A surly mood of resentment is growing in Britain towards the wealthy and successful, stoked in large part by our new socialist government. As Chancellor Rachel Reeves prepares to deliver her first Budget on Wednesday, she has made clear that more tax rises are on the horizon and that those deemed to have “the broadest shoulders” should expect to bear a bigger burden.
Already people who send their children to fee-paying schools or who own second homes are getting hit with extra taxes and anyone who gets a pay rise taking their salary above £50,271 is being dragged into a 40 per cent higher tax rate that was originally devised to be payable only by the very rich.
The official top rate of income tax meanwhile is now an eye-watering 45 pence in the pound and kicks in at £125,140. But before very successful people hit that salary, they actually pay a much higher rate because the Government gradually confiscates their personal tax allowance as soon as they are earning £100,000, making their effective top tax rate a morale-sapping 60 per cent.
According to research by the House of Commons library, the top ten per cent of earners already pay an astonishing 60 per cent of all income tax receipts. In a sensible society we’d be thanking them for bankrolling such a high share of the cost of the public services we all depend on. Instead, a mood of resentment towards them is afoot. It’s as if being successful has become sinful and the presumption is that anyone making good money must have done so by being selfish or just plain lucky.
Yet as the famous golfer Gary Player once remarked: “The harder I practise, the luckier I get.” We seem to have forgotten that while nobody should assume poverty is necessarily a sign of fecklessness, past or present, it doesn’t therefore follow that affluence is an indicator of moral culpability.
The general effect of further increasing the degree of redistribution in the tax system will be to penalise the hardest and most talented workers. Those of us of a certain age can remember the last time the tax system got so out of kilter, back in the 1970s. The then Labour chancellor Denis Healy revelled in the idea of causing “howls of anguish from the rich”.
But as top rates of tax soared a so-called “brain drain” gathered pace as the country’s most talented and successful people fled to foreign climes. This tipped the economy into a tailspin, leaving the Treasury ever shorter of revenues. It took the tax-cutting Thatcher governments, the painful restraint of public spending, and the heyday of the 1980s “yuppies” to get things back on track.
There are alas already signs that a new brain drain is afoot. Labour’s harsher tax treatment for foreign national “non doms” was originally expected to raise more than £3bn per year. But now nobody thinks it will and the free-market think tank the Adam Smith Institute reckons it will end up actually reducing Treasury revenues because so many wealthy foreigners will flee to less punitive tax jurisdictions.
On Wednesday, Ms Reeves is widely expected to raise Capital Gains Tax, extend the freeze in income tax thresholds first brought in by Rishi Sunak and perhaps even tax employer pension contributions more highly too. All of these measures will make Britain a less forgiving place for the entrepreneurial and those prepared to take on the extra responsibilities of leadership positions in their companies.
The policy of raising the minimum wage to an ever-higher percentage of average earnings, instigated by Mr Sunak but being continued by Labour, also incentivises a slide into economic mediocrity: why bother gaining extra skills or going for a promotion that entails added pressure if the premium over an “entry level” position is going to be ever-further narrowed?
Ms Reeves seems to think that by fiddling definitions on public debt and deficits she can magic-up tens of billions of extra available cash to be borrowed and then spent in the public sector. But already there are signs that lenders are losing faith in the soundness of our national finances and expecting ever larger margins on their money.
The truth about the modern British economy is that the public sector spends too much and produces too little in return, that there are too many people hitching a free ride when they should be contributing and that we have made the notions of achievement and excellence unfashionable by associating them with greed and vulgarity.
An economic culture change that rewards dynamism, commitment and success is desperately needed to get us out of the doldrums. Yet the chances of Ms Reeves delivering that on Wednesday appear negligible.
