Squeeze ‘em till the pips squeak

Rishi Sunak last week gave his autumn budget statement which introduced higher state spending on top of the highest hike in taxation seen since the 1950’s.

The Chancellor had made ‘historic tax increases’ this year, upping then by £40 billion, with the pledge to plough billions more into the NHS to tackle social care crisis and boost spending for other Whitehall departments

Chris Grayling former cabinet minister said ‘..we cannot plan a future as Conservatives, as a big state, high tax party. We are a small state, free enterprise party!’ – my thoughts precisely

I also agree with David Davis…’the area where I disagree with the government’s strategy is on the level of income tax, national insurance contributions and taxation generally, which in my view is likely to raise significantly less money than the Treasury spreadsheets tells them’

‘The simple truth is that the increases in [National Insurance Contributions] will undoubtedly depress growth and employment as a result, which will depress the tax take’

And the hint at lowering the taxes before the next election only makes matters worse. Let me explain…

If you are in business and thinking of expanding by taking on a few more employees, you will now be faced with higher national insurance contributions, and then if as a result you get an increase in profits that you are unable to enjoy because your business faces higher corporation tax at some point you will simply not bother – no incentive. Given the effort and risks taken to grow the business at some point it is simply not You will put off the planned growth for two years to see what the Chancellor will do then to lower taxes. This is precisely the time when the Chancellor will review the recovery to see when and if he can lower taxes – a vicious circle.

The government’s policy of high tax and high government spending at a time when we have seen the lowest growth in the average wage increases since the banking crisis, the impact of Brexit, the disastrous effect on many businesses due to the pandemic, and the now very real threat of inflation, -  is sheer madness

The Institute of Fiscal Studies, the UK’s leading tax and spending think tank is highly critical of the policy. We have seen an unprecedented hit to average earnings since the banking crisis in 2007/8 which is set to continue and is predicted to result in an overall fall in the average household income by 2027 from a projected average wage  rise had the banking crisis not intervened from £43,300 to £30,800 a fall of 42%.

The Resolution Foundation says the average household would pay £3,000 more in taxes because of the budget. This comes at the very time when economists are predicting an inflation rise of 4%. The combination of all these factors can only result in a flat recovery in household standards.

But it is not all doom and gloom – or is it? Over the hill has come a group of 30 millionaires who wrote to the Chancellor on the Wednesday before the Budget in an open letter, calling on the Chancellor to tax them and other rich people more because they can afford it ‘the cost of the recovery cannot fall on the young and on those with lower income’

The millionaires told the Chancellor to introduce a wealth tax on the nation’s richest people to ‘help pay for the recovery from the coronavirus and help tackle the yawning inequality gap’ 

But wait a minute – isn’t this what France did with disastrous results. It introduced and increased the wealth tax on France’s wealthiest residents with the result that France’s wealth creators, left France and came to live in London. Although there are at least 30 magnanimous millionaires who will stay put and pay the taxes on their wealth, there will be many more eager entrepreneurs, who have now discovered how easy it is to work remotely who will up sticks, go to live and develop their businesses, in other places which value their entrepreneurial skills more such as Ireland, Monaco, Italy or Portugal.

The millionaires also speak of increasing the capital gains tax rate to the same level of income tax. Again, tax increases very often dictate behaviour. The Laffer curve makes it clear that by increasing tax rates the tendency is for the tax payer to rearrange their lives to avoid it.

An entrepreneur can plan when to sell his or her business and so will delay the sale until such time as he or she is non – UK resident and outside the UK tax net. Then all he or she needs to do is to stay outside the UK for 5 years and the UK HMRC will get NOTHING! 

What these magnanimous millionaires will be fully aware of is that with their millions they can live and work where they like. There will come a point when it is not just a matter of not wanting to pay higher taxes that drives our entrepreneurs and employers out of the country, but these people simply will not want to live in a country under a government which delivers tax hikes at a time when poor households are suffering high inflation on their daily essentials with little prospect of higher wages. 

We cannot afford to do anything which drives our wealth creators out of the country – and the Conservative party should know this.

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