If you think your taxes are high under the Tories — just wait until Labour gets in, writes ANDREW NEIL
Britain’s tax burden is at a seven-decade high, yet politicians of all hues want to slap still more taxes on us.
Far from an intelligent debate about how we might get to keep a little more of what we make, the political discourse is dominated by louder voices demanding the right to grab an even bigger slice of our hard-earned dosh.
Even the Tories have given up making the case for more limited government and lower taxes. Yes, ministers periodically dangle the prospect of tax cuts to come, but the more they talk (vaguely) of that, the faster taxes rise. It reminds me of that delicious quote from Ralph Waldo Emerson: ‘The louder he talked of his honour, the faster we counted our spoons.’
As Tories talk the tax-cutting talk, check your spoons: they are presiding over one of the largest tax takes in our modern history. The tax on business profits has been increased from 19 per cent to 25 per cent, a slap in the face to those who thought the point of Brexit was to create a dynamic, low-tax competitor to the European Union.
Windfall taxes have been levied on energy companies, taking their total tax rate to 75 per cent, forcing Harbour Energy (the biggest independent operator in the North Sea) to lay off hundreds of workers and TotalEnergies to cut North Sea investment. So much for increasing the security of our oil and gas supplies.
Above all, the freezing of thresholds means income tax will have risen by a massive £25 billion a year by 2028, with basic-rate taxpayers paying more than £500 a year more and higher-rate payers over £1,000. Remember that when Chancellor Jeremy Hunt trails a 1p income tax cut in his Autumn Statement, it will be piddling compensation for all the extra tax you’re currently paying.
The Tories have been so adept at raising taxes it makes you wonder what taxes could be left for Labour to raise. But of one thing we can be sure: however high taxes have risen under the Tories, they will rise even higher under Labour.
Keir Starmer’s party has so far been coy — some might say dishonest — about what taxes it would raise, concentrating on those that don’t affect the majority of taxpayers but stick it to traditional Left-wing hate targets: private equity, private schools, landlords, non-doms, energy companies and the like.
But taxing Labour’s usual suspects will pay for only a fraction of the spending spree on which Labour will embark should it win the next election.
Keir Starmer’s party has so far been coy — some might say dishonest — about what taxes it would raise
The party has promised £28 billion a year on so-called ‘green’ investments (on top of existing public investment plans), £8 billion for a National Wealth Fund, a GB Energy Bank (which will doubtless squander billions) and, though it’s been vague about its intentions, almost certainly billions more for schools, hospitals, social care and various welfare benefits. After all, what’s a Labour government for if not all that?
It cannot do any of it without busting its self-imposed fiscal rules, which limit how much it would borrow, even if it’s for investment, and mandate a falling national debt (as a share of GDP). So taxes would have to rise. But what tax rises could possibly pony up enough for all this spending?
Certainly not the ending of tax privileges for non-doms, foreigners who work and live in Britain and pay tax on their UK earnings but not their overseas earnings (unless they remit them to the UK).
At most, this would bring in an extra £3.5 billion and even that assumes no one would leave for friendlier tax climes, which is unlikely. Successive tightening of the non-dom tax regime has already seen their numbers fall from 135,000 15 years ago to under 75,000 now.
There may be a case for ending non-dom status in the interests of fairness, but it is hardly a lucrative revenue-raiser. In the long run it might even lead to a net loss for the Treasury, depending on how many leave.
Levying 20 per cent VAT on private schools would raise even less: about £1.6 billion. Again, a total based on the dubious assumption that no parents would take their children out of these schools and relocate them in state schools.
In fact, many who are already feeling the pinch when it comes to school fees are bound to resort to the state sector, reducing VAT revenues from private schools and increasing the cost of state education.
Again, some will see this as a justified tax raid on the rich. But its revenue-raising potential is negligible, not just because the sector is so small but — according to a Mail report last November — could well get smaller, with an estimated 200 schools forced to close as a result.
It’s clear Labour spending will have to be financed by massive, as yet unspecified, tax rises and, for all the promises to be transparent with a properly-costed programme, are unlikely to be much specified this side of an election. So prepare for some tax-bomb surprises should Labour win.
Only five years ago, the Party’s canny Shadow Chancellor Rachel Reeves published a pamphlet proposing new property and land taxes, a new levy on gifts (to raise more than current inheritance tax) and a much higher level of capital gains tax.
When Chancellor Jeremy Hunt trails a 1p income tax cut in his Autumn Statement, it will be piddling compensation for all the extra tax you’re currently paying
These are the sort of tax rises that would produce at least some of the billions Labour needs to finance its spending. But we’ve heard little along these lines since.
The most recent pamphlet issued by Reeves was 11,000 words long, but only two paragraphs were devoted to tax — and told us nothing. I wonder why. The idea her plans for big tax rises are now off the agenda is for the birds.
The British Left has always tried to claim that it can pay for all its expensive plans by increasing taxes only on the rich. Of course, given the vast sums required, it never works out like that — everybody ends up paying more tax.
Scandinavian social democrats are much more honest: if you want massive state provision of services and high-quality cradle-to-grave welfare then taxes have to be high all round. Sweden’s basic tax rate is 32 per cent — and this rises to 52 per cent above £45,000.
More from Andrew Neil…
These are difficult times for tax‑cutters — and not about to get any easier. Significant forces on the Right (Donald Trump, Boris Johnson) joined forces with the Left (Joe Biden, Keir Starmer) to espouse the case for Big Government. The pandemic and the war in Ukraine gave it a further boost. All the pressure, from the Left and the Right, is for more public spending.
An aging population requires more money for pensions and health/social care (on average 85 per cent of our demands on the health service come in the last five years of our life). The war in Ukraine demands higher spending on defence.
And the cult of ‘net zero’ is being used by mainstream politicians across the political spectrum as cover for massive rises in state spending and interference.
Socialist Scotland gives a glimpse of the future. Since Holyrood was established, the number paying the higher rate of income tax has risen by 70 per cent. That marginal rate (42 per cent) is higher than in England (40 per cent) yet the SNP-Green coalition is considering a further rise of two percentage points.
High earners already face a marginal rate of almost 50 per cent. As a result, 12 per cent of Scottish adults pay 65 per cent of income tax collected. Squeeze them more and they might just vote with their feet.
The Scottish lesson for England is clear: Big Government, in the end, always results in Big Taxes. That is true the world over.
Of course, there is an alternative. The Liz Truss interregnum proved you can’t borrow your way to tax cuts (and Labour will soon learn it’s at the limit of borrow to spend). What would work requires much heavy lifting, for which there is little appetite
Radical reform of the NHS — currently a voracious, underperforming money pit — would revolutionise efficiency and introduce fresh sources of non-state revenues.
A huge welfare-to-work programme would encourage and cajole some of the five million who are out of work — and not seeking employment — back into the labour force, which would save taxpayers’ money and increase growth.
But mainstream politicians on the Right and Left are too cowed by established opinion and vested interests to promote such ideas. Dare to touch the NHS and you’re accused of ‘privatising’ it. Incentivising folks back to work is deemed ‘heartless’. So the case for more limited government and lower taxes goes by default.
‘We need five years in Opposition to recharge our batteries,’ a senior Tory told me this week, evincing the fatalism now taking over his party. ‘You need more than a recharge,’ I replied. ‘Your batteries are clapped out and obsolete. You need to build a brand-new power system.’
‘And that will take more than five years?’ he inquired. I nodded. He smiled wanly and changed the subject.
Prepare for Big Government — and Big Taxes — whoever wins the next election.
