Rachel Reeves, Chancellor, has made comments to the effect that the Conservatives concealed the dire state of the economy and hence taxes will need to rise to meet a black hole in her budgets.
Richard Tice, the Reform UK deputy leader, has said it is a ‘con’. The MP for Boston and Skegness said the government knew about the state of the finances during the general election campaign and accused the cabinet office of “flip flopping” on pledges. The numbers were known, the promises were made. Now Labour is doing what Labour does: fiddle the books, flip flop on pledges. Just like Tories.
This is just like any new management when they take over a company -they kitchen sink all the bad news so they can look good in the future.
The new Government wants to spend money on a number of their favourite policies and the only source is by raising taxation. They have two apparent immediate targets: raising capital gains tax rates to be more in line with income tax and raising taxes on pension savings by reducing pension relief. The former might be sound in principle but ignores what the impact will actually be in cash terms. Capital gains tax can be avoided in various ways such as deferring sales. So the net revenue might be much lower than anticipated. Unintended consequences will abound – such as wealthy people departing to countries with lower or nil capital taxes – or reductions in new businesses being formed as entrepreneurs decide it’s better done elsewhere or not at all, reducing the tax base in the long term. This is a typical Labour Party error – sticking to dogma that the wealthy should be soaked regardless of the consequences.
There is also the prospect of removing the relief from capital gains tax on death – effectively increasing inheritance tax. But the response will be an increase in complex tax planning to minimise that.
Let us hope that the Chancellor listens to advice from the Treasury on the likely impact of major changes in taxation before committing to do anything. Continual changes in major taxes just defeat any sensible financial planning by individuals and companies. Stability is what we need, not continual changes, and we certainly don’t need taxes to rise overall. We are already more heavily taxed than at any time since the Second World War and high taxes discourage wealth creation and reduce the tax base.
Roger Lawson (Twitter: https://twitter.com/RogerWLawson )
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