History may not repeat itself, but it often rhymes.
In April 1975, the editorial view of the Wall Street Journal on the UK’s prospects was summarised in a headline: “Goodbye, Great Britain”. Readers were warned that “the British government is now so clearly headed towards a policy of total confiscation that anyone who has any wealth left is discounting furiously at any chance to get it out of the country”.
In April, 2024, British tax advisers are warning foreign clients to “get out while you still can”.
While things haven’t yet reached their 70s’ nadir – between the three-day week and soaring inflation, 1973-74 has a reasonable case for being our worst two-year stretch since the war – there are uncomfortable parallels.
The WSJ was fulminating against the “welfare state-manic-Keynesian syndrome” of the post-war consensus: the idea that the state would tax heavily to redistribute income, direct medical care for the population, and manage the consequences through a series of price controls. Inflation, meanwhile, would raise revenue by dragging workers into ever higher tax brackets.
For Britain today, with energy bills capped by the Government, the NHS in its usual state of meltdown, and stealth tax by inflation now the centrepiece of state fiscal strategy, it’s a familiar list of woes. Today, as then, this mixture of policies enjoys strong support across the political spectrum.
The framework of the new political consensus is straightforward: taxes will be high, spending higher and wealthy foreigners in particular will be taxed until the pips squeak. Low-income foreigners, on the other hand, will be waved through Britain’s open borders to benefit from the generosity of the welfare state.
For the last 17 years, the general direction of government policy has consisted of demanding the richest citizens hand over ever more of their incomes to subsidise the rest of society; 54pc of the British population receive more in benefits than they pay in taxes. The top 1pc of earners, meanwhile, now pay roughly 29pc of all income tax; the top 10th a hair over 60pc between them.
The latest manifestation of this trend is targeting the small group of well-off individuals who benefit from the non-dom rules. Chancellor Jeremy Hunt has declared that the special income and capital gains tax breaks given to this group will now only last for four years, with changes to inheritance tax to follow; Rachel Reeves would like to speed the second set of changes up. No matter which party wins the next election, taxes on wealthy foreigners look set to rise.
Abolishing non-dom status is essentially a non-event from a fiscal perspective. Even under the Government’s forecasts the total raise is in the region of £3bn per year, or a little under a week of NHS spending.
Even this may be optimistic – the small group of well-off individuals who benefit from the current regime are by definition internationally mobile, and are quite likely to be able to head overseas to friendlier jurisdictions. If they listen to their financial advisers, they will almost certainly do so. In particularly pessimistic assessments, this could mean the Government’s tax raid ends up losing money. The question is whether anyone would care.
One of the more endearing parts of Britain’s national character is the desire for fairness and affection for the underdog. As Kipling wrote, the Saxon “never means anything serious till he talks about justice and right”. In many contexts these are admirable qualities. At times, however, they can be twisted into something spiteful and destructive.
Look, for instance, at the attacks on private healthcare (“skipping the queue”), private schools or even Isas (which “overwhelmingly benefit the better off”). None of these things make others worse off. On the contrary, by relieving pressure on public services and increasing our national savings, they arguably benefit everyone. For the modern Left, however, these are inequalities to be stamped out.
As Margaret Thatcher put it, there is a strain of English politician who would “rather the poor were poorer, provided that the rich were less rich”. As she went on to add: “You do not create wealth and opportunity that way.” Quite so.
Then again, creating wealth and opportunity isn’t really the point of British economic policy. If it were, we’d be focusing on the root causes of our national decline – soaring energy prices, restrictive planning, the insane burden of the public sector and the taxes necessary to fund it – the list goes on.
Instead, we’re targeting those who despite this litany of failures manage to make a success of themselves, raising corporation tax, abolishing non-dom status and squeezing the highest earners ever harder.
Insofar as it exists, the social contract prior to the financial crash appeared to follow a certain logic: we would be “intensely relaxed about people getting filthy rich” under the understanding that it helped to drive broad growth, leaving everyone better off. That consensus is harder to sustain when real wages have stagnated for 15 years.
There are people in their 30s who have seen their entire working career go by without experiencing an economy where meaningful wage growth can be counted on. Small wonder, then, the focus appears to have shifted from expanding the economy to fighting over the division of the spoils.
The problem with this is that it risks a self-replicating cycle of economic destruction. The more the Government taxes, regulates, and interferes, the harder it is to create prosperity, and the lower economic growth will be – fuelling further demands for redistribution.
In 1975, the WSJ noted that Britain tends to “muddle through”. In that case, “muddling through” involved an IMF bailout, the Winter of Discontent, and a painful rediscovery of fundamental economic reality.
Fifty years on, we can only hope for a gentler landing.
