The politics of envy is back with a bang – and the Labour Government is making it the central plank of their economic policy.
After the self-defeating and muddled policy of adding VAT to private school fees, the Government has not been deterred, and is now rehearsing all of the old tunes from the socialist song book.
They are apparently going to squeeze those earning over £100,000 until the pips squeak in a way that would make even Denis Healey blush – as if those people are not taxed enough already – as Labour seemingly don’t classify those earning six figures as “working people” who they promised to protect from tax rises.
If reports are to be believed, we have also been told to expect an increase in inheritance taxes and changes to the rules which will hit those considered the worst of the worst in Labour circles – landowners, farmers and those who want to leave their children some of the money they have made throughout their lives. How very dare they?
From an economic perspective, all of these changes are completely senseless, and will almost certainly do more harm than good, and will also likely raise less money for the exchequer rather than more. However, politicians do not make logical decisions.
They make political decisions, and some decisions which are senseless from a practical perspective can still play well with the coalition of voters you need to put together to win an election.
I am not at all convinced, but I am sure there are many Labour supporters who would argue that taxing the highest earners even more and putting VAT on private school fees works politically, even if not economically.
They may argue that being seen to be on the side of those educated in the state sector and earning average wages, whilst trapping the Conservatives into standing up for private schools and the highest earners is exactly where they want to be politically.
However, I think a tax hike on inheritance tax is almost certainly going to be a disaster politically as well as financially for the Labour government. Not only would it lead to the collapse of farming, but all the opinion polls show that this is the most hated tax of all – including by Labour voters.
It may well be that only four per cent of estates pay inheritance tax (although that is forecast to rise to seven per cent within 10 years), but many people aspire to leaving behind a property that is valued above the current level for IHT, and it also goes against the British sense of far play, give that this is often money which has already been taxed at source when earned.
That is why a YouGov poll showed that over 60 per cent of people think Inheritance tax is unfair, including over 40 per cent of Labour voters, which is twice as many as believe they may end up leaving behind an inheritance which reaches the current threshold. By far the biggest reason given by people for opposing it is that this is money that has already been taxed when earned and shouldn’t be taxed again.
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When Gordon Brown was riding high in the polls just after he became PM and was considering a snap election, it was a promise by George Osborne to scrap inheritance tax (which he didn’t honour) which materially and rapidly changed the polls and forced Brown to abandon an early election.
Rachel Reeves should forget these things at her peril.
When she comes to deliver her budget at the end of the month, she will find that hike up taxes doesn’t work, and is not particularly popular, but she may well find that hiking up inheritance tax is the one that will trash her reputation more than any other.
There may well be some political mileage for Labour in pursuing the politics of envy – that remains to be seen – but they will find that an assault on inheritance tax is a political step too far even for their own voters. They have been warned.
