- To justify the tsunami of tax rises heading our way, Keir Starmer has sought to define 'working person'
- Labour's approach to taxation will only lead to economic stagnation and political embarrassment
- If the Government wants the growth our economy needs, it needs to pick a lane when it comes to business
Source Capx 25/10/24
In the age of the identity crisis, it can be difficult to know where you stand. Am I a man? On balance, probably. Am I white? I’m sure I’m guilty enough to be. Am I a ‘working person’? Apparently that’s also a matter of contention.
In yet another attempt to justify the tsunami of tax rises barrelling towards us, Keir Starmer has sought to finally define what it means to be a ‘working person’. According to the Prime Minister, the term refers to someone ‘who goes out and earns their living, usually paid in a sort of monthly cheque’. Give that man a prize! That is where his powers of astute observation end, however.
When pressed by Sky News’ Beth Rigby on whether his definition would cover those who get their wealth from assets, Starmer retorted that ‘they wouldn’t come within my definition’.
How convenient. It is these people – landlords and shareholders – who are in the crosshairs for Labour’s rumoured hike on capital gains tax (CGT), the tax paid on the profit from selling an asset which has increased in value. As research released by the Centre for Policy Studies demonstrates, going ahead with this would be a terrible idea.
As it stands, CGT raises comparatively little for HM Treasury. In 2022/23, it raised 1.6% of all government revenue – just £17 billion. It is also paid by relatively few taxpayers, generating 80% of its revenue from just 38,000 of the 369,000 people who pay it.
These numbers are small, but changes in the amount these individuals pay could have major effects on tax receipts if people move their assets abroad. The CPS research shows that raising the CGT rate to 33%, 39% or 45% would lead to the UK falling from 30th in the OECD for overall tax competitiveness to 32nd, 33rd or 34th. This would leave us with one of the least competitive tax regimes in the OECD – from an already less than ideal position.
The Labour Party have made a big fuss about their intentions to transform the UK into an investment hub. In his speech at the recent International Investment Summit, Starmer declared that ‘private sector investment is the way we rebuild our country’. Why then would his Government preside over tax changes which would discourage this? Imposing higher CGT means that people are less inclined to take risky investments as when that asset is eventually sold, they’ll face a heftier financial penalty.
Perhaps we shouldn’t be surprised by this glaring contradiction. Much of Labour’s attitude towards business and entrepreneurship has been defined by incoherence. The Government’s impact assessment into their own workers’ rights legislation found that it will cost businesses £5bn annually. As was pointed out in CapX this week, this figure only relates to the administrative costs of the legislation. The ability of bosses to sack incompetent staff is also under threat, which may make them think twice about hiring new employees, jeopardising a firm’s growth.
If the Government wants the growth our economy needs, it needs to pick a lane when it comes to business. Down one road lies the politics and economics of envy, where the beastly ‘rich’ are targeted for a potential short-term boost in tax receipts. Down the other is a bold strategy where established businesses, entrepreneurs and investors are given the financial and regulatory freedom required to make the calculated risks which make our economy more dynamic. Whatever path the Government chooses (no cookie for whoever guesses which one they should, and which they are most likely to), one thing is clear: continuing with the current strategy of breaking manifesto pledges and redefining employment statuses is a recipe for economic stagnation and political embarrassment.
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