“The art of taxation consists in plucking the goose to obtain the largest amount of feathers with the least amount of hissing.”
Jean Baptiste Colbert, finance minister to Louis XIV
The Government's loss of two safe Conservative by-election seats last Thursday provides concrete evidence of a party which appears to have lost all sense of direction. Far from making ‘long-term decisions for a brighter future’, its decisions are short term and offer no silver lining to the dark clouds which remain anchored over the UK economy.
Paul Johnson, Director of the Institute for Fiscal Studies, drew attention to one of the key reasons for this economic depression in his tweet last week, ‘The six year freeze to income tax and National Insurance thresholds really is a staggeringly big tax increase. It's a key part of why taxes are rising to [the] highest level ever’. The so-called ‘Stealth Tax’ is starting to give way to a lot of hissing.
However, last week I received a response from the Financial Secretary of the Treasury to a letter sent recently to the Prime Minister, confirming that tax thresholds would remain frozen until 2028.
Freezing tax thresholds is one of the most politically — and economically — inept courses of fiscal action. It impacts almost everyone at lower levels of income, pulling people into tax for the first time and pushing basic rate taxpayers into higher rate levels as wages increase to cover cost inflation. The only people it doesn't impact are those already on the top rate — the wealthiest. Furthermore, people then try to compensate for their resultant lower take-home pay by pushing for still higher wage increases, thus fuelling the inflation rate which the Prime Minister has said that he wants to halve.
Freezing thresholds is not a solution: no wonder This is Money has focused on the issue this week. It's not surprising, therefore, that the number of people recommending serious economic conversations with the Opposition is rising fast; the UK Government’s current stance is best illustrated by that of an ostrich, with its head firmly buried in the sand.
It's not just income tax thresholds that are being frozen, however; and it's not just Share Radio, the Institute of Fiscal Studies and This is Money who are drawing attention to the impact it is having. For example, last Saturday The Times drew attention to the fact that twice as many pensioners are paying tax over the past thirteen years: up from 4.5 million to 9 million. The Sunday Times followed this with David Smith's article on 21 October, ‘Time to wake up to this damaging stealth tax’, pointing out that freezing income tax will double the number of those paying higher rates.
Meanwhile Inheritance Tax thresholds are also impacted by the policy. This particularly affect middle-income families, on which we commented on 5th June when we asked for repurposing and reforming this levy.
It is now over a year (17th October ’22) since we proposed a radically new approach to tackling the public finance challenge, by requiring wealthy old folk to have mandatory private health insurance which could be drawn down by the NHS as they used its services. This could substitute much of the additional stealth tax revenue, and a thorough review of all areas where free welfare is provided for wealthy older folk could wholly remove the need to put tax traps in the way of lower- to middle-income earners.
One small example of those other areas: I recall sending, a few years ago, a cheque in to HM Treasury to repay the cost of my bus pass. It took weeks of chasing to get it cleared, only for it to be finally paid into an esoteric account designated for ‘repayment of the national debt’!
Free welfare for all, including those who can well afford to pay their own way, is an unfair socialist legacy. It reduces the resources available for those in real need, and it has become little more than an electoral bribe for the elderly, so far as the Conservative Party is concerned. If they won’t means-test by mandate, they could at least invite voluntary repayments and encourage them through tax returns.
Polling from YouGov for The Times has showed that voting support for the Conservatives is 45% over the age of 65: no doubt this is why there is this reluctance to re-balance taxation levels across generations. In contrast, that support drops to 30% for those aged between 50 and 64 and only 12% for 25 to 49 year-olds. No figures were provided for those aged 18 to 25, but I would suggest that a determined resolve to enable young people to receive the benefit of their Child Trust Funds could make some difference for this age group.
The Party’s reaction to this situation, however, appears to be directed at tinkering with housing aspects such as Stamp Duty and the ‘right to buy’ houses. I would suggest that people want to see a much more far-reaching and coherent approach to taxation, and that this must include calling a stop to dragging people who genuinely can't afford it into higher rates of tax.
One is led to believe that Conservative philosophy should be about smaller government and giving people more control over their own lives. However, for most of the past thirteen years the Party seems to have lost touch with the need for disintermediation and the importance of encouraging young and middle-aged working people to build a vibrant economy.
Gavin Oldham OBE
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