I’ve just come back from the hugely successful UKIP Conference in Doncaster — where Ed Miliband has his seat. As I said in my speech, I had rather hoped to see him in the auditorium. Maybe he’d like to see a real party conference with a party on the way up, rather than a Labour Party on the way down. But then (as I added), he probably doesn’t want to be seen anywhere after his near-death experience at the Labour Party Conference.
But the scary thing about Ed is his utter economic illiteracy. A simple example: he’s going to impose a cap on energy prices, while at the same time setting a target for zero emissions by 2030, which would require massive infrastructure development in renewables and nuclear (and even then is a practical impossibility). But he simply fails to see that a price cap guarantees that he won’t get the investment, so unless he’s got a forest of money-trees in his back garden, it just ain’t gonna happen.
But it’s when he gets around to taxation that I really wince. He’s going to apply a mansion tax to houses over £2 million. With perhaps adjustments and exceptions for postcode, and for elderly people who are asset-rich and income-poor. Never mind the huge complexities in re-valuation, in anomalies at the margin, and the rest of it. He simply hasn’t considered the consequences.
A mansion tax would tend to put a dampener on the housing market. Prices would be at least a little depressed (maybe not a bad thing in itself). But also people would move less often, and so buy fewer carpets and white goods and so on. They would employ fewer builders and decorators and gardeners (and at that price level, probably architects).
So Miliband should offset against his proposed tax revenue the loss of all the stamp duty and VAT and other tax revenue that will result from a depressed housing market. Has he factored that in? Has he hell!
He believes in static-model economy. Raise the higher rate of tax from 40% to 50%, and the income from that tranche will go up by 25%. Basic arithmetic. But wrong, wrong, wrong — because the economy is dynamic, not static. A higher rate of tax will mean a bigger black economy. It will mean people opting for less overtime and lower incomes. It may mean people will retire earlier, or not bother to make that investment they’d been thinking about, or move abroad. They may hire a smarter accountant to propose legal loopholes. Foreign investors will look elsewhere.
Miliband won’t raise the revenue he expected to raise, and it is quite possible that revenues will reduce, not increase.
UKIP wants lower, flatter taxes, not to benefit the rich, but to drive investment, growth, prosperity and jobs. The problem we face is that economics is counter-intuitive, but the fact remains: high tax rates on the better off damage everyone, including those on low incomes. When I Tweeted this aperçu, someone replied “Oh, so taxes are only for poor people, are they?”. Idiot. The top 1% of income tax payers pay something like a third of all income tax revenue.
So we must challenge Labour’s glib slogan that anyone wanting to reduce the top rate of tax is “giving money to millionaires”. For a start, reducing the tax rate is not “giving” anything at all. It’s just confiscating less of someone’s own money. And secondly, it’s not giving anything away, because reducing that rate won’t reduce tax revenue, and may actually increase it.