Tackle Tax and let the UK Prosper
In the 2019 General Election, Jeremy Corbyn’s taxation policy was radical. He wanted to raise an extra £82.9bn by increasing Income Tax for those earning above £80,000 to 45% and 50% for those with incomes above £125,000. Corporation Tax was set to rise from 19% to 26%, and the introduction of a second homes tax was planned at some 200% of the Council Tax bill. The list goes on.
Keir Starmer is likely to be more reserved, especially as his popularity is on the up. In his leadership campaign the new Labour Leader was deliberately ambiguous about his ideological position and took care to distance himself from the radical Left, whilst simultaneously doing the same from the Blair years and the right of the Party.
Starmer has shown that he is ostensibly a left of centre Liberal, and we can speculate that his fiscal policy will certainly be less radical than that of his predecessor.
The general view on taxation amongst centrist Liberals is that a percentile or two extra on tax rates will provide more funds for our public service, whilst having little effect on commerce and the economy. But does this idea really hold true?
The Government and a vast majority within the Tory right would disagree.
Indeed, the alternative view would be that If you want to provide longevity to the prosperity of an economy a tax increase is not the solution, no matter how miniscule the percentage rise might be.
Taxation, no matter how small, will have a contractionary effect on the economy. The level of that contraction will not always be directly proportional to the percentage of the change. But the fact remains that the economy will still be constricted either way.
Tax Increases may provide short term revenue to the Government. But in the long term it will only decrease the amount of tax procured to the State.
Across the Pond in the United States, The National Bureau of Economic Research state how “an exogenous tax increase of 1pc of GDP lowers real GDP roughly 2 to 3 percent.” This is a fitting illustration of the effect of Taxation on an economy. More tax leads to a lower GDP, leading to less tax receipts, less Government revenue and therefore it leads to less money being available to spend on vital services for our communities.
An increase in tax today will lead to a loss of future tax receipts and Government revenue. We have been here before and the figures speak for themselves:
In 2010, Alastair Darling raised the top rate of tax to 50% of income after it was predicted that such a move would raise £3bn. In the short run it only raised £1bn towards address the debt accumulated due to the 2008 Bank Bailouts. In George Osbourne’s 2012 budget the top rate of Tax was lowered to 45% and a later HMRC report indicated the cut raised an additional £8bn.
The figures speak for themselves. Tax increases will provide short-term revenue, but that revenue will ultimately fall as the economy continues to be constricted.
With indications that the Chancellor is considering Tax rises as a step to offset the Lockdown debt, the Government may not be giving adequate consideration to the real financial issues the Country faces. An increase in tax today will not help our prosperity in the long run.
Government must avoid seeking yet another quick fix. They must take the difficult decisions that will be beneficial in the long run.
It should be a no-brainer. Let’s reduce Tax and let Great Britain prosper.