Politics

Fraser Nelson

Wednesday, 25th March 2009

Fraser Nelson reviews the week in politics

To comprehend the scale of the sickening task awaiting George Osborne if he becomes chancellor, consider the following. If he were to raise VAT to 25 per cent, double corporation tax, close the Foreign Office, cancel all international aid, disband the army and the police, release all prisoners, close every school and abolish unemployment benefit he would still be unable to close the gulf between what the UK government spends and what it raises in taxes.

Hopes of a relatively rapid economic recovery that could conceivably fill this gap are receding every month. And there is a limit to how long the government can make up the difference with borrowed money and refer to its profligacy as a ‘stimulus’. Mervyn King, Governor of the Bank of England, has taken the extraordinary step of warning in public that another debt binge would be unworkable. The choices awaiting a new Tory government grow narrower and uglier each month.

This makes it all the more curious that the latest tax endorsed by the shadow chancellor is one which — unusually for a tax — would raise no revenue at all. The 45p tax for the rich proposed by Gordon Brown has but one purpose: to entrap the Tories. For five months they resisted the bait, refusing to endorse or reject the new tax. Then last week Mr Osborne declared that the tax would be ‘difficult to avoid’.

It is hard to see why. The 45p tax is scheduled for April 2011 so, to avoid it, Chancellor Osborne would only have to refrain from introducing it: simplicity itself. The Institute for Fiscal Studies says the tax would raise ‘approximately nothing’ simply because those targeted (people who earn more than £150,000) would hire better accountants, or emigrate. It is always the case with high rates of tax. So no plausible economic argument is being made for this tax. The balancing act being carried out by Osborne is political rather than fiscal.

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HYUFD

March 26th, 2009 1:04pm Report this comment

45p is not that big an issue considering that the top rate was at 60p for most of the Thatcher years and provided it stays at roughly that level. In any case, I doubt that there will be much emigration by those paying it considering that Australia, Canada, France and Germany and most of Europe and China all have top rates at 45p or more. Even the US is going to raise the top rate under Obama.

Doug

March 26th, 2009 1:13pm Report this comment

Fraser Nelson smacks of double standards. Week in week out there are discussions about British culture, British integration and a sense of British nationalism. We want people to be more invested in the fate of the country. But this doesn't matter to Fraser when it comes to the wealthy. Apparently all those statements about British this and British that shouldn't apply to the wealthy. This is exactly what happened in the last ten years when the wealthy financial power brokers were excused from their responsibilities because of the tax revenue and money they bribed us with. Look where it got us. They were major players in the current economic downfall. And Fraser wants to excuse them again when it comes to the tough decisions of putting this country back on a sound footing. This isn't seventies when income and investment taxes for the wealthy could be double what they are today. There is latitude for tax increases. In any case it's about time that wealthy Brits were expected to get with the programme like the rest of the nation who have little choice but to suck it up, dig in, suffer and turn the country around.

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