These are not smart taxes in a service economy that desperately needs to increase productivity. We need a tax policy that encourages people to work longer hours, in the highest-paying, private sector jobs they can find. We need a tax policy that encourages money to move from unproductive assets to more productive investments, which hopefully make a profit and pay dividends. We need a tax policy that enables small and medium-sized businesses to continue to operate, employ people and pay taxes. We need a tax policy that encourages the global wealthy to live in the UK and spend their money here.
Worst still, besides risking the bulk of UK taxes by discouraging businesses and driving the rich out of the country, these tax increases still aren’t enough to pay for the Government’s additional spending. Which brings us back to the opening paragraph of this essay: A doom loop occurs when government policy reduces economic activity by over-taxing it, over-regulating it, or allowing unconnected third parties to stifle it with litigation. Lower economic activity lowers tax revenue, which in turn causes a debt spiral if the government can’t or won’t cut spending, which leads to increased debt and higher debt costs. In the 2024/25 financial year, the UK public sector net debt was £2.8 trillion, equivalent to 95.1% of GDP. Public sector net borrowing was £151.9 billion in 2024/25, £20.7 billion higher than the previous year and equal to 5.3% of GDP, up from 4.8% in the financial year 2023/24.
Isn’t the whole of that first paragraph just really basic knowledge and obvious to anyone who isn’t a blinkered socialist?
Stonyground – that would make the British establishment (really the British branch of the international establishment) blinkered socialists.
It goes back a long way – Sir William Harcourt (Liberal Party Chancellor in the 1890s) pushed ever more spending and ever higher (and “Progressive”) taxes – he joked that “we are all socialists now” – what he did not see was that it was not a joke, if you endlessly increase government spending and taxation – Collectivism is where you end up. So even before the time of David Lloyd George – the Liberals were lost (Gladstone being forced out was a clear signal).
The Conservatives were no better – there was the disaster of Disraeli (whose 1875 Acts, pushing picketing and Collective Bargaining, and the Act demanding that local councils undertake about 40 functions regardless-of-what-local-taxpayers-wanted, started the long term process of transforming Britain from the leading economic power, to a place where investment was unwise), and then there was Balfour (early 20th century Prime Minister) who got it into his head that “Social Reform”, by which he meant ever more government spending and regulations, would “prevent socialism” – like Harcourt, Balfour did not see that the opposite is the truth.
Of course (before anyone jumps in) the government spending, taxes and regulations of these times were very small compared to today – but it was the start of a process linked to IDEAS (ideas that can be traced all the way back to Lord Stanley – later Earl of Derby, on the Conservative Party side, and Lord Russell, anyone who tells you that Russell supported laissez faire is flat wrong, on the Liberal Party side – all the way back to the 1830s).
The British establishment has been wedded to ever bigger government ideas for an incredibly long time, at first it did not seem to matter, as the economy was growing faster than the state, thus meaning that statism was shrinking (in spite of, not because of, the establishment) – but from the 1870s onwards the state started to grow faster than the economy.
It has taken about 150 years to put us in our current mess – and there is no sign (none) that we are going to climb out of it. On the contrary – the present House of Commons (not just the officials and “experts”) is the worst there has ever been – in terms of their attitude to government spending (and-some-other-matters).
What the British establishment (such people as Stanley-Derby on the Conservative side and Lord Russell on the Liberal side – but other people as well) did in Ireland, where there were no blocks on their desires, is very revealing of their true attitude to the state.
Armed national police force from the early 1800s (in England and Wales county police forces were only compulsory from 1856 and were unarmed), National School system after 1831, Poor Law Tax after 1838 (massively increased in the late 1840s – with areas of Ireland that were not bankrupt being forced to pay for areas that were – thus dragging the whole country down) and-so-on.
It is clear that all this (and much else) is what they wanted to do in England as well – and eventually that came to pass.
The British establishment (with a few honourable exceptions – such as Edmund Burke) had greatly admired Frederick the Great (the arch statist ruler of Prussia) back in the late 1700s – and it admired Bismarck in the latter 1800s.
The British establishment did not go rotten recently – it has been a long term process.
This, what we see now, is the End-Game.
Although I want to agree with the writer, I keep feeling a bit flummoxed, only half agreeing with what she says. My problem is with this concept of “smart taxes”, as if any tax is smart. The “smartness” she seems to be referring to is “the tax that will bring in the most money for the government”, which I find kind of horrific. Government should bring in the smallest amount of money it can possibly get away with to pay for things that only the government can do. But government policy seems to be to bring in as much money as they can possibly get away with and then find stuff to spend it on.
And I sometimes think that the only worse thing than the brutal imposition of taxes on the people is the byzantine regulations that make compliance almost impossible, and privacy from the government utterly impossible. They tax the crap out of everything, and have impossible nests of regulations you have to comply with that you actually need to hire a professional to help with. If taxes are to be “smart” it seems to imply making these rules even more complicated. I think I am especially sensitive since I am in the process of revising how my company does payroll — it costs tens of thousands of dollars in services and professional help to comply with payroll regulation in the USA, costs that are often untenable for small businesses.
