Newspaper article The Evening Standard (London, England)

Has the Left Learnt Nothing from the Past 30 Years?

Newspaper article The Evening Standard (London, England)

Has the Left Learnt Nothing from the Past 30 Years?

Article excerpt

Byline: ANTHONY HILTON

THEY learned nothing and they forgot nothing," it was said contemptuously of the French Bourbons. It might not suit the self image of the Labour Party to be compared to a royal house, particularly one that got so out of touch with its people that it was toppled by a bloody revolution.

But that is the thought that sprang to mind when Peter Hain floated the idea that top rates of tax should go up so that other people, and specifically the middle classes, could pay less. It was if the past 30 years had never happened and we were back in the House of Commons of 1975, with Labour Chancellor Denis Healey promising his baying backbenchers he would "squeeze the rich till the pips squeak".

It was a disaster then and would be a disaster now.

But clearly, if we have got as far as Hain seriously floating the idea, then too many people must have forgotten why it does not work, and risks perversely making the whole population substantially worse off.

The big economic discovery of the Eighties was the Laffer curve which, like most economic theory, was common sense dressed up as science. Its basic proposition was that if governments take most of what people earn off them in tax, then they won't work very hard. If, however, government cuts tax as far as it reasonably can, people will have the motivation to work harder and that will generate significant extra wealth which in turn will yield tax. A virtuous circle is created whereby the extra growth is more than enough to make good the revenue lost by the initial tax cuts.

Ronald Reagan was converted to this idea in the 1980s. Since then it has swept the world, and with good reason. It has been demonstrated time and again that low-tax economies are more flexible, more dynamic and more innovative than high-tax ones, but if you stifle the dynamism of the entrepreneurs, then everyone ends up worse off.

It is not just bad economics but also lousy maths.

There are not enough rich people to go round, so even if their tax was doubled to 80 per cent, it would not make a material difference to the amount the rest of us have to find. Back in the Eighties, when the sums were done regularly to justify the cut in top-rate tax, this was understood. Then, it was estimated you have to tax the rich at 90 per cent to knock a couple of pennies off income tax for the rest of the country. …

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