Britannia Radio

Another look at “What’s in Store” and more importantly WHY

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TELEGRAPH                   6.4.09
Have a Happy New (Tax) Year
In Labour's eyes, anyone who questions Britain's soaring levels of  
taxation must be slightly bonkers. But, at the start of a new tax  
year, Philip Johnston disagrees.

May I wish you a Happy New Year? If such felicitations seem a bit  
late or far too premature, today marks the beginning of the new tax  
year; and there is not a great deal to be happy about, in truth. For  
historical reasons, the financial, or fiscal, year for personal  
taxation and benefits ends on April 5 and starts again on April 6.  
This is because English quarter days – four religious festivals  
roughly three months apart – are traditionally the dates on which  
rents and rates were due. One of these is Lady Day (March 25), on  
which the old tax system ended. When the Gregorian calendar was  
adopted in the UK in September 1752 in place of the Julian calendar,  
11 days were lost – but, to the chagrin of the populace, not the  
taxes. The 1752–53 tax year was extended by 11 days so that it began  
on April 5. A further Julian leap day in 1800 changed its start to  
April 6.

So here we are, at the start of Labour's last full fiscal year in  
office. In the 12 years since taking over in 1997, annual income tax  
revenue has increased from £69 billion to £147 billion in 2007,  
partly because more Britons have been in work or earning more but  
mainly because of fiscal drag, where greater numbers of taxpayers are  
drawn into higher rates even as the basic rate falls (it is now at  
20p). Even if the recession is now reducing the number of top-rate  
taxpayers, no peacetime government has ever extended income tax on  
the scale that Gordon Brown engineered in his time as Chancellor of  
the Exchequer.

There is a school of political thought that considers anyone who  
questions the eye-watering levels of tax that we currently endure to  
be slightly bonkers. The suggestion that people should be allowed to  
keep as much of their own money as is commensurate with running  
efficient public services is seen as only just short of seditious.  
After all, the Government knows best what to do with our money, where  
to invest it, who to give it to and how much to return in benefits  
and credits, doesn't it? Most people subscribe to the notion of a  
progressive tax system, where those who earn more pay more; and we  
are, by and large, content to fund improvements to schools and  
hospitals, to help the truly destitute (though not the feckless), to  
ensure the safety and cleanliness of our streets and the security of  
the country. Need there be any more call on our money than those  
essentials?

My local council evidently thinks there is. Driving around the  
neighbourhood at the moment requires much concentration and many rat- 
run detours because there are road works everywhere. So many humps  
are springing up that the terrain looks like a field of drumlins left  
behind by the Ice Age. Everywhere, it seems, roundabouts are being  
widened, repainted or extended and bollards replaced. Near our home a  
new junction has just been completed when there was nothing obviously  
wrong with the one that was there before.

What on earth is going on? How has the local authority got the money  
to do this in the midst of an economic meltdown whose like we have  
not seen for 30, 50 or is it 100 years? And it always happens at this  
time – when the old tax year ends and the new one begins. If the  
money is not spent, then next year's roads budget is likely to be  
cut. So, instead of simply not spending it and sparing us the council  
tax rises that are about to take effect, the money is splurged around  
on useless projects and pointless schemes.

It is no mystery either where the councils find the funds to pay  
1,000 senior town-hall executives more than £100,000 a year, as  
revealed in a report today by the Taxpayers' Alliance. That is 200  
more than the previous year – and, yes, it was the same year that  
local councils managed to jeopardise almost £1billion by investing  
with dodgy Icelandic banks.

We are told they have to earn so much because they have big  
responsibilities and large budgets to control. Yet 16 of them are  
paid more than the Prime Minister's salary of £194,250. There are now  
182 people in local authorities being paid more than Cabinet  
ministers, though without the second-home allowances. But, hey, the  
money comes out of taxes, so who cares?

Tax is always considered in terms of its proportion of GDP, something  
referred to, appositely, by economists as the burden. Tax revenues  
may rise, but, provided they do not go up as a proportion of GDP,  
this is seen as a Good Thing, though reducing them as a proportion of  
GDP is surely a Better Thing.  [colour and caps mine! -cs] The reason  
they aren't going down is because the state spends too much; yet  
anyone who tries to construct a political narrative that challenges  
the need for high taxes, or the benefits of low taxes, is crushed  
under the wheels of the juggernaut of "progressive" politics, whose  
weight is far greater than the support it has in the country.

In his book Squandered, Daniel Craig observed how, over the past 10  
years or so, our taxes have risen two-and-a-half times faster than  
our earnings so Labour could embark on a spending spree designed to  
inflate the public sector and create a client electorate to keep the  
party in office. Beyond that, what is there to show for it? Last  
week, we learned of more than 20 hospital trusts where hygiene is so  
bad that departments are threatened with closure, and of hundreds of  
thousands of children who are still reaching the age of 11 without  
basic literacy and numeracy skills. What was the extra money raised  
for if not to tackle those failings?

Over Labour's 12 years in office, Mr Brown has had close to £1  
trillion more to spend than if he had allowed public expenditure to  
grow only in line with inflation. Here we are now, just three weeks  
from the Budget, facing the biggest current account deficit for  
generations, a debt that will have to be paid back in higher taxes by  
our children and by theirs. The Government has already taken huge  
amounts of our money, made investments in the country's future (the  
results of which are already fraying at the edges), wasted a great  
deal on bureaucracy, quangos and excessive public sector pay; and  
now, having got us into this position, ministers have the brass neck  
to denounce anyone who calls for tax cuts.

The Conservatives are broadly as confused as everyone else, brow- 
beaten into accepting the twin nostrums for all modern ills – high  
spending and excessive taxes. They say their instincts are for lower  
taxes, but, unless they are prepared seriously to cut public  
spending, these simply cannot be delivered.

There is a fundamental case to be made for low taxation that feeds  
both a desire for smaller government and for greater personal  
freedom, both of which are central Conservative tenets and should be  
at the heart of the party's appeal. There is a moral imperative that  
goes far beyond merely trimming away wasteful fat but which should be  
an end in itself. Tax cuts create incentives to wealth creation and  
stimulate hard work, thereby generating income and extra revenues.  
Low taxes allow people to make their own decisions, to save when they  
wish, to give if they choose, and to spend on what matters to them.  
The words of the wisest man to hail from Kirkcaldy (and, no I don't  
mean Gordon Brown, but Adam Smith) still hold true: "It is the  
highest impertinence and presumption in kings and ministers to  
pretend to watch over the economy of private people, and to restrain  
their expenses/   They are themselves always, and without exception,  
the greatest spendthrifts in the society.''

It was clear almost from the time when spending began to soar in  
1999-2000 that the country simply could not afford to go on  
transferring ever-increasing amounts of money from the efficient and  
productive private sector and pouring them into largely unreformed,  
unproductive public services delivered by a state monopoly. The  
trouble, now, is that it is almost certainly too late to do anything  
about it because the public finances are in such a mess that the  
accumulated debt will have to be paid off by yet more tax rises or  
eaten up by runaway inflation in the years to come. As the Institute  
for Fiscal Studies demonstrates in a study today, average tax rises  
of £1,000 a year will be needed just to balance the books.

The victims in all this will be the "hard-working families'', who are  
the bedrock of the nation's prosperity and who pay most of the taxes.  
For them – us – it will be a long time before there is a new fiscal  
year to be happy about.