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We are still a month from the Budget and yet already it is developing into a financial horror show. Having explored just about every other conceivable tax rise the Chancellor seems to have settled once again on the idea of breaking Labour’s manifesto promise and raising rates of income tax.
Should she do so she will have no option but to resign. Time and again voters have shown that they have little tolerance for politicians who break tax promises. She would be as doomed as George HW Bush was when he told US voters in 1988: 'read my lips: no new taxes' - and then went on to do introduce just that.
Reeves only just about got away with last year’s rise in employers’ National Insurance, which required her to tie herself in knots to argue it wasn’t a tax on her famous ‘working people’.
But she won’t survive a hike in income tax, the most totemic tax of them all. Nor, very likely, will her boss, Keir Starmer. Voters in the Caerphilly by-election for the Welsh Senedd have just shown that they are itching to do to Labour at the next election what they did for the Conservatives at the last.
Contemplating a rise in income tax hasn’t stopped the Chancellor also looking at targeting groups she thinks are unpopular with her party’s voters and are therefore politically dispensable.
The latest group are members of professional partnerships who, it seems, may be subjected to employers’ National Insurance Contributions. Even with the presence of Arthur Laffer in London this week it doesn’t seem to have sunk in with her that raising taxes is no guarantee of earning extra revenue if it drives high-earners abroad.
Partnerships are one of the great creations of the English commercial system, pooling capital and sharing resources. But possibly not for much longer if doctors, lawyers, hedge fund managers and others are driven into the welcoming arms of other European countries or the Gulf states.
The professions join property investors, tech entrepreneurs and just about anyone else with aspirations in being made to feel unwelcome in Rachel Reeves’ Britain.
The destructive effects are everywhere to be seen. Business and private capital investment in the UK is the lowest of any G7 nation and is set to decline further as it is deterred by high energy costs and crippling regulation. The London housing market is at a virtual standstill. We have 12,000 tech entrepreneurs rethinking whether to remain in Britain or leave for more welcoming shores.
To set up and grow businesses requires huge effort, but sadly those who are in the business of doing so do not fit the Chancellor’s socialist definition of ‘working people’. For her, wealth-creators are merely the fabled ‘broad shoulders’ on which she believes she can hang an even heftier share of the fiscal burden. Never mind that the top one per cent of taxpayers last year collectively paid £100 billion of income and capital gains tax, 33 per cent of the total. She still wants crushing the wealthy to be ‘part of the story’ of her Budget. A horror story.
To demonise wealth is to demonise the creators of wealth, and to go after them is to go after jobs.
Reeves, like many Labour politicians, treats businesses as bottomless pools which can be tapped indefinitely without ever draining them dry. Yet we have already seen what last year’s rise in employers’ National Insurance did for jobs, with 115,000 payrolled positions lost since Labour came to power. Only the public sector, in her socialist fantasy, can create jobs and make the country richer.
Even now, there is still just about time to change the destruction narrative of the Budget. Darren Jones, by all accounts the sensible one in the Treasury, was moved to Keir Starmer’s office in order to co-ordinate policy. He should use his influence over the Prime Minister to limit the damage. Starmer should order his Chancellor to rewrite the story of the Budget into one of encouraging rather than fleecing risk-takers.
As Kemi Badenoch showed at last month’s Conservative conference, cutting spending and using the savings partly to reduce taxes and partly to narrow the deficit, can be very popular.
The most promising sign over the past few months is the emergence of a new cross-party group of entrepreneurial young people, Looking For Growth, set up to oppose national decline. They have been able to fill 1,200-seat venues with their meetings.
Young people are often unfairly written off as dreamy idealists, but Reeves is fooling herself if she thinks she can impress them with confiscatory policies against the rich. The impetus for more growth-friendly policies is now coming from them - and Labour is truly doomed unless it listens.
- Ken Costa is an investment banker, former chairman of Lazard International