IF you want to know why I find it hard to be optimistic about Britain’s economic future, look no further than the political parties’ annual conferences – this weekend it was the turn of the Labour party to pander to prejudice and envy and advocate policies that will end up retarding growth, reducing job creation (and thus hitting the young and poor especially badly) and impoverishing Britain.
Take Labour leader Ed Miliband’s astonishing claim on tax. “Next April David Cameron will be writing a cheque to each and every millionaire in Britain for £40,000,” he told the BBC’s Andrew Marr. Even by contemporary standards, this is an appalling untruth. It confuses wealth (people’s entire stock of assets) and taxable income (one year’s earnings flow) for the purposes of income tax, two entirely different things.
Let me explain. Starting in April 2013, the top rate of income tax is falling from 50p to 45p for 307,000 additional rate taxpayers, a group that includes individuals earning above £150,000 a year (Miliband would reverse this cut were he elected tomorrow). There are now a large number of UK millionaires – more than additional rate taxpayers. Most have their wealth tied up in expensive homes; many in pensions – there are even public sector pension millionaires, defined as anybody who enjoys or will enjoy a pension income which would require a pot of at least £1m were it to be purchased in the open market; and others in shares (often in their own businesses). Hardly any of these people will have benefited by the £40,000 or so Miliband claimed they would. Most probably wouldn’t have benefited at all (many are asset rich but cash poor pensioners).
To be better off by £40,000 a year, somebody would have to earn at least £950,000 a year. Only 8,000 people will earn £1m or more for income tax purposes in 2012-13 (and a few of these aren’t even millionaires); so even if 10,000 people enjoyed the kind of tax cut cited by the Labour leader that still means only a small percentage of millionaires benefited from it.
I have previously criticised instances of economic illiteracy from the coalition (which often confuses debt and deficit) but this is even worse and even more demagogic. Either Miliband’s grasp of economics and basic accounting is so poor he doesn’t deserve to be prime minister – or he is willing to engage in blatant distortions, which again means he shouldn’t be trusted with high office – or he made a silly slip-up, and should correct himself and apologise. Let us hope it was a case of the latter – but if so, he needs to tell his shadow cabinet colleagues, several of whom have in the past made the same “mistake.”
There is a more philosophical point to be made: nobody will be writing high earners a cheque. It is tragic that Miliband cannot tell the difference between a tax cut – allowing people to keep their own money – and a subsidy – seizing money from taxpayers and giving it to someone else.
In reality, the coalition has increased tax on some (but not all) people with lots of wealth (not income). Stamp duty has rocketed, as have capital gains tax on pricey homes, and inheritance tax is catching more families in its net. But the tragedy is that facts no longer seem to matter in the British political debate. It is time for those of all parties who distort statistics for political gain to hang their heads in shame.
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