The war on wealth has only just begun

Allister Heath - Sunday Telegraph The prospect of a new Labour leader should fill us all with dread. Amid the uncertainty surrounding Sir Keir Starmer’s replacement, there is one inevitability: taxes will increase, regardless of who’s in charge.

If you are already sick of the crippling taxes levied on anything that moves (and much that doesn’t) in today’s Britain, I have grim news. The war on wealth has only just begun. There is very little hope of any improvement, at least under this Labour Government. The state of play is even bleaker than it was during the 1970s, when a class-war obsessed Labour Party dedicated itself to taxing the rich until the pips squeaked (as the then socialist Chancellor Denis Healey didn’t quite put it), levied confiscatory rates on high incomes, targeted “speculators” and sent the country into the arms of the IMF as a result. This time around, it’s not just the very wealthy that are in Labour’s sights, but almost anybody with assets or who wants to improve their prospects in life. When it comes to taxation, it matters little which Labour apparatchik becomes our next PM: all will be even worse than the already terrible status quo. Rachel Reeves is our worst Chancellor in 45 years, but her successor will be even more damaging. Every bad idea in tax policy is now mainstream on the Left, especially as candidates to replace Sir Keir Starmer emphasise their supposed fiscal probity and commit to raising more money through taxation, not merely borrowing more of it, to placate the gilt markets. Investors may at first like this newfound embrace of low budget deficits, but they need to remember that the alternative – effectively confiscating assets from their rightful owners – is something no capitalist society can survive unscathed. Andy Burnham, Wes Streeting, Angela Rayner, Ed Miliband, somebody else: they will all increase capital gains tax and probably also inheritance tax. Streeting (the supposed Right-winger) called for higher CGT earlier this week, and Burnham indicated that he might support such a move too on Friday. All candidates will double down on the looming scandal that is the mansion tax, an idea that Miliband helped pioneer. They all believe that the problem is that the stock of wealth – housing, equities, savings – is insufficiently taxed, and that income from capital (what Marxists call unearned income) is under-taxed compared with income from “work” (or rather, labour, as managing capital also requires work). Many Labour MPs, in their hearts, believe that the ISA shield against CGT is too generous. At some point, they will also turn against pension tax relief for the middle classes (high earners have already lost almost all of their tax relief), though we are not there yet. Burnham repeated his call for a land value tax on Friday, a disastrous idea that – in practice, if not under the unrealistic theoretical construct pushed by economists – would turn into a proto-communist tool to expropriate housing wealth en masse. The Left, wrongly, now almost all believe that the rate at which capital gains tax should be levied must be equaled with that of income tax. This is wrong, for several reasons. First, the optimal tax-raising rate is different for different sorts of taxes. Jacking up CGT to 40-45 per cent would almost certainly yield less, including because people would simply hold on to assets indefinitely, in the hope of a better Government. Second, the 40 per cent top rate of CGT in the late 1980s was drastically diluted through indexation to inflation, a policy which was ditched by Gordon Brown. So 40 per cent CGT today would be much worse than 40 per cent CGT back in the Tory boom days (though it was much too high even then). Third, I support equalising the rate at which income streams are taxed, but capital is already taxed repeatedly. In many cases, the CGT rate is merely a part of the overall tax burden imposed on the asset under consideration. If you buy a share in a company, that company already pays corporation tax on its profits, and then those already taxed profits are hit again when they are paid out as dividends. Levying capital gains tax on an appreciation in the value of the company’s shares is tantamount to taxing those profit streams a third time. Why? The value of a share is the discounted net present value of its expected future dividend payouts, which means that levying CGT on share price appreciation (some of which may merely be the result of overall inflation) is equivalent to triple-taxing the same income flow. It is madness. CGT should be cut (or abolished), not raised, in the interests of fairness and efficiency. Fourth, the present tax system is even more unfair than people realise. Take inheritance tax: in some cases, the triply-taxed stream of profits I describe above will be hit again when somebody dies. Or take VAT: the state will take another chunk of that already much reduced pot of cash when it is actually spent. We are now onto quintuple taxation. It is possible to construct scenarios under which the state grabs 90 per cent of the value of an income stream. When will the tax madness end? There was respite during the 1980s, 1990s and early 2000s, as the Tories (starting in 1979) slashed marginal tax rates and New Labour (as it then was) famously explained that it was “intensely relaxed about people getting filthy rich as long as they paid their taxes” (as Peter Mandelson put it in 1998). In reality, Labour soon succumbed to the politics of spite, taxing pensions and house purchases much more harshly, though it also cut nominal CGT rates. Fast-forward to 2026, and Gordon Brown’s stealth taxes now feel almost benign compared to the horrors that lie ahead of us. A PM Burnham would be a disaster for taxpayers – but then again, so would any other Labour prime minister.