-on respond to fiscal incentives: the pledge to slash student fees helped drive hundreds of thousands of younger voters into Jeremy Corbyn’s arms.

There is another reason the Tories cannot afford to tax more: the economy cannot bear it. The higher end of the housing market is in shreds because of stamp duty, and working in Britain is becoming increasingly unattractive. The Tories have already increased the number of taxpayers paying the 40p rate from three million in 2010 to 4.3million by failing to increase the threshold as quickly as inflation. The number is up massively from 2000, when just 1.7million were affected. Many more have been dragged into marginal tax rates of over 60 per cent, starting at £100,000 a year, as a result of the way the personal allowance now tapers away.

The top 1 per cent of income-tax payers are also being hammered: they earn 12.2 per cent of total income – a lot less than before the crash – yet they will pay 27.9 per cent of total income tax in 2018-19. It was just 20.8 per cent in 2003-04. The Tories are squeezing the “rich” far more than Labour ever did, in part by removing most pension tax relief for the highest earners. There were 236,000 people eligible for the “additional rate tax” at 50p in 2010-11 when it was introduced by Labour; there are now 393,000 paying it, albeit at 45p, again thanks to the horrors of fiscal drag.

But when will this pseudo-tory party decide the pips have squeaked enough? When the top 1 per cent pay 30 per cent of all income tax? 40 per cent? When a million people pay the additional rate? When the geese finally stop laying the golden eggs? Could it already have started to happen? Why is over-taxation never mentioned as one of the causes for the decline in Britain’s productivity performance?

The Tories are wrong politically, and they are wrong economically. If it is to have a chance, Brexit needs to be accompanied by a radically progrowth, pro-enterprise economic policy. Tory MPS who want to keep their seats at the next election will have to tell the Chancellor, in no uncertain terms, that they will not tolerate his fiscal hara-kiri.