Taxing the rich will make Britain poorer

Chancellor of the Exchequer Rachel Reeves
Chancellor of the Exchequer Rachel Reeves

The news that surging public sector pay has driven up government borrowing comes as no surprise. Neither does the Labour Government’s response: carving out room to go back on its promise to avoid raising taxes on working people.

Having already eyed a U-turn on employer National Insurance Contributions, ministers are now leaving the door open for a tax raid on high earners. Asked six times whether someone earning more than £100,000 per year would be classed as a “working person”, care minister Stephen Kinnock refused to offer a definitive answer. We are happy to clear up any confusion: those on high salaries are by definition working, and among our most productive residents.

A definition of “working people” which excludes those who earn a good wage would be an evident absurdity. Regrettably, it would also be in keeping with the anti-wealth, anti-aspiration tenor of this Government. While other countries compete to attract the talented and mobile, Britain has constructed a system that seems all but designed to drive away the successful.

The withdrawal of childcare support can leave working parents earning £134,000 worse off than those earning £99,000, while the withdrawal of the personal allowance in combination with the student loans system produces extremely high marginal rates that sap the incentive to work.

It is a combination that sits poorly alongside the Government’s other priorities. The immigration system continues to bring in low-skilled, low-wage workers who will pose a substantial fiscal drain over their lifetimes. The public sector, where productivity has dropped below the levels seen in 1997, is getting inflation-busting rewards. The welfare system continues to support a new aristocracy of leisure, free of the obligation to work or earn to support itself. And this is increasingly paid for by a tiny fraction of the population.

As things stand, the top 1 per cent of earners already account for 29 per cent of all income tax revenue. Raise taxes further, and an increasing number will surely begin to look for work overseas – where productivity is better rewarded, and the standard of living higher – while others will simply choose to work less, substituting leisure time for the post-tax income they are now unable to earn.

It is difficult to see how such a tax raid would deliver the return to growth Britain so desperately needs. Driving away the productive and successful would simply leave us poorer.