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.
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