Saving Britain by taxing the rich (1)
How Corbyn’s tax and spending plans add up.
Labour is raising income tax to pay for the NHS and elderly care. It’s raising a wealth tax to pay for sending students to university for free. It’s reversing George Osborne’s cuts to corporation tax to pay for revolutionary new schools and skills system. And it will raise public sector pay using tax collected more efficiently from companies.
The attack lines on Labour’s radical plans for better health, education and social care are predictable: it’s double spending; the books won’t balance; you can’t raise this much tax; you’ll raise debt and it will hurt the economy.
In the next few blog posts I’m going to explain:
- how the figures add up
- how the tax will be raised
- why it won’t hurt the economy.
What rules did Labour set?
There’s two kinds of government spending: money on services, pensions and welfare (current spend); and money for investment (capital).
- Labour will borrow £250 billion over 5 years and spend it on investment in roads, railways, housing and town centres. But it will boost growth, so that in the medium term the deficit is wiped out.
- It will spend an extra £49 billion on services (see below) but none of this comes from borrowing. It comes from taxing high earners and big companies.
Do the tax and spending pledges add up?
Yes. Here’s the breakdown of how things would look by the fifth year of a Labour government. Anybody who says they do not add up: show them this:
In fact, though Labour does not say this openly, John McDonnell’s team have obviously been thinking in big chunks of money to match big spending to big tax rises. That’s why I’ve grouped them together.
How does this translate politically?
- The corporation tax hike pays for the schools, skills and childcare spending.
- Taxes on wealth — foreign speculators, banks and capital gains — pay for making university education free.
- The income tax rise, together with a levy on fat cat pay, funds more spending on the NHS and elderly care
- Collecting taxes more efficiently from companies pays for reversing some benefit and pension cuts
- The crackdown on tax avoidance, and a long list of small savings does everything else.
In fact Labour is planning to raise £4bn more than it spends, as a safety cushion.
Can the new taxes be raised?
Here’s where the arguments start with the right wing economists. Right wing economists think that if you raise taxes on the rich they stop earning rather than pay tax; that they will move their money offshore; and that companies will not invest if they pay more tax.
Clearly, all these are risks. The question is: what does the government do to counter them?
The general point is: when you’ve got a government for the rich, by the rich, they are seldom serious about collecting tax and preventing the behavioural changes that tax avoiders use. I’ll be back in a bit with more on this.