Read my lips: the Tories must not put up taxes
Their election promise was to level up, not down: the post-brexit plan should be to cut and simplify taxes
No new taxes: that ought to be a golden rule for any Conservative government, especially one embarking on the most ambitious revamp of our economy, culture, politics and legal system in a generation. Bizarrely, however, discussions have been held at the highest levels in Nos 10 and 11 Downing Street about the possibility of a massive raid on pension contributions, a mansion tax-style wealth tax and a bevy of other levies. None of these reheated Corbynite and Milibandesque “ideas” was included in the manifesto; almost all would directly target Telegraph readers and others who have supported the Tories (and Boris Johnson personally) for the past 20 years.
So what is going on? Is the nomenklatura rampaging out of control? Are the clever-silly mandarins using the latest incarnation of our ever-changing “fiscal rules” to trip up Sajid Javid, furious that he has slapped them down on Brexit and infrastructure? Is this some misfiring attempt at class war against wealthy London Remainers, signalling to Northern recruits that the Tories have changed? Whatever it is, there is no justification for any of this nonsense.
The tax take is at a multi-decade high, one reason why the economy isn’t growing as quickly; the top
1 per cent pay a record 29.6 per cent of income tax; Britain already has the highest levies on property in the developed world; and our insanely complex tax code has reached 22,000 pages, 12 times the size of the King James Bible. The answer ought to be to cut and drastically simplify taxes to encourage work, savings and wealth accumulation, and to attract investment and talent to show the world we mean business post-brexit.
Taxes “work” all too well. If you tax something (other than trivially), especially capital, transactions, income and wealth, you get less of it, and in many cases the reduction can be substantial. Stamp duty has crippled sections of the housing market. The sugar tax has accelerated the decline of traditional soft drinks. The tax on buy-to-let is killing off that market. If you tax higher earners a lot more, you will get fewer of them.
One non sequitur being cited at the highest levels in Tory circles is that property taxes are higher in New York. But the Big Apple’s policies are a disaster: companies and individuals are leaving in droves. Even Donald Trump is relocating to Florida for tax reasons. Every wealth tax in history has ended in failure. The Swedes lost swathes of their entrepreneurial class; the French lost tens of thousands of their best and brightest.
Workers and businesses don’t stay in big cities with bad tax policies just because of “agglomeration effects” or nice cafés. Even knowledge workers respond to tax rates: just look at UK GPS taking early retirement, the exodus from California towards cheaper states, or how Portugal has attracted thousands through its non-dom arrangements.
The absence of a wealth tax is one of the secret reasons for the UK’S continued semi-decent economic performance, why the City continues to prosper and tech is exploding, even though we have become less competitive in a host of ways.
Taxing existing property ownership much more heavily would turn freeholders into leaseholders, weaken property rights, change the historic relationship between state and citizen, and mortally damage the foundations of British society. It would be toxic for capitalism and conservatism, the two systems that it is this Government’s historic mission to save.
Most economists believe that taxing property is less economically damaging than taxing income. They are wrong. People and companies aren’t prisoners in one country or home. Imposing a meaningful wealth tax would lead to massive, negative behavioural changes.
It is true that long-standing homeowners have made vast, untaxed capital gains as prices have shot up; but the answer to housing affordability is to build a lot more homes and, when appropriate, to hike interest rates. Taxing unrealised capital gains via a mansion tax would see cash-poor pensioners forced to extract equity, sell up, or roll over their liabilities into a huge inheritance tax bill.
Council tax was higher in real terms in the 1970s and 1980s, but that is no reason to return to those sorry days. Its purpose is to contribute to local services, not to confiscate wealth. Adding extra bands – one version of the proposals discussed in recent weeks – would mean revaluing all homes. Millions would pay more: it will make the poll tax look like a tea party. Local government finances need to be overhauled, but not in this way.
Hitting the rich with higher taxes is popular, but the Government is doing lots of unpopular things: HS2, retaining foreign aid, banning petrol cars and gas boilers, Huawei. Mr Johnson has rejected populism in these areas, rightly or wrongly, and he should do the same on tax. None of his Northern voters backed him because they thought he would hit the better off: they just want their own families to prosper. They bought into the Tory message of levelling up, and rejected Corbyn’s socialist levelling down.
The Government grabbed 43.6 per cent of the vote last year; its potential market is even greater if it can unite the centre-right from North to South, Brexiteers and Remainers, graduates and non-graduates. While these groups disagree on much, such as the environment or immigration, one policy could unite all of them: keeping taxes low. A similar approach has helped hold the Republican coalition together in the US and saved conservative parties elsewhere.
In an interview with The Sunday Telegraph last year, Mr Johnson quoted Ibn Khaldun, a great medieval Arab intellectual and early supplyside economist. The PM paraphrased him beautifully: “If you cut taxes on the olive harvest, or whatever it was in 14th-century Tunisia, actually people grew more olives, and tax yields went up. It doesn’t apply in every case, but he is making a valid point.” Mr Johnson should ask Mr Javid, who also understands the role of incentives, to order every Treasury bureaucrat to read Khaldun, and then tear up their daft plans. Here is another golden rule: there can be no such thing as a successful tax-raising Tory government.