Every week it seems, there are more suggestions about potential proposals for Rachel Reeves’s next Budget. The latest is a suggestion that landlords should pay national insurance on rental income.
It is striking that all of the ideas are on the tax raising side. Few policies, if any, address the need to reduce spending.
This was inevitable. Despite Labour’s historically large majority of over 170 seats at the last election, attempts to rein in spending have crashed into backbench intransigence. Worse still, this has led to political disaster at the polls.
The most conspicuous example of this was the debacle over ending the winter fuel payment. The idea that this would be simply removed was shelved after 10 months. The political damage, however, had already been done, as Reform UK romped home to victory in the local elections in May.
Next came the valiant attempt to reduce expenditure on welfare. We saw painful but sincere interviews in which ministers defended welfare reform on the grounds that the increases in welfare expenditure were “unsustainable”.
Only in March this year, it was reported that the Prime Minister had condemned the benefits system as “unsustainable, indefensible and unfair”.
He proposed reforms which would find billions of pounds of savings. Unfortunately for the Government, emboldened Labour backbenchers resisted any attempt to reduce spending. The Government caved in and the savings were watered down.
So, expenditure restraint is now out – and tax raising is in. That is what the Chancellor is seeking to do. Last week we heard about a potential alternative to council tax, in which house sales would be taxed. This was clearly, as many noted then, a gateway to the introduction of a mansion tax.
This week, the target in the sights of the Treasury are the landlords. It is they who must now be squeezed for funds to pay for the ever-increasing demands of providing benefits and the welfare state more generally.
So the idea is that landlords will pay national insurance on rental income. Labour insiders, reportedly, have claimed to The Times that such a measure would provide “a significant potential extra source of funds”.
There was £27bn of net property income in 2022-23, the last year for which official statistics have been published. An 8 per cent levy would raise an additional £2.2bn for the Treasury.
Of course this sounds like an impressive revenue raiser, but it pales in comparison, however, to the alleged £50bn black hole. More sources of revenue will have to be found. We have already read stories of a potential pension raid in the Autumn Budget.
Such proposals as the reduction in the tax-free pension lump sum have been looked at before. At the moment, pensioners can withdraw as much as 25 per cent of their pension pot on a tax-free basis, up to a cap of £268,000. Reducing that cap would mean that the Treasury would raise billions of extra tax pounds a year.
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This is exactly the kind of thinking that concerns many retirees. Anyone who has acquired capital or has any kind of wealth in the form of property and pensions is rightly concerned about the Government’s direction of travel.
A lack of appetite to curb spending has led to a world where capital will be taxed more heavily to pay for out of control expenditure.
The accumulators of capital, in the old Marxist nomenclature, were deemed “expropriators”, on the grounds that they exploited workers. According to this view, it seems only fair that people with wealth should pay more for the welfare state. “Expropriate the expropriators” was the rather ungainly phrase Marxists adopted as a rallying cry.
This sentiment seems to be the prevailing theme as the Chancellor and her advisers consider their options ahead of this year’s Budget.
I don’t think this is a good development. Britain will then be viewed, rightly, as hostile ground for wealth creation and entrepreneurial endeavour. That would be a bad outcome.
Kwasi Kwarteng is a former Conservative MP. He served as chancellor between September and October 2022 under Liz Truss
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