Trying to raise tens of billions of pounds in revenue without touching the three taxes that account for the lion’s share of the total tax haul is like trying to build a bookcase without any nails, screws or glue. You could try it, but you’ll soon regret the attempt. As things stand, Rachel Reeves is supporting a shoddily knocked-together bookcase while insisting that nails, screws and glue aren’t necessary.
In case this extended metaphor has left you cold, let’s recap.
The Labour party manifesto promised not to increase income tax, VAT or employee national insurance. Employer’s national insurance was targeted at last year’s budget, adding £20bn to the amount the Treasury claws from businesses each year. But the ‘big three’ taxes, as identified by Labour, are not to be touched.
This remains the government’s position, with a spokesperson yesterday stressing that “we are protecting payslips for working people by keeping our promise not to raise the basic, higher, or additional rates of income tax, employee national insurance, or VAT.”
We know the budget is going to try and extract 10, 20, maybe 30 billion pounds in additional tax revenue, but trying to do that without raising income tax or at least broadening the VAT base is going to lead to an unholy mess of damaging, counterproductive and complicated tax tweaks targeting pensions, property, investments, dividends, allowances and reliefs.
There are no good tax rises, but plenty of bad ones
I don’t say this with any pleasure or enthusiasm but it’s getting to the point where 1p on income tax and a broader VAT base would be less damaging (economically) than a swamp of stealth taxes and levies aimed at certain behaviours or decisions.
Labour would pay a devastating political price for u-turning on their manifesto promises, but the conversation is starting to shift – with the boss of the CBI yesterday urging the chancellor to think again on her tax red lines. Rain Newton-Smith said that refusing to touch “taxes that account for three-quarters of the UK’s tax base risks distorting behaviour, loading excessive pain onto small groups, and harming economic growth.”
It’s a sad state of affairs when we all agree that taxes have to rise and we just argue about which ones to increase. The alternative is dramatic spending cuts combined with a surge in economic growth driven by the private sector. The former is politically undoable and the latter is – for now – a pipe dream.
The least Starmer and Reeves owe the country is some honesty, even if we will all pay the price for it.