BY ANDREW GIBSON
As football pundits are given to the use of clichés, Gary Neville might be tickled to discover that he is on the horns of a tax dilemma. We will come to his tax affairs soon. First, let’s unpick the Left’s many misperceptions about tax cuts, in a week in which the British Left has clamoured to have a larger proportion of their incomes left in the hands of a Conservative Government.
The Left’s first mistake is to confuse a flow of income with a stock of wealth. Not all people on £150k pa are “wealthy”. Many have spent decades working up a public service or private sector career ladder or building a business, often on initially quite modest incomes. Why shouldn’t they be allowed to keep 58% of their marginal earned income, as opposed to 51.5%, the previous plan?
By 2024, many more people of modest wealth will be at or near the £150k salary level; Labour’s bash the rich rhetoric won’t look so clever then.
Another myth is that all the reduced taxation will go to the taxpayer. Many of the super-rich, such as, say, football players, negotiate their salaries “after” tax. Therefore, the tax cut will benefit their employers. That means, for the football sector, the money will likely go to recruiting more apprentices, investing in women’s football, supporting football’s many community initiatives, and similar.
While on the topic of football, let’s note here that Gary Neville made his fortune under a 40% tax rate regime administered by a Labour Government and with no cap on footballers’ bonuses. Now Neville seeks to raise the drawbridge against those who would emulate him.
The Left has also enjoyed attacking “trickle down” theory, a school of economics found only in the playground of their own heads. Economic liberals do not argue that growth derives from the rich feeding crumbs to the poor. It is the Left that obsesses about hierarchy, power, and “winning”.
In contrast, the liberal view is founded on consensual exchange. I willingly buy my newspaper from my local shopkeeper, he willingly sells it, and we both engage in this transaction because we both gain. Not necessarily by equal degrees, but we gain. I have no idea which of us is the richer, or who is trickling upon whom.
If a company makes my life easier by producing a digital newspaper, I might buy that new product. Such innovation, deriving from competition, drives society forward, not just in cash terms but in lifestyle terms – time saved and so on.
It is true, as Keynes argued, that the less well off have a higher likelihood of spending any extra income. Fine; if there is insufficient demand and an absence of economic confidence, by all means cut taxes for the lowest earners. But the “rich” do not burn their extra income. It is not lost to society. They either spend it or they save or directly invest it.
Saving and investing both have the effect of providing funds for British industry. The superior economic growth rates of capitalist over socialist states (think West v East Germany) testifies that private sector investors do a better job than politicised investors. The British and French governments spent a fortune on supersonic travel, yet you can never find a Concorde when you need one. In contrast, nobody “planned” the growth in mobile communications, but you can’t walk down a British street without seeing a mobile phone taking a teenager for a walk.
Capital accumulation has cultural benefits, too. If there is a plethora of funding sources – wealthy people, foundations, Bank of Mam and Dad – otherwise unpopular or politically unattractive causes can find backers. British cities are awash with diverse places of worship, entertainment, sport, cultural enrichment, and more. In contrast, socialist cities tend to focus on approved, uplifting pursuits so drab and contemptuous of public opinion that Kenneth Tynan endorsed them.
Finally, tax cuts are typically so conducive to growth that they can “pay for themselves”, albeit not immediately. As that centre-left icon JFK put it, “the soundest way to raise the revenues in the long run is to cut the tax rates.”
So, what is the “Neville Tax Dilemma”?
It is simply this.
If Gary gives away his tax cut, and thereby enhances cultural diversity or enlarges the charitable sector, he proves economic liberals correct about the benevolence of tax cuts.
If he keeps his tax cut, he proves economic liberals correct about Gary Neville.
Andrew Gibson worked in Investor Relations in Tokyo for five years. He now works in corporate communications. He tweets at @AndrewGibsonMBA .