When the scales fall from your eyes, you will suddenly know the truth – yet again.
ECONOMIC PERSPECTIVES 153 – AUGUST 2024
Despite all the vapid pre-election assurances from Chancellor Reeves and her sidekicks in the Treasury that Labour “had no plans” to touch existing tax rates, she is now softening us up for a massive tax grab, offering the excuse that she has “discovered a black hole” in the public finances. She takes us for gullible fools. The “gap” between resources and spending plans was well-known to the Treasury – and the Labour team - well before the election. The Office of Budget Responsibility and the Institute of Fiscal Studies have been publicizing the pressures on public spending for years. Instead of contriving still more inventive taxes to match the billions squandered over the past dozen years, the real need is to bring welfare benefits and public sector costs under control before they bankrupt the country.
Even if the government sticks to its manifesto promise not to increase Income Tax, National Insurance and VAT that leaves ample scope for hiking rates of every tax they claimed they “had no plans” to touch, such as capital gains tax, inheritance tax, council taxes and a host of indirect taxes on fuel, alcohol, sugary drinks, school fees and everything else targeted as ‘bad for us’, as well as reducing reliefs on pension contributions and ISAs. They will also launch the wealth tax they have been threatening for years, while also hammering away at their beloved Marxist target of “unearned” income, meaning all proceeds of invested savings - interest, dividends, rents and capital gains.
Farewell to all those pre-election pledges
Before the election they promised they would not raise taxes on “working people”, conveniently ignoring the fact that millions of working people believe in thrift as the way to provide for their children and help them acquire their first home. If the goal was to improve Britain’s lamentably low levels of business investment, policies that disincentivise savings have no place on the political agenda.. Labour’s obsession with manipulative tax rises to equalise outcomes is blatantly counterproductive – higher taxes punish enterprise, and allow the state, but not the economy, to grow in size. Churchill nailed it yet again: “A nation taxing its way to prosperity is like a man standing in a bucket and trying to lift himself up by the handle.”
The entrenched tax lexicon shields the taxpaying public from the real nature of these pitiless imposts. Government’s rampant monetary inflation causes asset values to rise in nominal terms; but when sold their proceeds are subject to ‘capital gains tax’ - rather than calling it what it is: a tax on government-induced inflation. And ‘value-added tax’ (VAT) is nothing but an unvarnished and indiscriminate ‘sales’ tax on goods and services, easily inflicted to meet political targets, as we have now seen with school fees.
If it moves, regulate it
The natural enemy of growth is regulation – especially regulation dressed up as a public benefit. In Plato’s ‘perfect state’, the role of education was critical since it could inculcate good habits in children that would last a lifetime, and in business, honest dealing, fulfilling promises, settling debts, paying dues – were as natural as breathing. The last thing needed was to make laws or regulations about them. Plato noted that politicians ‘legislate for all affairs, imagining they can put an end to breaches of all the laws they create’ – an action as futile as cutting off a Hydra’s head: cut off one of that mythical monster’s heads and two would grow to replace it. The historian Tacitus picked up the theme, noting that laws were being passed to suit vested interests, rather than for the common good, and “when the state was most corrupt, laws were most abundant”.
Despite experience of a couple of thousand years we are still so hamstrung by regulation that our planning laws are innately hostile to new housing developments with the result that people, by default, are compelled to live in places they want to leave rather than places in which they would choose to live. Labour’s pre-election manifesto alone proposed 62 new regulations! The pandemic blunted any sense of proportion regarding the size of the state and we have accepted increasing intervention into our lives. While Donald Trump is often credited with running a four-year war-free presidency – another unsung achievement was his successful battle with over-regulation. In the first 6 months of his administration businesses spent 5 million fewer working hours coping with regulations, and over the full term his deregulatory measures saved American households an average of $3,100 a year.
Promises, promises….
The new Labour administration indeed made promises of ‘going for growth’ and keeping taxes ‘as low as possible’. But ‘growth’ is a meaningless aspiration unless businesses are free to apply enterprise and ingenuity to create goods and services that citizens will be pleased to purchase with their own money.
Just before being elected, our new Deputy PM, Angela Rayner, boasted that Labour would ensure unions could ‘stand up for their members’. We didn’t have long to wait. – the newly installed Chancellor has confirmed 5.5pc pay increases for more than half a million teachers and 1.3 million state employees, at the same time as lamenting the country’s ‘dire fiscal position’. To capture the true colours of the new regime, please note its inflation-busting pay hike for junior doctors, amounting to 22pc over two years.
Is government spending of £9 billion in pay rises for people it employs the best use of your money and mine? That question cannot be answered in the absence of economic measurement. Reeves may hope that these eye-watering awards will cool trade union militancy – but in truth it will be emboldened by them. Pay increases always form the basis on which future demands are made.
The problem with every socialist government in history is that eventually they run out of other people’s money. State sector administrations are not susceptible to economic measurement. Therefore, flying blind, they will always founder. Their very existence is inimical to survival.
[ECONOMIC PERSPECTIVES 153 – AUGUST 2024]