ALEX BRUMMER: Wealth and stealth tax farce must end
The overheated discussion being heard this summer is not dissimilar to that a year ago in the lead up to Rachel Reeves' first Budget as Chancellor and ahead of the March Spring Statement.
The airwaves are alive with suggestions to close the forecast £30billion chasm that has opened in the public finances.
Former Labour leader Neil Kinnock is in favour of a wealth tax on people with assets worth more than £10billion.
Angela Rayner has advocated a corporation tax surcharge on the banks; higher taxes on dividends; a reinstatement of the lifetime limit on pensions savings and an end to the inheritance tax break on investment in AIM stocks.
Strong forces drive such speculation. The Left in Britain still despises richer people and regards those who provide services to them as engaged in modern serfdom. Labour – by ruling out headline changes in income tax, VAT and national insurance on working people – condemns itself to imposing stealth taxes.
Britain should be moving towards a less complex system of lower, flatter taxes, easily understood and difficult to avoid. Transparency is the key and citizens, wealthy or less well off, need absolute clarity.
Successive Chancellors have become obsessed with taxing us surreptitiously. There is a foolish belief the public might not notice why the state is making them poorer. All manner of ideas spew out of Whitehall. Among those doing the rounds is an extension of the freeze on personal allowances beyond 2028 despite the distortions it causes. Another is a rise in the rate of corporation tax even though business is already suffering from the increase in employers' national insurance, business rates and soaring energy costs.
A serious runner is an end to the 'triple lock' on state pensions, with potential annual savings of £5.6billion. Given the political blowback from the restriction of the winter fuel allowance and benefit cuts for the disabled, it is hard to imagine even the current politically inept Government taking this route.
All of these are stealth taxes. They raise money without directly impinging on manifesto pledges. Goodness knows Britain is already too highly taxed. The Office for Budget Responsibility reports that 38 per cent of national output, the highest amount since 1950, will soon be consumed by levies.
Governments should be aiming to lower the burden on business and households to encourage entrepreneurship and endeavour. Yet that cannot happen because Labour has boxed itself in with unworkable fiscal rules and an inability to tackle surging welfare costs.
Freezing allowances pushes taxpayers into higher bands with big distortions. Under current plans state pensioners will be paying taxes on their paltry income before 2028.
The honest approach for any Chancellor, unwilling to take harsh spending decisions, would be to stand at the dispatch box and raise the basic rate of income tax by 1p (or more). That would raise £6.9billion in year one and £8.2billion in year two.
Reeves could also consider reforming VAT. The Institute for Fiscal Studies identified £100billion of extra receipts if the UK would eliminate 'zero rate and exemptions'.
Higher taxes are an abomination. But the wealth and stealth tax farce must end.
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