A Wealth Tax Would Signal Britain Is Closed for Business

Mint

19 hours ago

(Bloomberg Opinion) -- As the UK teetered on the edge of an economic precipice 50 years ago, Environment Secretary Anthony Crosland, Labour's leading public intellectual, warned improvident local councils that 'the party is over.' The author of the optimistic tract The Future of Socialism was sounding the death knell of an era of seemingly limitless public spending.
Crosland's speech, written by my former Times colleague David Lipsey who passed away last weekend, detonated like a bomb. Many Labour party officials, however, responded by sticking their fingers in their ears — the left opposed fiscal restraint even when Britain had to turn to the International Monetary Fund for a bailout. Margaret Thatcher, the newly elected Conservative opposition leader, however, took Crosland's words to heart and waited for her moment.
This week, the Office for Budget Responsibility published a statement on the UK's fiscal risks that could have been lifted straight from Crosland: Britain is living beyond its means and must face up to reality. Publication of the OBR report has come 12 months too late to do Crosland's Labour successors much good. Had Chancellor of the Exchequer Rachel Reeves detailed an honest analysis of the country's predicament from the outset — and blamed her Tory predecessors for it — she would have more political buy-in for spending restraint. That moment has now passed; and, as in the 1970s, many Labour Members of Parliament are refusing to acknowledge the dire reality of the economy.
The watchdog of the public finances usually wags a friendly tail at chancellors, but this time the OBR bared its teeth, saying the government 'cannot afford the array of promises it has made to the public.' Nothing new here: The country's public finances have been left in a 'relatively vulnerable position' by successive governments. But instead of making the 'hard choices' called for by the OBR, Keir Starmer's government has abandoned a number of public spending cuts after backbench rebellions.
The party's well and truly over and now the hangover begins. The UK has the sixth-highest debt, the fifth-highest deficit and the third-highest borrowing costs among 36 advanced economies. Worse, the UK has failed to reduce public debt after it soared during the pandemic and energy crisis, leaving the country increasingly vulnerable to external shocks.
Wiser heads in Cabinet are trying to knock sense into their colleagues. Pat McFadden, the cabinet office minister who still bears the scars of Tony Blair's attempts to impose public-service reform on an unwilling Labour party, says with quiet menace that 'you can't spend money twice.' The government may have to delay scrapping the hated two-child benefit limit imposed by the Tories. The measure would cost £3.5 billion ($4.7 billion), but the rebels have forced ministers to drop £5 billion worth of disability entitlement savings. Having tasted blood, Labour's left-wing has also set its sights on reforms to the rules that allow hundreds of thousands of children to be designated with costly 'special needs,' the annual bill to local councils for which is £12 billion and rising.
This bodes ill for the chancellor. As it is, Reeves is barely meeting her fiscal rules. Money is so tight that a government headed by a former human rights lawyer is seriously considering limiting the ancient right to trial by jury just to save cash. And where Labour leads, the trade unions follow. Some 53,000 doctors represented by the British Medical Association (BMA) have voted on a low turnout for six months of strike action to back up their demands for a wholly unrealistic 29% pay rise. Last year, the doctors were awarded a whopping 22% pay deal without any corresponding changes to their working practices. The government's logic was pragmatic — voters thought medics had a reasonable case in making up arrears in lost pay, and ministers were anxious to buy off a prolonged strike which had led to the cancellation of 1.5 million medical appointments.
This time, opinion polls suggest voters are unpersuaded by the strikers. The reform-minded Health Secretary Wes Streeting's response has therefore been robust. 'The public will not forgive strike action in these circumstances, and nor will I,' he told the Times. Fighting talk — but these days, who can be certain that a wobbly government won't cave? Other public-sector unions are watching closely.
The chancellor's naivety is coming back to haunt her. In her first budget, Reeves made a rash promise: 'I'm not coming back with more borrowing and more taxes' — and then spent all the money she'd raised from business on the health service and generous public sector wage settlements. Reeves must now look to higher taxes in the autumn to balance her books.
That doesn't seem to bother Labour MPs, who've set their hearts on soaking the rich — yet taxes on wealthy foreigners have already driven away thousands to Milan, Dubai and other tax-friendlier regimes. A wealth tax, floated by former Labour leader Neil Kinnock last weekend, would truly bring us back to the 1970s, when eye-wateringly high levies drove entrepreneurs, artists and pop stars into exile. If she travels down this road, Reeves will send out a message to the world that Britain is closed for business.
More from Bloomberg Opinion:
This column reflects the personal views of the author and does not necessarily reflect the opinion of the editorial board or Bloomberg LP and its owners.
Martin Ivens is the editor of the Times Literary Supplement. Previously, he was editor of the Sunday Times of London and its chief political commentator.
More stories like this are available on bloomberg.com/opinion