Labour’s taxes on wealthy are already doing more harm than good

Good morning. Norman Tebbit has died at the age of 94. His historical and political legacy is as one of Margaret Thatcher’s closest allies and his tenure as employment secretary in particular. I’ll remember him as someone who, during his stint as a Telegraph writer, took the time to quite unexpectedly and kindly email the new junior editor on the desk. My thoughts are with all those who knew him.

For today . . . taxes will go up in the autumn — but on who? Some thoughts on that topic in today’s note.

Spoiled riches

“Will Labour introduce a wealth tax?” is a question that won’t go away. This is, among other things, something that sets off my inner pedant something fierce.

Labour has already increased capital gains tax, increased the taxes on UK-based non-domiciles, including by bringing their global assets into the scope of inheritance tax, slashed agricultural property relief and raised taxes on private flights. And those are just the ones I can remember off the top of my head this morning.

In addition, the government inherited a tax system in which taxes on a single median earner is at a 50-year low and where more and more of the tax burden is concentrated on the highest earners.

If we’re not already past the point at which further “wealth taxes”, whether through the introduction of novel ones or increasing existing levies, start to have an negative effect on the UK’s tax take and its economic activity, then we are fast approaching it. (We are past it in my view — there is clearly a growing exodus of the wealthy from the UK, but it is not yet clear what the net effect is.)

One thing the Labour government badly needs to do is to get out of this situation where it has all of the downsides of having implemented quite a few “wealth taxes” but it doesn’t have the one upside: the political popularity of having introduced them. Nor does it have the space to use that to touch the big, useful and less economically risky options such as income tax, national insurance or value added tax.

The UK has a pretty odd profile among other OECD nations these days: we have a “European” level of tax as a proportion of GDP. But we do not have a “European” profile when it comes to the scope and spread of those taxes.

There is one thing you can take to the bank, however: the fact neither Downing Street nor the Treasury is using this time before the autumn Budget to argue for broad-based tax rises means that the next Budget will follow the same pattern as the last. Expect many “stealth” tax rises with all the potential for political rows such as the one that erupted over farmers last week, and a lot of “wealth” taxes with the potential to hit revenue and disrupt the government’s agenda in other ways.

Now try this

I mostly listened to Hans Zimmer’s score for Man of Steel while writing this Life & Arts essay on Superman’s difficult life on the silver screen.

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