For Hunt and Sunak, raising taxes is the coward’s way out
Nobody votes Conservative to pay more tax. The doctrine of Tory administrations since 1979 has been to cut taxation by stimulating growth and reducing public spending. Yet we are promised tax rises next Thursday, when the Chancellor tells the Commons how he proposes to improve the country’s financial predicament. That he has to do so is a terrible indictment of how economic policy has been conducted lately, not least by the current Prime Minister. And tax rises are an act of self-immolation when our economy has shrunk by 0.2 per cent in the last quarter.
The equation is simple. Raising taxes disincentivises everyone affected. Individuals have less reason to work hard. Corporations have less reason to operate in our economy, and might well look for somewhere else to do so. People and institutions are deterred from investing. As disposable income falls, so does consumption. The ultimate victim is growth: there is none. Wealth ceases to be created. We are all poorer.
Those softening us up for higher taxes say the Chancellor “has” to do this to protect pensions and other benefits. The triple lock on pensions was an extravagance even in good times: now it is lunacy. Nobody wishes to harm pensioners; but compared with the younger generation, they have had it easy. Graduate starting salaries have not risen in line with inflation. For others, the minimum wage barely offers an existence. It is why so many live with their parents well into their thirties; few can afford to rent somewhere decent, fewer still to buy (though the probable crash in property prices caused by the Government’s economic mismanagement could change that).
The state is “protecting” those over-protected in the past – not just pensioners, but 2.6 million of working age who have left the labour market, are not of pensionable age, and are living off benefits. Jeremy Hunt is making the classic mistake of shoring up the unproductive sectors of our economy by punishing, and diminishing, the productive sectors.
Corporation tax is already going up to 25 per cent, raising £18billion a year. There are rumours he will make a grab on inheritance tax, when it has long been Conservative policy to increase its threshold dramatically, not least because the assets subject to such taxation have mostly been purchased out of income already handsomely taxed. The same could be said for the kite being flown over raising the rate of capital gains tax, and possibly lowering the threshold at which it would be paid. These days, most assets subject to CGT have been acquired with taxed income. The incentive for saving and investment, vital for growth, will soon disappear altogether.
People who can only aspire to assets may suffer too. Tax thresholds and allowances, already frozen for four years from last April, will appear even more harsh because of inflation eating into their real value – what economists call “fiscal drag”. There will have been more than a doubling of the numbers of people paying the top 45p rate by 2026-27 compared with in 2019-20, from 400,000 to 850,000; and there is talk of lowering the £150,000 threshold at which that is levied.
Other rumours include extending a windfall tax on energy companies. Undoubtedly these have done well out of high commodity prices, but equally they will be clobbered by corporation tax. Small businesses may suffer too. The VAT registration threshold may be lowered, and all employers could suffer from a 1.25 per cent rise in their National Insurance contributions. It sounds like a Labour government’s dream budget.
And it sounds like one for good reason. Like a Labour government, this Conservative one is afraid to confront the real excesses of public spending – not least because a meaningful cut in expenditure entails serious reductions in payroll. But has there ever been a better time to cut that payroll? There are more vacancies than there are unemployed. Many in the public sector have transferable skills – they are office staff who know how to use computers, for a start. The NHS, the country’s biggest employer, heaves with them.
The public sector, despite more than 12 years of Conservative-led government, is packed with people who are fundamentally pointless. The NHS blows £40million a year on diversity officers. They infest local government, in which serving the people who work for it seems more important than serving those who pay for it. There are 326 diversity officers in Whitehall alone.
Mr Hunt is right to say that the markets expect evidence that debt is being reduced, and will continue to be. But the Conservative way to do this is to strip out a bloated public sector, and use the savings not merely to pay down debt but to use the tax system to incentivise economic activity, and growth, instead of suffocating it. Raising taxes is entirely contrary to the Government’s 2019 manifesto, and will bring further and increasingly justified calls for a general election.
Of course there was a pandemic, in which control of public spending appeared to be surrendered altogether – by Mr Sunak. And there was the recent insane extravagance of giving every household money to subsidise its heating bills, irrespective of need. Stopping such taxpayer-funded beanfeasts, slashing the size of the state and auditing every job on the public payroll to ensure it is really essential is the way to save money. Raising taxes is the coward’s way out.
The Tory way to cut debt is to strip out the bloated public sector and use the savings to incentivise growth instead of stifling it
Like a Labour government, this Conservative one is afraid to confront the real excesses of public spending