Clegg: 'Soak the rich........'

‘Conviction’ is not a word that readily springs to mind when reflecting on the Lib-Dems. Clegg suits the party very well, being a relative stranger to principle, and just like his party, an opportunist and a populist.

 

Now he is becoming something of a menace.

 

It is very unlikely that his current blag on raising an additional £1 billion in tax from the ’wealthy’ (undefined) has the remotest chance of being taken seriously by the present Government, but his views chime well with Miliband’s, and come 2015 we may see the advent of Lab-Lib levellers. Convincing Clegg that he is utterly, totally and dangerously wrong is nigh impossible, but a few facts on who pays what and how much might not come amiss.

 

Income tax is the single largest source of Government revenues. Company taxes only account for about 7%. There is much political posturing about off-shore tax havens, but if all the loopholes in Nevada, Delaware, and elsewhere were closed the impact would be small. Inheritance tax and fuel duty could be abolished altogether by raising VAT by just 1%.

 

People earning more than about £160,000 a year – the top 1% -  pay nearly30% of all income tax. The top 0.1%, 29,000 people, pay no less than 14%. About 60% of all income tax comes from just 10% of taxpayers.

 

The richest are also amongst the smallest consumers of public services. They have little need for state schooling, the NHS, public transport and other tax-funded benefits.

 

The sad truth is that the English view wealth with envy and anger. Banker-bashing is the current blood-sport, forgetting that financial services is the single largest income tax payer, accounting for more than 16% of the total. ‘Fat cats’ – anybody better off than you – are the contemporary enemies of the proletariat.

 

Darling’s parting shot was to increase the maximum rate of income tax to 50%. The result was that the actual tax-take fell. People affected looked for ways around it, partly by simply quitting the UK tax jurisdiction. Politicians should have the Laffer curve tattooed on their bellies so that they can study it every time they take a bath. They might then understand that tax increases only lead to increased tax-take up to a certain point. After that, it declines because people find a way to avoid it.

 

Before Thatcher, the top rate of tax maxed out at nearly 98% - that’s right, 98% Not so much tax as confiscation. The result? The wealthy took themselves off elsewhere so their contribution to the revenues was a mere shadow of what it is today. Off-shore tax havens burgeoned. Armies of lawyers and accountants waxed fat on ‘tax-efficient vehicles’ i.e. perfectly legal fiddles that are still with us, and possibly always will be simply because the practitioners are smarter than HMRC.

 

Today, capital flight is easy. Money can be shifted from one jurisdiction to another on the press of a computer key.

 

Colbert,  a French Finance Minister, memorably said ‘The art of taxation is so plucking the goose as to obtain the largest amount of feathers with the smallest amount of hissing’.

 

 

Clegg is looking for a whole duvet and may kill the golden goose whilst he is about it.