However, Britons should be thankful that the non domicile rules are as lenient as they are. Here in the US you don’t even have to live in the USA to be taxed. US citizens are liable to taxation on all international income regardless of whether they have stepped foot in America in the last twenty years. And the IRS and State Department have bullied banks and financial services companies all over the world (including overcoming the famous Swiss bank secrecy laws) into a conspiracy to rat out their customers and rob American citizens out of any vestige of financial privacy.
I am not sure about the concept of a “service economy” – but, leaving that aside, there should be a definition of the “doom loop” itself.
The doom loop is when out of control government spending is reacted to by government increasing tax rates, which leads to a reduction in economic output and so less (rather than more) revenue – and more demand for government benefits and public services, the government reacts to the growing deficit by increasing tax rates even more, which leads to……
We are already in the doom loop, and there is no chance (none whatever) that we will come out of the doom loop.
The next General Election will not be till 2029 – four years away.
Investing in Britain is, in these circumstances, insane. Investors need to SELL – sell British stocks, sell British real estate, sell government bonds, sell everything, for whatever price they can get.
Paul:
As you say, statism has been growing in Britain for at least 150 years. But at least it was kept in check back then by honest money. A pound was a gold sovereign, and they could not be brought into existence by fiat. The more government wanted to spend, the more government would have to tax, and that provided a mechanism whereby the voters, who back then were the taxpayers, could keep the system under control.
Now, politicians are under no such constraints. Money is nothing tangible, and is willed into existence by the Bank of England and lent to the government as if it were really a loan, when it is no such thing. No wonder government spending as a percentage of GDP has soared since 1971. No wonder a pound has lost over 90% of its purchasing power.
Under the economic direction of Rachel Reeves, we are surely heading towards doom. But she is just the last, and maybe the worst, of a very bad bunch.
Fraser : My problem is with this concept of “smart taxes”, as if any tax is smart. The “smartness” she seems to be referring to is “the tax that will bring in the most money for the government”, which I find kind of horrific. Government should bring in the smallest amount of money it can possibly get away with to pay for things that only the government can do.
As you concede, governments need money to do the stuff that only the government can do (and which needs to be done.) Let us stipulate that the quantum of tax required is, say 15% of GDP. If one type of tax brings in lotsa money, is easy to collect – both for government and taxpayer – difficult to avoid, and only modestly disruptive of economic activity, the tax rate can be adjusted to arrive at 15% of GDP. That seems to me to be a “smart” tax.
In the same sense that there are smarter and less smart ways to build a house. Any way you do it is going to involve quite a bit of cost, and effort, and time. But doing it efficiently so that it costs not much, involves not much effort etc and produces an OK house, seems like the smart way to do it, and preferable to doing it in a way that costs a fortune, takes lots of time and effort, and produces a rickety house.
I have little doubt that there are taxes that are way dumber than other taxes – in terms of economic disruption, avoidability and collection costs. I see no reason to insist that all taxes are equal.
But I do agree with a variant of your complaint. A policy aimed at maximising tax revenue as opposed to a policy aimed at raising the necessary taxes while affecting the lives and prosperity of the populace as little as possible, is indeed not “smart.”
I’m reminded of the luxury yacht tax that the US feds imposed back in the 90’s.
Brought in something like $12 million. Cost the boat-building industry more than that. Cost the various state unemployment funds even more.
That was not a smart tax.
I’m afraid doom loop is a feature for some of those pushing for tax increases. They hope that from the destruction they will get their revolution.
JohnK.
Yes indeed – honest money, or even SEMI honest money limits wild spending (both by governments – and by their pet corporations).
The last time a person could go to the Bank of England and get a set amount of gold was in 1931, “we do not have enough gold to cover the Pounds – so we have to stop issuing gold”.
Well then you should not have produced so many “Pounds”.
By the way Germany made all the preparations to go off gold BEFORE the Declarations of War in 1914 – Berlin was guilty, a Central Bank does not behave like this unless the government it is connected with is preparing for wild government spending.
The Bank of England, the Bank of France, even the Russian Central Bank all went into panic measures when war came – but in Imperial Germany all the preparations (all the paper work and so on) had already been done.
That shows who was planning war.
Ben – there will be Revolution.
When (and it is WHEN) the economy totally collapses, it will take the present political system with it.
Will we get the Marxist regime my half brother wanted (or wants if he is still alive – I do not know if he is or not), or will get something else?
I do not know.
Good god, I don’t want to work more hours, the hours I do work are killing me.
And I’d *LOVE* to work in the highest-paid jobs I can find, but I am forced to work in whatever jobs the bastards will employ me to do – which is a few points above minimum wage.