When a cowboy’s horse breaks a leg, he mercifully finishes it off with a quick shot. This is a useful metaphor for Rishi Sunak’s actions.
Our economy is the horse lamed by Covid and the promiscuous public spending deemed necessary to counteract the pandemic’s effects. And Chancellor Sunak is the cowboy whipping out his trusted .45 to put the economy out of its misery with three rounds through the head.
The metaphorical bullets represent the three measures the Chancellor has announced. He is going to raise capital gains and corporate taxes, while also lowering the threshold for tax-free contributions to private pensions.
Essentially, this is a £30 billion raid on the ‘wealthy’, which is how Mr Sunak and other socialists describe the productive middle classes. Here I’d like to mention incessant conversations I’ve been having about Covid with a close friend, a writer and a doctor to boot.
We agree that nobody really knows what the best course of action is, not with a pandemic that has never happened before. It’s easy to criticise our government, or any other for that matter, but what would we do in their place?
My friend is particularly fond of asking me this question. My honest reply is that I don’t know, though I envy those pundits who discuss the issue with self-confidence bordering on arrogance. I suspect total lockdowns are wrong – but I don’t really know. Muzzling the whole population with those ridiculous masks seems silly – but I don’t really know. Quarantining arrivals from most countries for a fortnight looks excessive – but I don’t really know.
However, before my friend gets the chance to compliment my self-effacing candour, I hasten to add that some things I do know. Such as, how to pull the economy out of its mess.
I then propose a few steps, and what do you know? They are the exact opposite of those Mr Sunak is going to put into effect.
I would lower all tax rates, starting with capital gains and corporate. And I would increase the tax-free threshold for pensions. For, if history shows anything at all, it’s that higher tax rates usually result in lower tax revenues.
That stands to reason because tax rates directly affect the economic behaviour of both individuals and corporations. None of them, for example, would do any work if the tax rate on incomes and profits were 100 per cent.
I covered these points in my article of 15 July, so there’s no point repeating myself, other than to plagiarise that piece for two short paragraphs:
“If high tax rates in general and those on assets in particular improved the health of the economy, then Harold Wilson’s tenure back in the ‘70s would have gone down in history as a period of unprecedented prosperity.
“After all, he introduced a top marginal tax rate of 83 per cent on earned income – and 98 per cent on the ‘unearned’ variety. Yet such economic sagacity earned Britain quite a different reputation, that of ‘the sick man of Europe’.”
Yet one point I didn’t make then is worth making now. For Covid isn’t the only economic upheaval pulling our economy down. The other potential one is Brexit, which will happen de facto on New Year’s Eve.
Brexit can turn out to be either a crisis or an opportunity, and it’s up to the government to avoid the former and promote the latter. The big question is, how do we stay competitive against the large protectionist bloc that’s the EU?
There’s only one realistic answer to that. We must use our newly acquired freedom and flexibility to gain a competitive advantage over the overblown, slow-moving Leviathan staring at us from across the Channel.
To do that, we must inject a shot of dynamism into the bloodstream of the economy. We must, on pain of destitution, encourage individuals and corporations, both domestic and foreign, to do exactly three things: invest, invest and invest.
But corporations, individuals and pension funds aren’t driven by charitable impulses. They make investment decisions by coldblooded calculations of pros and cons. Hence courting their business involves making our economy appeal to their accountants’ hearts with attractive offers.
Such as low rates of corporate and capital gains taxes; ideally, much lower than anywhere on the continent. For, just as those chaps aren’t driven by charitable impulses towards us, neither do they feel especially charitable towards our competitors. The chairman of, say, a Japanese car company looking for a European base, would push a button on his computer and instantly get a spreadsheet of debits and credits, pluses and minuses, pros and cons.
His decision will be made on one basis only: that numeral in the bottom right corner. If ours looks better than the others’, then that’s it. Banzan is your uncle, Fuyo is your aunt.
All this is clearly too simple for our Chancellor to understand. Which is why he wants to make absolutely sure that our hypothetical Japanese mogul will look elsewhere. And even our pension funds, which account for much of British investment, will be looking for safer havens to moor their cash.
As an immediate and devastating result, Covid and Brexit will join forces to put our economy six feet under. This, instead of helping the latter mitigate the effects of the former.
Please remind me again which party is in power with a landslide majority. At times it looks as if Harold Wilson and James Callaghan came back as Boris Johnson and Rishi Sunak. After all, all the same policies were in Corbyn’s Labour manifesto.