Can it be true that a Tory government — with a thumping 80-seat majority — is considering a soak-the-rich, tax-raising Budget that could destroy at a stroke the vital qualities of enterprise and entrepreneurship we desperately need if Britain is to prosper post-Brexit?
Yes, there are mitigating circumstances — we are in the season of pre-Budget leaks as the Chancellor limbers up to unveil his spending plans on March 11, and spin doctors in Downing Street and inside HM Treasury are floating ideas, some outrageous, to gauge the political temperature.
But reports that Boris Johnson and his Chancellor Sajid Javid are considering a ‘mansion tax’ on higher priced homes as well as a further raid on the tax relief on pensions savings are still shocking.
For such policies would be deeply misguided and would hit countless strivers across Britain — individuals on whom the country depends to keep our economy motoring.
Reports that Boris Johnson and his Chancellor Sajid Javid are considering a ‘mansion tax’ on higher priced homes as well as a further raid on the tax relief on pensions savings are shocking, writes ALEX BRUMMER
The political strategy behind such proposals is clear. Boris is understandably determined to cement-in his new voters in the North by ‘levelling up’ — or increasing prosperity — in the ‘Red Wall’ regions where Labour once ruled the roost.
But far from levelling up, a Budget dominated by tax rises would be tantamount to levelling down, for it would devastate wealth creation.
The way for Sajid Javid to achieve his goal of boosting prosperity is to emulate Margaret Thatcher’s former Chancellors — first the late Geoffrey Howe and then Nigel Lawson. Both successively reduced the tax burden in their Budgets, ushering in a new era of economic growth.
What really sticks in the gullet is that both of these new tax proposals floated for Mr Javid’s Budget are straight from the Labour playbook, and are ideas that were comprehensively rejected — along with Jeremy Corbyn — in the December 12 election.
Boris is understandably determined to cement-in his new voters in the North by ‘levelling up’ — or increasing prosperity — in the ‘Red Wall’ regions where Labour once ruled the roost, writes ALEX BRUMMER
Former Labour leader Ed Miliband put forward the idea of a mansion tax in the 2015 General Election, having stolen it from the Lib Dems, only to be roundly defeated by David Cameron’s Tories.
Meanwhile, the ‘moderate’ Labour Party of Tony Blair and Gordon Brown all but destroyed the gold standard company pensions based on final salary when it removed the tax break on dividends paid into company retirement schemes. It has been downhill for decent pensions savings ever since.
To understand why a mansion tax would be so pernicious, we need to study property taxes in more detail. On the surface it might appear a brilliant wheeze to impose a regular tax on houses worth perhaps more than a million pounds.
Former Labour leader Ed Miliband put forward the idea of a mansion tax in the 2015 General Election, having stolen it from the Lib Dems, only to be roundly defeated by David Cameron’s Tories, writes ALEX BRUMMER
It would seem to hurt mainly the wealthy in London and the South East, as well as pockets of the rest of the country where houses are expensive. And, at first glance, there would be no impact on the Red Wall constituencies Mr Johnson is so keen to keep sweet.
Yet the history of property taxes paints a rather more complicated picture.
George Osborne was the last Tory Chancellor to try to raise additional income for the Exchequer through property, when in 2016 he introduced a penal level of stamp duty, a tax paid on house sales.
Projections in his Budget documents suggested he had tapped into a bonanza which might allow the Chancellor to ease the burden of austerity.
The estimates pointed to the tax gain on property transactions jumping from £14.5 billion in 2016-17 to £16.3 billion in 2017-18 and on a surging trajectory. The reality was very different. The yield from stamp duty actually fell to £13.6 billion in 2017-18 according to the independent Office for Budget Responsibility (OBR).
Even more dramatically, instead of £19.5 billion in the current financial year, the OBR forecasts just £12.6 billion – a shortfall of £7 billion.
There could be no more stark evidence of the baleful impact of squeezing the pips of the rich by raising property taxes.
Admittedly, Brexit uncertainty made home buyers reluctant to make big financial commitments. But the blockage that the stamp duty surcharge caused at the top end of the market trickled down the housing chain, making people even less likely to move, and creating a logjam for first-time buyers in spite of some of the most competitive mortgage deals in decades.
Without a vibrant housing market, the economy struggles to prosper — it’s not just the money in house sales that helps fuel our economy but that each time a family moves home they spend tens of thousands on doing it up and decorating it.
The way for Sajid Javid to achieve his goal of boosting prosperity is to emulate Margaret Thatcher’s former Chancellors, writes ALEX BRUMMER
If a mansion tax brings the high end of the market to a halt, it could infect the whole market — and all this money would remain unspent.
Just as disturbing as the new mansion tax proposal is the suggestion that the pension tax relief for citizens earning more than £50,000 a year should be slashed from 40 per cent to just 20 per cent in a move which it is estimated would raise £10 billion a year.
Such a step would drive a double-decker bus through the social contract which lies behind all pensions policy.
The Government gives savers a helping hand when they put money aside for retirement. This is on the understanding that when they stop working, pension incomes are taxed in the same way as any other sources of income.
In my view, the impact would fatally damage the savings culture which has already been badly holed, not just by previous pension tax raids, but also as a result of the scandalous collapse of the savings empire of disgraced investment guru Neil Woodford, in which hundreds of thousands saw their savings all but wiped out.
If savers have no faith in pension funds and other savings schemes, future pensioners will be tempted not to bother. This will mean that, instead of being self-sufficient when they come to retirement and still contributing to the tax system, many could become dependent on state benefits in their dotage — and a burden for the Exchequer.
In other words, taxing pensions is a false economy.
My great hope is that the debut Budget for a new Tory Chancellor will be visionary, optimistic and reward ambition and aspiration. There ought to be no better person to deliver such an outcome than Sajid Javid — he raised himself from modest roots to become a successful City bond trader, and now Chancellor.
Javid needs to throw off the shackles of fiscal orthodoxy and recognise the lessons of Thatcher, Reagan and even — dare one say? — Trump, each of whom chose to take the low-tax path and delivered unbridled prosperity.
In fact if I were Chancellor, trying to forge a more global Britain post-Brexit, I would abandon the manifesto pledge to hold corporation tax at 19 per cent and lower it to 17 per cent or even lower. He should also back Britain’s brilliant science and technology sectors with bigger tax breaks for research and development.
Above all, Boris Johnson’s administration must reject the politics of envy and consign the idea of mansion taxes and a raid on pensions to the dustbin. The Tories’ big majority ought to be a passport to a low tax revolution and the rediscovery of the party’s adventurous spirit.