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Aged former Labour leader Neil Kinnick
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may have just enjoyed the most
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influential week of his political
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career. Last Sunday, he set the hairs
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running with talk of new taxes on the
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wealthy. Days later, his son, now a
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government minister, because that's how
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they do it in the Labour Party, echoed
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his father's call for a wealth tax, and
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now it's taken on a life of its own. But
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it won't just be the rich that Labor
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looks to squeeze with higher taxes. I'm
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afraid things are about to get very
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painful indeed. Welcome to the week in
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business with me, Christian May.
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Take it as a given that taxes are going
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to go up in October. The government has
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admitted as much, recognizing the
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financial consequences of their decision
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to abandon welfare reform. And then, of
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course, there are the financial
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consequences to their wider policy
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agenda. Unemployment climbing, growth
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barely registering. Economists now talk
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about a range between 15 billion and 40
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billion as the amount the government
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will need to find in new taxes in order
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to balance the books. There are other
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options of course. Borrowing would be
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one, but the bond market won't let us do
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that for good reasons. And then there's
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spending cuts, but Labour MPs won't let
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the government do that. So tax hikes it
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is. Despite last year's tax heavy budget
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being described by the chancellor as a
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one-off, a painful but necessary move to
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restore public finances and build the
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foundations for growth, we will in fact
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find ourselves back at square one come
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October this year. The government is
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addicted to tax. It's in their
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instincts. They can't help themselves.
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True, one or two Labor MPs might have
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recognized the importance of reducing
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spending. Rachel Reeves among them. But
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the one that matters, the one that
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decides whether or not to have this
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fight, K Starmmer is basically a coward.
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When Labour MPs held him to ransom with
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the threat of a humiliating defeat on
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welfare reform, a package which would
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have shaved just 5 billion quid off a
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100red billion pound welfare bill. He
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faced a choice. He could have stood on
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the steps of Downing Street and appealed
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to the country, set out his case,
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explained why these savings were
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necessary, and while he was at it, he
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could have asked the public to consider
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whether it's acceptable that 3,000
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people a day are signed on to personal
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independence payments. He could have
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called on other parties to support his
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mission and challenged his own MPs to do
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the right thing. The result would likely
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have been explosive, but it would have
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constituted an act of leadership.
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Instead, Starmmer did what Star does. He
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crumbled. He tries to make a virtue of
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this, calling it pragmatism, but it's
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just weakness. And one consequence of
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that weakness is that taxes will have to
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go up beyond their current record high
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level. Starman was asked this week
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whether he could rule out raising income
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tax, VAT, or employee national
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insurance, and he simply said yes. So
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far so good. He was then asked to make
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the same guarantee that he wouldn't
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implement a wealth tax. Now, this time
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his answer was somewhat more rambling,
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but nowhere in it did he say that he
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ruled that out. And most alarmingly of
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all, he was asked if he will honor the
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chancellor's previous pledge to unfreeze
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income tax thresholds by 2028, thus
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liberating people from the penicious
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impact of being dragged into higher
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rates of tax simply because of
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inflation. And here, you guessed it, he
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refused to do so. So, we pretty much
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know that the government will maintain
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the freeze on income tax thresholds, the
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stealth tax, beloved by all governments,
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and a form of wealth tax will emerge,
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too. One Labour source was quoted
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yesterday as saying that the government
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wants to find ways of taxing the
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wealthy, and they want to be able to
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tell Labor MPs that it is a wealth tax,
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but they don't want to call it a wealth
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tax in public. Well, good luck with
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that. If I were a betting man, I'd also
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expect the government to look at
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equalizing capital gains tax with income
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tax, increase the bank levy, the
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additional slice of corporation tax paid
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by banks, probably fiddle with dividend
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tax, and remove tax benefits and
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incentives around pensions as well. But
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here's the central tragedy of this mess.
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Leaving aside the wider issue of the
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overall tax burden and the fantasy
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economics that drive our public finances
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these days, there are some taxes that
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really do need to come down. Our housing
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market is glued up because of stamp
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duty. We want older people to downsize.
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Well, fine. But moving from a2.5 million
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property to a 1.5 million property will
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come with a stamp duty tax bill of about
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£90,000. And very few people have that
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sitting around. A 1.2 2 million pound
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home in London sounds like a lot. Is a
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lot brings a tax bill of more than
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£60,000 and it's all relative. A 5
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figure tax bill for buying a £400,000
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house is still enough to put people off.
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When this tax was slashed during COVID,
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the property market fizzed. Transactions
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and economic activity rekindled.
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Reducing it now or reforming it or even
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temporarily suspending it would cost
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money. Of course, it would. But it would
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also spark some much needed economic
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dynamism. The same applies with the tax
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on share trading. Getting rid of it
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would technically cost the Treasury a
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few billion pounds, but it would have
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profound benefits and upsides elsewhere
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in the economy. Unfortunately, given the
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state of the economy and the instincts
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of this government, smart tax reform is
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just not on the cards. All they're left
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with is the urge to tax more, to fill a
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hole they created. This is going to be
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painful and it is going to cost us. And
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that's it from me this week. Stay up tod
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date and in the know with the city app
5:18
and on cityam.com and I'll see you next
