Hunt’s assault on ‘unearned income’ is just anti-capitalist
Chancellor Jeremy Hunt went out of his way to attack what he himself chose to describe as “unearned income” in his Autumn Statement. He followed those words with actions, announcing an extra tax on dividends, a windfall levy on excess profits, new rounds of charges on landlords, an increase in the rates on property and, of course, a steep rise in inheritance tax, even if that one was slipped into the speech so stealthily even Gordon Brown might have felt ashamed of the subterfuge.
The truth is the entire premise of Hunt’s plans is flawed. In reality, there is no such thing as “unearned income”. All income is “earned”.
As any economics textbook will tell you, capital is a scarce resource just like land and labour. If an entrepreneur commits capital to a new venture, then he or she has earned the dividends that might one day flow from that.
If a landlord has bought and maintained a property they have earned the rent paid on it. And if someone inherits some money from their parents, who have no doubt paid high taxes on it all their working lives, they have earned that as well.
Like the phrase’s equally popular cousin “unfunded tax cuts”, the language itself takes us down a slippery slope to a quasi-marxist state where only the income produced by industrial labour counts, and all else belongs to the government.
One point is certain. There is nothing conservative about the language that the Chancellor is using – or, come to think of it, about the policies he and Rishi Sunak, the Prime Minister, are imposing on the country.
You did not have to wait for very long into Jeremy Hunt’s fiscal statement on Thursday before the dreaded phrase “unearned income” made its first appearance. It came 1,200 words into a 6,700 word speech. “I am also reforming the allowances of unearned income,” he announced with that steely tone he has started to adopt.
What followed was a string of tax rises on all manners of earnings that don’t come from clocking into the Tesco warehouse in the morning, say.
The dividend allowance, which helps many small savers and the self-employed, was reduced from £2,000 this year to £1,000 next, and then to £500 (whoop, whoop, a whole £500 the Treasury will let shareholders keep to themselves – that is exciting). The exempt amount for Capital Gains Tax will come down from £12,300 this year to £6,000 next year, and then £3,000 after that.
The Energy Profits Levy went up from 25pc to 35pc, and there was a new 45pc levy on electricity generators, which will of course mainly be paid by shareholders in the major power companies.
Finally, the inheritance tax threshold was frozen at £325,000,
which, with inflation running at 11pc, meant a big increase in real terms. At this rate, a tax that was designed for the super-rich will soon be paid by every family on the death of a parent. The list just goes on and on.
One problem with Hunt’s fiscal statement is that raising taxes steeply and tightening fiscal policy while heading into a recession is only going to make the downturn much worse and the recovery, if it ever arrives, much slower. To Hunt and Sunak, it is as if Keynes had never existed. The price for that mistake over the medium-term will be a high one.
But the far bigger issue is the wholesale adoption of the language of
the Left – and the Marxist hard-left at that.
To re-iterate, all income is earned, regardless of its source. The dividends that an entrepreneur pays are earned by taking risks and typically by working incredibly hard as well. The income or “capital gain” that a shareholder receives is earned by saving some money (after tax, let’s remember) and then risking it by handing it over to a company to put to work. The rent that a landlord receives is earned by buying a property, maintaining it to all the required health, safety and environmental standards, and taking the risk of non-payment. And an inheritance has been earned by your parents, or whoever leaves you the money.
We need plenty of capital to create a modern, prosperous economy, and if we tax away any of the returns that might be made on that then we can hardly be surprised if it all disappears and is put to work in a country where it is more welcome.
Language matters. When the BBC lectures us endlessly about “unfunded tax cuts” it is assuming that all the money the country generates belongs to the state, which kindly allows us to
keep a small proportion of it for ourselves. Therefore, any tax cut has to be matched by a cut in spending, so the logic goes.
Likewise, when the media and the liberal-left establishment talks about “unearned income” it is implicitly assuming that one form of earnings is morally superior to another. It is as if only income earned in a factory, or warehouse, or on a shop floor is legitimate, and all the rest of it is just exploitation, as Karl Marx argued.
That is morally wrong, for the simple reason that we should not be demonising one form of activity over another. And it is an economic catastrophe as well.
A country with shockingly low levels of productivity, such as Britain, desperately needs more investment but that is hardly likely to materialise if we immediately condemn the returns investment may generate as unearned and tax them out of existence.
An economy without any “unearned income” will very quickly get poorer and poorer. Tory chancellors and prime ministers used to understand that – and it is shocking that the two men in charge of Britain right now have completely forgotten it.