Labour’s tax attack will mean mass extinction for Britain’s middle class

This will be the worst budget in decades, a milestone in Britain’s accelerating decline, a mishmash of deceit, vindictiveness and economic illiteracy. After vowing that its spending commitments were fully budgeted for, that it had “no plans” for further tax rises, Labour is now warning of “painful” increases to come, especially for those with “the broadest shoulders”.

Not content with having lied so grotesquely and been elected on false pretenses, Labour continues to fool voters. The government showers union comrades with cash and the economy recovers, but we are supposed to believe that they have no choice, that a supposed financial black hole inherited from those cowardly Tories must be immediately filled with higher taxes. Yes, the Conservatives were useless, but Keir Starmer didn’t have much of a case in point to unleash a socialist war on wealth.

Life is about to get a lot dirtier for what the left describes as “the rich”, but who are generally better categorised as the survivalist classes. These are the people who are often struggling to pay their mortgages, afford childcare and accumulate a little wealth for their retirement. Those likely to be singled out for the extortion will be in five overlapping groups: the top fifth of income tax payers (soon to be everyone on an income of £50,000, where the tax rate starts at 40p, or above); small investors; parents of private schools; owners of expensive homes; and pensioners.

Gordon Brown’s attack on pension funds in his first budget was one of the most devastating decisions ever taken by a Chancellor of the Exchequer. He scrapped the 20 percent tax relief pension funds enjoyed on dividends from British companies, destroying returns, fatally undermining pension schemes and causing a series of other unforeseen disasters.

Rachel Reeves could go even further if she decides to follow a Fabian Society blueprint that is being widely debated on the left. Tax relief on employee and employer pension contributions, the latest major “hole” in the tax code, is worth £66 billion a year; only a third of that (£22 billion) is offset by tax on pensions paid out. Some 53 percent of the tax relief went to the top fifth of income tax payers, which is terribly unfair to Fabians.

Their answer: reduce the tax deduction to a flat rate of 25-30 percent; drastically reduce the tax-free amount that pensioners can take from their pots; tax private pension income through National Insurance; calculate employer contributions for pension contributions through National Insurance; and impose inheritance tax and even income tax on pension assets.

The end result: a huge tax hike, special privileges to protect public sector pension schemes and, to save private schemes, an increase in employer contributions under automatic enrolment from 3 to 7 percent of income, which has kept wage increases low for years.

Such a proposal would be a disaster for Britain’s army of 40p and 45p taxpayers, the lifeblood of the economy. Why would they bother staying in Britain? If the 40p rate were to hit the same, smaller proportion of the population as it did in 1991, the threshold would need to double to £100,000 by 2027-28, the Institute for Fiscal Studies calculates. Moreover, taxpayers previously enjoyed mortgage tax relief (abolished by Brown) and generous pension tax relief.

This has been scaled back, but the Fabian plan would be the final nail in the coffin. The top fifth of taxpayers would also bear the brunt of Reeves’ likely decision to raise capital gains tax, perhaps by aligning its rate with that of income tax, and also to widen the scope of inheritance tax. Those on slightly higher incomes are already being hit hard by Reeves’ class war against private schools, and many professionals will see their opportunities diminish as non-doms leave London.

Pensioners, reeling from the abolition of the winter fuel surcharge, could be hit again: the Treasury would like those still in work to pay National Insurance contributions. Last but not least, I fear that Reeves will either revalue council tax, leaving millions of families with higher bills, or introduce a wealth tax on property, replacing council tax (and perhaps stamp duty) with a pro-rata annual levy on houses, forcing hundreds of thousands of homeowners with many assets but little money to sell.

In The Politics of ProcrustesAntony Flew identified the malady at the heart of the socialist project. Procrustes was an egalitarian bandit who lurked between Athens and Eleusis. He forced travelers to lie in metal beds. If their legs were too long, he amputated them; if they were too short, he stretched them to fit.

Starmer and Reeves are Procrustean technocrats. Their egalitarianism is their core value, which explains why they are so confused about growth. They seem to think that the economy is driven by housebuilding, infrastructure projects, mass immigration, green energy and trade with the EU, all of which can be partly controlled by the state.

Of course we need more housing and infrastructure, but real, sustainable growth requires talented entrepreneurs to create new, more productive businesses that compete globally. It involves regrowing the City of London, as well as technology and science companies; it requires a boom in private investment and innovation through a flexible workforce; it needs cheaper energy and less regulation. Real growth comes from, and leads to, inequality: it requires a tax system that rewards work, investment and success.

In DenverAimed at 5- to 6-year-olds, best-selling children’s author David McKee tells the story of a wealthy man. Kind and generous, he employs many of the townspeople. He is popular until a stranger shows up and begins to incite jealousy by telling the townspeople that it is not “fair” that he is richer than they are. Disgusted, Denver divides his money equally among his neighbors and moves to a more hospitable town, where he rebuilds his fortune. The original townspeople burn their money on vacation before returning to their impoverished, jobless hamlet, ravaged by the green-eyed monster.

McKee, who lived in France, was inspired by that country’s disastrous wealth tax. Britain is also now on the road to ruin, and it is the middle classes who will bear the brunt of the coming disaster.

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