April 24, 2024

The Tories’ war on wealth is a recipe for economic disaster

An extra charge for rich foreigners living in the UK. A special levy on business class flights. And some increased taxes on anyone who owns a second home, as well as a climate levy on every serving of Wagyu Beef. Ok, it is possible that I made one of those up, but there are still a couple of days to go before the Chancellor Jeremy Hunt delivers what is likely to be the last Conservative budget for many years, leaving time to slip in a Wagyu tax. 

As he scratches around for ways to offer the voters a penny or two off their tax bill, Hunt appears determined to pay for it with some fresh wheezes for taxing “the rich”. But this just amounts to robbing Peter to pay Paul, making the mess we find ourselves in even worse. 

After lowering the threshold at which the top rate of tax is imposed, raising corporation taxes, freezing the inheritance tax threshold, and slashing dividend allowances, Treasury officials are clearly starting to scrape the bottom of the barrel when asked for suggestions on how to “tax the rich”. There are suggestions they have already stolen Labour’s big idea of abolishing the “non-dom” rule, or else replacing it with a £100,0000 a year minimum payment, similar to the scheme that operates in Italy. Now they have come up with the idea of a levy on business class flights, presumably based on the assumption that only the “rich” ever head upstairs when boarding a jumbo. On top of that, there may be extra taxes on second homes. Apparently the argument is that, as his party heads into an election campaign, the Chancellor needs to finance a cut in National Insurance or income tax for ordinary voters, and the only way he can afford that is to make the wealthy pay more. 

It is easy to criticise each individual plan. There is a wealth of evidence to indicate that imposing higher taxes on foreigners will simply encourage them to move elsewhere, and lead to less money collected. And why we would would want to copy any ideas from Italy, a country that has been in recession for almost twenty-five years, is hard to understand even for an administration as committed to flatlining growth as this one. Taxing business flights will mainly hit companies, making the UK an even less desirable location, especially given that we also have some of the worst airports in Europe and seemingly no plans to improve them. 

And yet, the real problem is not just that the specific proposals are bonkers. It’s that there is an underlying belief that we can’t afford general tax cuts unless we find yet more ways to squeeze money out of the “rich”.  

There are two major flaws here. First, we need to reestablish our reputation as a country that welcomes, and occasionally even celebrates, success. We have already pushed through a huge rise in corporation tax, even as it is going down in most of the rest of the world. We have imposed some of the highest personal taxes in Europe. We have windfall taxes. We have restricted the entrepreneur’s rate of Capital Gains Tax to just the first £1 million made from selling a business you founded, although that is hardly a huge sum for a profitable company anymore (and funnily enough there are not many buyers for the unprofitable ones). The list goes on and on, and it’s all turning the UK into a hostile environment for those most ambitious and successful.  

Next, extra taxes on the rich very rarely raise the amounts of money their proponents think they will. For anyone who struggles with the basics of human geography, the main point is very simple. People are mobile, and the richer they are the easier it is to move from place to place. There is already worrying evidence that the wealthy are leaving the UK in droves and that is only going to accelerate as we squeeze them more and more. 

It is all so self-defeating. The UK needs to stop punishing the wealthy. We have spent the last few years doing everything possible to drive them out of the country. It is only going to get worse under the Labour government that now looks all but inevitable. It is already planning to put VAT on school fees, a move that will hurt hard-working, aspirational families. 

We are stuck in a doom loop, where every change to tax rates has to be about increasing the level of wealth redistribution, and can’t be “funded” in any other way. For what will be the last Conservative budget for a long time it is the very worst thing the Chancellor could be doing, and will just cement their demise.

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