John Redwood warns that the raising of taxes could soon be hurting the country’s economy. He’s right.
He writes that what is free ‘politically’, in the sense that it is easy to get the coalition to agree over it, is rarely good for the economy. Raising Income Tax, VAT and CGT are classic errors economically speaking, especially during the current economic downturn, but easy politically to achieve at the moment, as people look back at the excesses of the biggest credit boom of all time, and try to retrospectively re-allocate the wealth it splurged.
The coming slump will put paid to the current political consensus. Unless the Liberal Democrats are suddenly able to understand where economic growth comes from, and cut taxes, they will find government revenues tumbling to a point they never dreamed was possible. Either they will shape up and realise the error of their socialist fairness ways, or they will find they are on the way to political extinction.
My guess is that within six months, the severity of the downturn will be so obvious that the Lib Dems will switch over to supporting Redwoodian tax cuts to get the economy going. The economic road ahead looks rocky indeed, and the politics of envy, which had become pervasive in the bonus-jackpot boom, will quickly be forgotten when people need jobs.
EXTRACT – ‘The measures which have attracted cross party support are less helpful to recovery. The government has confirmed Labour’s hike in Income Tax to 50%. Labour has supported raising Capital Gains Tax to 28%. All main parties support the tax on bank balance sheets, a tax which will limit the banks’ willingness and ability to lend credit to companies for expansion.
Any study of the UK’s recent economic history will show that the consensus measures have been the killers in the past. The Exchange Rate Mechanism was a three party act of vandalism on the UK economy introduced by a Conservative government which understandably took the main public anger for it. The so called independent Bank of England was a Labour measure which Conservatives supported which led to the biggest post war boom and bust in money and credit.’