Tuesday, August 27, 2024

'Dangerous?' - Yes, I'd Probably Have To Agree, Simon.

Rachel Reeves isn’t just ignorant. Her plans are a danger to Britain.

Higher taxes can mean less revenue, as Labour is about to find out to the country’s cost

Rachel Reeves
CREDIT: Toby Melville

For reasons mainly of class belligerence, the Government appears determined to spend excessive amounts of money it doesn’t have on undeserving client groups. Public sector workers are appeased, trade unions bribed, and where money is squandered – on people who choose not to work, or on failing to contain illegal migration, for example – remedial action is either slow or non-existent.


Thus the Government talks about “black holes” – apparently £22 billion, despite the economy growing healthily in contradiction to what Labour said during the election – and of the need to take “difficult decisions” about taxation to pay for its incontinent spending. As Labour claims to be keeping (for the moment) its promise not to increase income tax, this means it will have to raise taxes that, it pretends (or perhaps, in its economic stupidity, actually believes), affect only “the rich”: capital gains tax, pension tax reliefs, and punishing a group the Conservative Party had already targeted, the non-doms.


In fact, increasing such taxes would damage millions who don’t pay them as well as those who do, and harm investment.

A rare tax increase Labour has, so far, publicly committed itself to exemplifies the unintended consequences of its anti-capitalist, anti-elitist fiscal policies: the imposition of VAT on school fees. Leaving aside the moral outrage of this tax – anyone who cannot grasp the charitable nature of education, and therefore the reason why it should not be taxed, must be intellectually deficient – it hasn’t a hope of achieving its aim of paying for 6,500 extra state school teachers.


Private schools are already closing for want of enough pupils to remain viable. The heads of 50 schools wrote to the Government last week to warn ministers of a “bow wave of disaster” on the state sector, coming mid-way through the new academic year when VAT is levied from 1 January, as large numbers of private school pupils search for places in state schools. Despite her own elite education at Oxford University, the Education Secretary, Bridget Phillipson, seems so driven by class considerations that she could not care less whether this happens or not.


Given the damage it could inflict on large numbers of children at a crucial stage in their development, this class tax is bad enough. However, the taxes Rachel Reeves, the Chancellor, appears likely to raise in her October Budget promise to have widespread negative effects on growth and economic development.

A decision to increase capital gains tax, for example, could make some markets sclerotic. Some may decide to delay sales of assets that would entail capital gains, in the hope that CGT might fall under a future government. Labour may have a majority of 158 seats – which in normal circumstances would seem to make it certain that it would win the next election, too – but that majority is widely seen as shallow and easily overturned.

Anyone with a second home, for example, or a pile of shares whose sale is not absolutely essential, may decide to hold on to them until more favourable times. Therefore, the overall CGT take could fall rather than rise.

Last month, the state accumulated £82.5 billion in taxes, and high-wealth individuals and companies are close to having had enough. Many non-doms are already unravelling their British holdings and putting their money overseas; taxes on payroll, which are also said to be under consideration, could drive businesses to move abroad rather than stay here. If and when they did, they would not only stop paying taxes here: they would also export jobs, increasing the pressure on the welfare state and reducing tax revenues. The Office for Budget Responsibility says that the sudden increase in borrowing registered last month appears to be linked to increases in public sector pay; so the Government has only itself to blame.


Taxes on dividends have risen steeply in recent years and are a disincentive to invest. Without new investment, industry lacks the resources to innovate and find new ways to improve productivity and competitiveness. If, on top of this, Ms Reeves were to remove or reduce tax relief on extra payments into pension funds, the pool of money for investment would decline further, and the value of pension funds, and of pensions, would tumble.

As with CGT increases, it would signal a further transfer of money from the productive sector of the economy to the unproductive. Labour protests that it won’t raise taxes for “working people”. But it seems set to pursue a tax strategy that will clobber everyone with a pension fund: many millions of whom do not consider themselves remotely rich.


The first Labour government, exactly a century ago, is the only one not to have left power with the economy in a worse shape than when it took over: and that was largely because it lasted just nine months. This Government, just seven weeks old, is already on course to maintain that unenviable record.

Labour politicians, including ones supposedly as clever as the Prime Minister and Ms Reeves, seem incapable of learning that increases in taxes inevitably wreck the profits that all governments must tax if they are to maintain the state. Higher taxes can mean less revenue, as Labour is shortly going to find. Some Labour MPs may love the idea of the class war on “the rich” in which higher taxation is the weapon of choice. However, the British people will not indefinitely pay the price, which is economic decline far worse even than we have had alread

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