Magazine article The Spectator

They Want More Tax- and Now It's Personal

Magazine article The Spectator

They Want More Tax- and Now It's Personal

Article excerpt

HONEST people everywhere know it. The tax burden is heavier now than it was when Labour took office. It is not just the quantity of money that the government takes away: up 9 per cent (to L128 billion) since last year in favour of the Inland Revenue alone.

What is astonishing is the proportion of our national income devoured by the government - up 2 per cent since 1997, to 39.6 per cent - and all this during a time of rising economic prosperity, the era of 'prudence' and the allegedly conservative Chancellor; and before Labour has begun seriously to splurge our money on its public-sector clientele.

What is more frightening still is that the middle classes seem to have no idea what is hitting them, or that it will get worse. 'If you sit down at a dinner party and talk about interest rates, you can have a sensible conversation with your neighbour, irrespective of background,' says one former government tax adviser. 'But any sort of conversation about the tax system starts from the base that most people think they should get tax relief for their nannies.'

Even if Gordon Brown were to give us something for nanny in the forthcoming Budget, even if he nominally 'cuts' some taxes, the tax burden will rise. By 2001 to 2002, public spending is expected to clear the Lawson benchmark of 40 per cent, and, as it is highly unlikely that people will be satisfied with the NHS or the state of schools, we can expect it to keep rising during the next parliament; and that, my friends, brings us to the really bad news.

The world is changing; old sources of government revenue are drying up and, since the money must come from somewhere, it's coming from ... you, of course. In person.

It is no longer possible to tax corporate capital on the basis of location or nationality. Multinationals can switch revenues between tax jurisdictions. They can sell to British consumers from offshore locations and abandon their old job of collecting VAT or excise on behalf of the government. Already the government has recognised this, by cutting corporation tax (to 30 per cent for major companies); but to retain a constituency of taxable corporations at all, the rate will have to fall further. From 2003, the Irish will ask a mere 12 per cent. So where else is the money coming from?

It's no use raising excise duty. People are smoking less and, in response to lunatic levels of duty, they are smuggling more. Excise duties, as a proportion of total revenue, now produce half of what they did in the 1980s. The Treasury has cut its estimated revenue from tobacco duty this year, from L8.9 billion to L5.7 billion. We have excise duties on fortified wines one and a half times as high as those in France; on spirits, twice as high; and on wine, 75 times as high. And then there's VAT, payable at 17.5 per cent on top. With margins like that, no wonder Dover is swarming with organised crime and Geordies in transit vans. The only way to put them out of business is to cut the duties.

So where else is Mr Brown to find his dosh? Already the Internet is putting all kinds of businesses beyond his clutches. Everyone from toy shops to stock exchanges can sell direct to British consumers from offshore tax havens. Victor Chandler has taken his betting company offshore, threatening the f 1 billion the government collects from the 6.75 per cent it levies on every wager. Even the truckies can move offshore, filling their tanks with cheaper foreign diesel and registering abroad. By the time of the last pre-Budget statement, the fuel duty ,escalator' was costing 100 million in lost tax; the Chancellor ditched the escalator.

These are the kind of concessions that the government will have to make to corporate capital. For the last eight years governments of both parties have pretended that taxing companies is an alternative to taxing people. We've had windfall taxes, fuel duties and, especially, Labour's cut in dividend tax credits for pensions. …

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