Higher taxes are coming after the general election - get used to it

None of these proposals make any sense from a macro-economic perspective, and in terms of their tax-raising potential may even prove counter-productive, because of the behavioural changes they are likely to bring about. Even so, they have helped Labour convince itself, and perhaps the voters too, that by squeezing the “better off” a little bit more, current levels of social spending can be both sustained and enhanced.

This is delusion, but lest you think the present Government offers much of an alternative, it ought to be pointed out that all these tax initiatives are just extensions of what the Coalition has already done. The direction of travel has been set, without any apparent debate or argument, and it is one in which higher earners and property owners are regarded as there to be fleeced.

The basic facts bear some repeating. Over the years, the tax system has been steadily tilted towards those with “the broadest shoulders”, such that the top 1 per cent of earners now pay between 25 and 30 per cent of all income tax, and probably rather more of the total tax take. This over-dependence by government on a relatively small number of taxpayers might seem worrying enough in view of the fact that high earners tend to be mobile, but it gets worse.

According to the Office for National Statistics, around half of all households now receive more in terms of public services and entitlements than they pay in tax, and that’s before basic state functions such as policing and defence are taken into account. More worrying still, the net contribution/receipt for the middle quintile of income earners has shifted dramatically. In 1990/91, that quintile on average made a net contribution to the Exchequer of £908 per year. This was still £840 in 2000/01. By 2007/08 it was minus £1,974 and in 2012/13 it was minus £3,999.

And if you think the present Government has at least managed to kick the habit of soaking the better off, you would be wrong. Yes, the Coalition did partially reverse Labour’s imposition of a new higher-rate 50 per cent tax band, by reducing it to 45 per cent. But it has also very considerably increased the scope of the hidden, 60 per cent tax rate that rules on incomes between £100,000 and £121,000. Tax bands are also now routinely left unprotected against inflation, dragging more and more people into higher brackets. On pensions, the Coalition has repeatedly reduced both the lifetime limit and the level of allowable contributions.

Stamp duty land tax has also been repeatedly increased, gumming up and distorting the property market, such that a £1 increase in the sale price can potentially lead to a £40,000 addition to the tax bill. As for mansion taxes, well, the present lot have already introduced one, on “envelope properties”, where the property is held through a company. The threshold for this tax was recently reduced from £2 million to £500,000. By no stretch could such properties any longer be seen as “mansions”.

Viewed from this perspective, it’s hard to see the difference between what Labour proposes and the Conservative-led Government has already done.

How much more can governments squeeze the upper middle classes before it becomes economically damaging? My guess is that we are already well into the law of diminishing returns. Persistently disappointing tax returns tend to support this suspicion. Regrettably, that’s not going to stop whoever inherits the keys to No 10 attempting to tax more. Oh, for a government that can break with this economically destructive political consensus.

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