Hunt must rethink attack on taxpayers
Another stealth raid on pensions, the possibility of a drastic reduction in pensions tax relief for 40p taxpayers, hikes in capital gains and dividend taxes, frozen thresholds, yet more punishing windfall levies: if Jeremy Hunt, the Chancellor, does indeed launch such an attack on taxpayers in his Autumn Statement this month, we will be officially back in the anti-growth, redistributional Britain of Gordon Brown. Already, corporation tax is heading much higher – to 25 per cent, squandering the competitive advantage the country had gained over other G7 countries. Now, the UK is facing a recession potentially burdened by a toxic mix of even heavier taxes on enterprise, earnings, investment, saving, and aspiration.
It is futile lamenting the failure of Liz Truss’s alternative approach – an attempt to shock Britain out of its low-growth paradigm by cutting some of the most economically damaging levies. But is the lesson to be learned from the failure of the mini-Budget really to head full steam in the opposite direction, repeating some of the mistakes made by George Osborne during the Coalition and ending the Tory mission to reverse the changes of the Blair/Brown years?
There are massive problems with the tax raids being mooted. Continuing to freeze the pension lifetime allowance will dissuade some workers from staying in jobs, adding to the worklessness crisis and arbitrarily penalising those who have benefited from wise investment decisions. Persisting with fiscal drag by freezing tax thresholds will push households on modest incomes into rates designed originally for wealthier people, while pretending to them that their taxes are not going up. Reducing pensions tax relief would discourage savings and effectively hike marginal tax rates.
Just as higher corporation tax will disincentivise businesses from investing and taking on more staff, perhaps depressing revenues for the Exchequer, increasing capital gains tax is unlikely to raise the sums being talked about. If people must pay too much to dispose of assets that have grown in value, they will not sell them, resulting in an inefficient allocation of capital. And the Tories should be encouraging individuals to hold shares – extending Mrs Thatcher’s democratic capitalist revolution – not raiding dividend income that people use to support their lifestyles. It would represent another hammer blow against the self-employed and small business owners, who have for many years been the backbone of Tory support.
Mr Hunt is right to seek to put the public finances on a more sustainable path. But the idea that it is just to balance the books on the backs of wealth creators and savers does not bear scrutiny. These are the people the country will rely on to drag the economy back to a healthier state. Unfortunately, the obsession with distributional “fairness” – ensuring that higher income groups lose out in any financial statement – seems to have returned, dashing hopes that the public debate had shifted to growing the total size of the economy.
There is time for the Chancellor to reconsider. It would not be impossible for public spending cuts to constitute a greater proportion of the fiscal tightening deemed necessary. HS2 is an outrageous waste that should be cancelled immediately. The Civil Service is larger than it needs to be, while the energy price guarantee could be reduced in scope sooner while still protecting the most vulnerable, saving billions. In the longer term, the Government will have to do something about the scandal of Britain spending a comparable proportion of its GDP on the health service to other European countries while getting far worse outcomes.
Otherwise, what is the future of Britain – and the Conservative Party – to be? A depressing slide into social democracy, relative poverty, and national failure.