Tax and Deficits - New Clothes, Old Lies

Stewart McGill
February 12, 2024
5 min read
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Tax and Deficits - New Clothes, Old Lies

Neil Kinnock says Labour was "right not to say that they are going to bash the taxpayer again" by increasing income tax. He suggested a wealth tax and was shot down immediately by Rachel Reeves (always determined not to upset anybody who has money), who recited the usual mantras: "I don't see the way to prosperity as being through taxation. I want to grow the economy."

This after a major report by the Institute for Fiscal Studies (IFS) concluded that any future tax cuts would inevitably have to be reversed if public spending is not to fall as well.

The IFS strictures are based on a need to meet specific targets for public sector debt. This has become something of a national obsession since the banks were bailed out in 2008, and Cameron's government used the size of the debt as an excuse to cut services and attack working people. Debt compared to GDP at the moment is actually pretty low on a historical basis:

In addition, the Bank of England and other government bodies own around one-third of the national debt, so the actual debt burden is even lower.

If Reeves spent a bit more time studying economic history rather than trying to look "prudent," she would see that the years of higher economic growth tend to coincide with higher taxes on the wealthy. See the table below for the American experience. There are various factors behind the very high growth rates shown in these years, the high-top tax rate being just one of them, and there are issues regarding causality. But, at the very least, the data proves that much higher taxes on the rich are compatible with significantly higher economic growth than we have today.

Given the environmental catastrophe that isn't just knocking at the door, it's in the hall and rifling through the coat pockets, we could also question the obsession with growth, but that's another blog post. All this reminded me of some of the standard operational BS the government trotted out last year to support the case for not paying public sector workers. I wrote something then highlighting ways of taxing the wealthy that would raise significant amounts of money without damaging economic activity. It's reproduced below.

The government claimed that it would cost an additional £28 billion per annum to pay public sector workers an inflation- matching pay rise. This is nonsense, the true figure after accounting for additional tax receipts would be about £12 billion, see the link: en/oureconomy/public-sector-strikes-pay-rise- nurses-james-meadway/

How do we pay for that? There is scope, plenty of it. The basic rate on dividend tax is 8.75%. Hunt scrapped Kwarteng's 1.25% proposed reduction and the Treasury claim that makes an additional £1 billion for the exchequer. So, if we raise the basic rate tax on dividends to 20% that's an increase of 11.25 percentage points, 11.25 = 9 x 1.25 so the Exchequer would £9 billion better off.  

This is not an outrageous proposal, the average dividend tax rate for European OECD countries is just over 23 per cent, more than double the current basic rate here. In 2019 the TUC and the High Pay Centre reported that **just 1% of all taxpayers – those earning over £150,000 a year – pocketed 22 per cent of UK dividend payments. And scope also remains to increase the higher rates on dividend tax...

The government also plans to give over £2.3 billion to Ukraine in pursuit of the American proxy war in 2023. Scrap that and we're very close to £12 billion. (another £2.5 billion in 2024/25)

Equalising Capital Gains Tax rates with income tax rates alone would raise around £18 billion a year—more than enough to sort out many problems. In September 2019 the Institute for Public Policy Research (IPPR) showed that taxing income from wealth the same as income from work could raise £90 billion over five years. Basically, wealthy people who make huge profits by buying and selling assets get special tax treatment, ending the tax privileges for these capital gains would generate serious money and should be one of the first steps in a radical overhaul of Britain's scandalously unfair tax system.

The IPPR report can be found here:


Stewart McGill, used to work for the financial sector. He was young and needed the money. He now writes on political economy and football. He is author of The Roaring Red Front - The World’s Top Left-Wing Football Clubs, The Top Ten Economic Myths and Socialism or Extinction.

All thoughts and views are solely of the author

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