Tax, tax and more tax. Does Rachel Reeves not know there’s another way?
Wealth taxes, pension raids, inheritance tax, does Labour really not know there’s another option, asks John O’Connell
There are recipients of enhanced personal independence payments (PIP) for conditions such as tennis elbow, writer’s cramp, acne, alcohol misuse and food intolerance. Last year, 13 people received enhanced PIP for “factitious disorders”, including for munchausen syndrome which the NHS describes as a “psychological condition where someone pretends to be ill or deliberately produces symptoms of illness in themselves”. Recipients of this part of PIP can use their benefits to receive a car through the motability scheme. Read the new Taxpayers’ Alliance benefits dashboard, and weep.
It’s unsurprising, therefore, that the scale and cost of incapacity and disability benefits are spiralling out of control. But a Labour government with an historic majority was unable to reduce the rate of increase in spending on certain elements of welfare, let alone cut it.
So, there will be tax hikes in October’s Budget. Given the government has already ruled out increases to the rates of income tax, employees’ national insurance and VAT, there’s not much room for significant revenues to fill their £20bn fiscal blackhole.
And it’s not as if they haven’t already soaked families and businesses in their short time in office. The Chancellor reportedly called last year’s brutal hike to employers’ national insurance “low hanging fruit”. Tell that to the small firms around the country who have shut down, sacked staff or frozen pay as a result. Proving, of course, that companies can’t pay taxes, only people can pay taxes.
Aren’t we taxed enough already?
So where else can they go? Of course, they are floating old classics like a wealth tax, this time pitched as two per cent on assets over £10m. The real world backs up the economic literature in showing conclusively that wealth taxes don’t work. We don’t even have to look at the raft of international evidence – Labour politicians can refer back to their brethren from the 1970s, when the Chancellor Denis Healey found it “impossible to draft one which would yield enough revenue to be worth the administrative cost and political hassle”.
And talking of classics, further pension raids are being considered. It seems as if the Treasury has been itching to get their hands on bigger chunks of pension contributions for quite some time, with variations of the idea road-tested in the run up to every Budget I can remember. But again, it’s not as if this government hasn’t already come after savers; last October, it was announced that pension pots from private defined contribution pensions (including SIPPs) – which have been inheritable with only income tax to pay – will be included in inheritance tax (IHT) assessments. This means beneficiaries could face a 40 per cent IHT charge on top of potential income tax liabilities, leading to taxation well in excess of 80 per cent for some, due to taper relief. What’s even more pernicious is that this could apply retrospectively, which is a dangerous precedent for tax changes more generally. A campaign has sprung up to fight this change through legal means, such is the potentially destructive nature of it.
Aren’t we taxed enough already? With its ballooning bills, the government probably feels it has no choice but to give it another go in October. But there is, of course, another way to think about all of this: maybe, just maybe, public spending is too high. Perhaps it would be better to cut costs, rather than come back to badly bruised taxpayers and demand more from them? Although they failed spectacularly to get welfare under control, it’s not as if the government has been tightening its belt elsewhere. Chagos, anyone? But our fiscal fundamentals are in dire shape – more of the same simply won’t cut it.
John O’Connell is chief executive of the Taxpayers’ Alliance