Squeezing rich is no solution to ills

My late father started out in life as a radical and made that journey, as so many do, to the other end of the spectrum. I remember towards the end of his life he insisted to me that there were only two legitimate purposes of government: external defence and the maintenance of internal law and order. All else was theft: majoritarian theft; theft in the pursuit of some unachievable Nirvana of equality; theft ennobled by some higher social good as defined by politicians: theft all the same.

I appreciate it is deeply unfashionable to say these things now. Indeed some would regard these views as a crime of the mind. Who am I to feel entitled to keeping more of my income, or even indeed to consider it “private”? So let me confess, at the high risk of incrimination, that I, too, have undergone a similar journey to my late father’s – from a keen sense that we have a duty to pay high tax if our incomes so qualify to the deepest doubts about the wisdom of ever-rising tax. My stopping off point on this continuum may be somewhat before the final tabula rasa my father envisaged. But it is not that far short.

It is heresy I know to argue in Scotland that government has grown too big, that its very size is a hindrance to its purposes, that many so-called “public goods” are in fact best left to individuals and families to make their own provision, in a manner and degree that they see fit, in their own choice, and financed out of the money left in their pockets by a tax system drastically cut from its present level.

Gordon Brown’s chancellorship and later premiership represented in my view everything that has gone monstrously wrong with this country – an acceleration towards a financial and political collapse. He saw nothing wrong in exacting in his first budget a tax on the income of pension funds, a stealing – and I do not flinch from that word – from long-term savings contracts entered into by millions of people to provide for some comfort in their retirement. That one act took £5 billion a year at a stroke from the pockets of savers. Never mind the problems it created for pension funds and their beneficiaries. That’s tomorrow’s problem. This tax had the political virtue of being invisible. That did not make it morally right.

Then there was the blizzard of small imposts and niche taxes and withdrawals of reliefs; the “stealth” taxes: taxes that both in their announcement and implementation were cunning, furtive and deceitful. In one of the great ironies of our modern age all this was done under an aura of high moral tone and sanctimonious purpose for which we were supposed to feel gratitude.

The logical end to this – and I do believe we are not that far off this now – would be for the whole system of “private income” and “earnings” to be scrapped and for these to be paid direct to the Treasury. And it would be left to the Treasury, and for its officials working in tandem with Her Majesty’s Revenue and Customs, to dispense small calibrated personal allowances to each of us for spending. If the state knows best how to tax it is because it knows how best to spend. So why not let us go to the logical end of this journey and pay all our money to the state directly?

The introduction of the 50p tax could be said to represent something of a watershed – a half way mark – on this journey and surely as good a point as any at which to pause and reflect on the direction of travel.

But in truth, we are way past that half way mark. Many pay far more than 50 per cent now. If we add up all the other taxes that are levied – National Insurance, VAT, drinks duty, vehicle excise duty, capital gains tax, inheritance tax, stamp duty petrol duty, airport duty, council tax, we passed the “half way mark” a long time ago.

In any event, is this not all blind to the obligations of a modern welfare state? There are many reasons why welfarism has grown to the size it has. The fact that it is fed ever greater amounts is one of them. Of course we must have a system of unemployment relief. But we might have fewer out of work if we did not tax employment – strange but true. This has made it preferable for employers to cut labour costs and, when hiring, to prefer outsourced or temporary or part-time workers.

And why do we labour now under austerity? Because the government, having burnt through the money entrusted to it, is now struggling under such a shed load of borrowing and debt that it has to raise taxes still further. And the higher the tax the less we are free to spend and the deeper the collapse in demand that will drive us back into recession. Government – that oh-so-moral thing – is also blind to the insidious way inflation pushes tens of thousands more into higher rate tax bands every year, a colluding, calculating blindness I would submit. It may be a small minority now, but accountants calculate that over the next decade about 750,000 people will pay tax at the 50p rate.

But why not tax the rich more? We already do tax them highly. In fact, at the heart of the row over the 50p tax rate and the letter by economists to the Financial Times this week, is that the top 1 per cent of taxpayers already pay 24 per cent of all income taxes. We may choose to turn a blind eye to this. Why not let majoritarianism run riot? In that event, no tax will be high enough, for it all becomes counter productive: the wealthy stop working, or flee abroad. And if a line is not drawn, one day that majoritarian rampage might come for us.

Yes, it depresses and appals me that so many of our top company chief executives are paid gargantuan amounts; the feeding frenzy this encourages among the “marzipan set” of accountants and lawyers and advisers for similar sums, and the baleful copy-cat effect this bonus culture has had across the government sector. But it is not taxes that have to be raised. It is discipline that needs to be enforced by shareholders and taxpayers.

By passing up on that responsibility, we feed the flames that will in time destroy us. High taxes on the rich may give us an atavistic thrill. But they are not the solution to our massive problems. These lie in a much smaller state – and a much lower level of tax. Until we grasp that truth, we are condemned to life on a debt and tax treadmill.