BY STEWART SLATER
The lines go up. All of them. The only difference is the slope.
For, according to the manifestoes, no matter who wins the election, the tax burden will rise. And it is not starting from a low base. Under Labour’s published plans, it will reach record levels. As it will under the Lib Dems but it’s the Lib Dems so, frankly, who cares?
There are a couple of problems with charts like this, however. Firstly, they are based on the parties’ own spending plans which, in many cases, are completely unrealistic, implying swingeing cuts to already struggling services. Not only is spending on these areas likely to be stickier than the parties assume, but it is also likely to rise to repair existing damage to the public realm and outside events always have an impact – Labour, for example, has not committed to raising defence spending, but geopolitics may force it to.
Secondly, the charts are short-term, covering only the first few years. But we know that the ageing population will result in increased spending on niceties such as pensions and medical care. As a reasonable estimate, since we know the age of the population, when they need spending on, and roughly how much it costs, the economy needs to grow by about 1.2% each and every year just to keep expenditure on the elderly constant as a percentage of GDP.
It is reasonable to assume, therefore, that future spending will be far higher than either party is willing to admit (as an aside, Labour’s formula that there is no need for tax rises for the plans in the manifesto implies, to my cynical ear, further plans not in the document which will require just that).
Given this background, the only way for the tax take to stay broadly stable as a proportion of the economy is to juice growth. And both main parties have made much of raising it. Neither, however, has released any reasonable plans to do so. It is just something both seem to assume will happen. Keir Starmer, speaking after the manifesto launch, seemed to struggle with the concept that growth might be hard to come by, requiring him to change his plan. Having already had to scrap a series of green policies because interest rates had not done what he wanted, I leave it to you to decide whether such naivete is charming or alarming. Hope is, famously, not a strategy.
Some policies may mitigate against the dash for growth. Labour’s plan to decarbonise the grid by 2030 is widely believed to be unachievable and, if attempted, likely to lead to black-outs. Proposed changes to employment rights, and increased red tape from diversity-related reporting will, at the margin, serve to dampen investment as will the oft-rumoured but never entirely denied plan to raise Capital Gains Tax. In the background, the flip-side of the ageing population lurks – more elderly people means proportionately fewer young people to do the work to grow the economy.
One way of squaring this circle is to borrow more. But the impact of the pandemic and the war in Ukraine has raised debt to roughly 100% of GDP. There is a limit to how much further it can go – Britain, as a former BoE Governor put it, relies on “the kindness of strangers”. Investors do not have to buy the British government’s debt and, even if they do, interest rates at higher than previous but still historically low levels increase servicing costs – almost twice as much is currently spent on interest as on Defence.
Taxes will therefore have to rise. Initially, this will be through a combination of fiscal drag and, in Labour’s case, “hidden” taxes hitting pensioners and the wealthy to allow them to meet their triple lock on “working people” or, cynically, spare their voter base from punishment. This is, however, unlikely to be enough. Wealth taxes are famously difficult to levy, particularly in these times of remote working and the amounts required so large that, in the absence of a positive growth shock, tax rises will cascade into other sectors of the economy. Future historians may see George “Read my lips – no new taxes” Bush’s centenary falling at the midpoint of the campaign as a sign that the Almighty has a sense of humour.
OK, taxes rise. So what? Scandi nations take 40-odd percent of GDP and they are fine. They are also, however, full of Scandinavians. There is a large body of evidence suggesting that nations’ propensity to pay tax is downstream from a host of other cultural factors. Anglos, the global champions of individualism, take action far earlier than others to reduce their exposure to the predations of the government. Equally, there is evidence that, the more diverse a society, the more reluctant its members become to fund it. This does not, perhaps, speak well of us as a species, but we must deal with humanity as we find it, not how we choose to imagine it. That Scandinavia tolerates higher taxes does not mean that Britain will.
It is thus reasonable to conclude that, absent a currently unforeseen, permanent boost to growth, the British model (to which all main parties are committed) will, in the coming years, hit the wall – unable to fund itself and unable to raise funding from outside.
A country is, of course, more than just an economy. There are a host of other factors which might sway one’s vote. Immigration, for example. We may assume that Labour is more ideologically favourable to free movement of people, but in reality, the Conservatives must be too. Immigrants provide an army of cheap labour to do the jobs Britons would prefer not to and would, if forced, demand higher wages to do. Those who would pull up the drawbridge never level with the electorate about the impact this would have on their pocket-books.
Labour is certainly “woker” than the Conservatives but it is hard, looking at the past fourteen years, to see them as an unceasing triumph for the forces of social conservatism. Not only has the governing party not, in any sustained way, attempted to counter the spread of “Social Justice” ideology but its failure to reform the quangocratic state which removes so much activity from ministers’ control means that any efforts would be howling in the wind anyway.
Dull though, with the exception of the Farage shock, it has been, this election has been good for my education. There is a raft of politicians who, whenever they appear on television, prompt me to switch over to Al-Jazeera and its output of far-off places of which I hitherto knew little. For I confess that a visceral loathing grips me when I see many members of the future government take to the airwaves. And a deep sense of shame. For sharing an education with many of them, they are my tribe and they are shallow, glib, smug, arrogant and foolish. Taught to prize their own intelligence and never having tested it against reality they have failed to develop wisdom, seeing society merely as pieces to be moved around the chess board as they seek to build their inevitable New Jerusalem. Emily Thornberry’s (a graduate of Kent – so very much not a member of my tribe…) discussion of VAT on school-fees and her complete disregard for the harm imposed on children forced to change schools made it quite clear that the Opposition is intent on making an omelette and on choosing the eggs it breaks to do so.
But the Conservatives are cut from the same cloth. Experience of business and finance should have made Jeremy Hunt and Rishi Sunak aware of their limitations and that of their model. But, desperate to shovel more money into the all-devouring maw of the system or to play politics with the Opposition, they ripped up the (200 year-old in one form or another) non-dom status in the Budget. No longer do individuals have money, some of which they give to the state, now they only have what the state lets them keep – and if it wants to change the rules at its whim, then it will.
Viscount Morley, the last of the Gladstonian Liberals, resigned from the Cabinet on the eve of WWI in part because, seeing that war between industrialised nations could only be Total War, he realised it could only be fought with conscription which he regarded as an intolerable alteration to the relationship between citizen and state. In markedly less threatening times, the Conservatives have decided that teenagers must give up their time in some form of National Service…
Both parties make much of “serving” the people but in reality, neither sees the electorate as its master, more as a plaything to be treated as they will in the service of plans concocted by the clever but not clever enough, with treats handed out to their favoured group.
Those who pontificate on such matters conclude by telling their audience “You must vote” so frequently that it might appear to be a legal requirement. I will not. For I have gone to the polling station in no more than half the elections in which I have been able to participate and of all the sins, hypocrisy is one of the worst – if surprisingly common amongst my fellows. Another electoral cycle will pass with no cross in a box by me. I am a classicist so, yes, I do know that Plato said, “The price good men pay for indifference to public affairs is to be ruled by evil men.” but firstly, I am not a good man, and secondly he said a lot of things, many of which were utterly barking.
This is my choice. It may not be yours. But if you do what is described as your civic duty, at least have a think about what is at stake. You are not choosing “Change” or a “Clear Plan”. You are just choosing when the S.S. United Kingdom hits the iceberg. The Conservatives have left the bridge, Labour are stoking the boiler but neither is going to move the wheel.
Stewart Slater works in Finance. He invites you to join him at his website.