Wouldn’t it be nice if we had a Conservative government? What, we already have one? Could have fooled me.
This Tory government is a dead ringer for the Labour administration of Tony Blair, although admittedly it’s less catastrophic than Jeremy Corbyn’s administration would have been.
Johnson, Sunak et al. enforce every plank of the woke agenda, with Dominic Raab’s refusal to take the knee the only conservative gesture any of them has made. As for conservative policies, they are following the trail left by flying pigs.
This emphatically includes HMG’s treatment of the economy, currently playing a dirge on the doldrums. Yet the Chancellor refuses to change his tune on taxing and spending.
So-called Tory governments have form on that: over the past 10 years they have hit the economy with 1,000 tax rises. That would be pretty good going even for unapologetic socialists.
At least this time HMG has an excuse for profligate spending: Covid. Still, with the national debt going over the two-trillion mark, and the deficits soaring at 300 billion a year, even socialists must see that such fiscal promiscuity is unsustainable.
The current situation is likely to change in the next few months, both for the better and for the worse. The better part is that Covid seems to be on the wane. The worse part is that inflation is going up and interest rates are bound to follow suit.
The only mitigation for going crazy with the printing press and IOUs is that the interest rates have for many years been lower than at any time since Charles II was king. If they rise sharply, which is likely, such policies will cross the line separating imprudent from suicidal.
So how is HMG preparing for new challenges? How is it planning to pull the economy out of the mire? Remember that in addition to Covid, there’s also the issue of redirecting the economy away from the EU and towards an independent trade policy.
In response, the Chancellor is about to unveil a set of new policies – each the exact opposite of sanity, each likely, nay guaranteed, to send the economy into an irreversible tailspin.
I’m not going to blaze any new trails in economic thought. Thankfully, none is required. Modern economies have been functioning around the world for so long that we know for sure what works and what doesn’t.
Examples of remarkably successful reversals in economic fortunes are helpfully provided by post-war Germany and, later, the ‘Asian tigers’: South Korea, Taiwan, Singapore, Hong Kong. All of them started from a nadir and quickly reached the zenith. An example of languishing at the nadir for decades is closer to home: post-war Britain.
The successes were scored by governments who realised that a state can only affect an economy positively by not affecting it negatively. They drastically reduced social spending, taxes and their own slice of the economic pie. That unleashed the people’s initiative, enterprise and creativity, of which, as it turned out, there was a vast, if hitherto dormant, supply.
Even chaps unencumbered with Nobel Prizes for economics have to conclude that any policies that have such a liberating effect are always at a premium, but especially when the economy is in dire straits. Conversely, measures that have the opposite effect are guaranteed to run the economy aground.
In that light, let’s look at some of Mr Sunak’s proposed policies.
He is planning to launch a tax raid on online business, including a ‘green’ tax on deliveries. In addition to kowtowing to the climate hoax, that means consumers will be buying less, which, in a consumer economy, is bound to have a knock-on effect on the producers. Result? A slow-down at a time when the economy is already at a crawl.
Mr Sunak also plans to hit the self-employed with new taxes, essentially putting them in the same category as wage slaves. However, self-employment involves taking entrepreneurial risks, while full-time employment is considerably safer.
The incentive to take such risks will diminish, and so will the number of small businesses that are the principal drivers of the economy. Result? A shrinking tax base, most likely delivering lower tax revenues. Also, a more static economy – in a situation begging for dynamism.
The Chancellor is also going to play fast and loose with income tax bands, pushing between one and two million people into a higher one. This is what some economists call ‘bracket creep’, and others ‘stealth taxes’. Whatever you call it, it discourages hard work and ambition. Result? As above.
Mr Sunak also wishes to increase the corporate tax rate from its current rate of 19 per cent to 25 per cent. This at a time when most corporations are already half-dead due to Covid.
Hitting them with new taxes is tantamount to delivering a coup de grâce. Result? Massive job losses, bankruptcies, higher prices (corporations tend to pass tax increases on to customers) and – possibly most deadly – turning foreign companies away from Britain when attracting them is crucial.
Also planned is another ‘stealth tax’, on wealthy pensioners. Seemingly, this will affect only about 10,000 people who’ll have to pay an extra £22,000 by 2024. But they don’t call such taxes ‘stealth’ for nothing. This one will also hurt millions of young achievers who’ll get into the higher band by the time they retire.
Rather than investing in their future, people will be thus encouraged to mimic HMG’s thirst for spending and borrowing. This is an example of how a government can damage the economy by encouraging ruinous economic practices and discouraging sound ones.
HMG must have played truant when the lesson of 2008 was taught. Result? A rich potential for crises and a negligible one for higher tax revenues.
There are two ways of filling budget holes: reduced spending or increased taxation. The former is well-nigh impossible for a spivocratic government that fears oblivion if it can’t bribe voters with handouts. In this, all governments are similar, regardless of their party affiliation.
But at least Tory governments used to know that high tax rates don’t mean high tax revenues, quite the opposite – and that, while lower taxes invigorate the economy, higher ones may well kill it. That’s why I’m so sad that we don’t seem to have a Tory government at the helm.