Reports that Chancellor Rishi Sunak is ‘considering’
raising corporation tax from 19 to 24% are fascinating not least because of what
they say about our mainstream media.
Because no-one in the MSM seems to have noticed that even
mooting such an idea completely contradicts the foundations of Tory economics.
Sunak, it is alleged, is mulling increasing corporation tax
by 5 percentage points in order to boost revenue by £12 billion. But the crux
of Conservative economic thinking going back decades is that the way to increase
the tax yield is actually to cut
rates on the wealthy and big business.
This conviction
underlay George Osborne’s decision to reduce the top rate of tax from 50 to 45p
in 2013. And it undergirded Tory minister David Lidington’s 2017 assertion that
corporate tax yield has been ‘shooting
up’ since tax levels started plummeting precipitously after the coalition
took office.
The theory, as most things seem to in British politics,
comes from America. In 1974 – so the story goes – economist Arthur Laffer met
Dick Chaney in a Washington bar and drew a diagram on a napkin showing that
increasing tax rates beyond a certain levels causes tax revenues to decline,
not increase. Apparently, high tax rates compel the wealthy to work less or evade
taxes (which obviously the government is absolutely powerless to prevent).
Though the napkin itself did not survive, in the next decade
when Ronald Reagan was president, the ‘Laffer Curve’ justified swingeing cuts
in personal taxes for the rich and seemingly endless reductions in corporate
tax rates.
And the ethereal napkin, despite
its empirical emptiness, has continued to guide the policy of western (in
fact most) governments. Just four years ago, Theresa
May was proposing a corporate tax rate of 17% and was prepared to go even
lower to attain the most ‘competitive’ rate in the G20.
Up to now, however. If the theory is correct Sunak should be
advocating further tax reductions precisely in order to increase revenue. But instead
he’s arguing for a tax rise, in the process damning the entire theory as completely
wrong-headed.
Before this latest leak, cracks were already showing. In the
last election campaign, Boris Johnson
committed to delaying May’s corporation tax cuts in order to fund the NHS,
which is utterly nonsensical is you believe, as
Johnson did, that cutting corporate tax increases the tax yield. But Sunak’s
musings, even if they are not acted upon, drive the proverbial coach and horses
through Conservative economics.
But it won’t be just the Conservative party that will be affected.
At the last election, as we know, Marxist Anti-Christ Jeremy Corbyn – who proposed
raising corporate tax to 26% (2 points is all the difference between sensible
economics and wealth devouring Stalinist madness) – was banished to the outer
darkness by all that is holy. The new model Labour party has bought into the
idea that he lost because he was ‘too left-wing’. Indeed, Blairism and Brownism
were conspicuous by their unquestioning acceptance of the precepts of the
Conservative economics and the private good/public bad dogma.
But now the Conservative party itself seems to be rejecting some
of those very precepts. So what is the Labour party to do? Shadow Chancellor Annaliese Dodds, who
recently mooted a wealth tax only to find herself out on a limb, is surrounded
by convinced Blairites in the shadow Treasury team. Bridget Phillipson, Pat
Mcfadden and Wes Streeting would have great difficulty – probably more
difficulty than Conservatives who have a pragmatic side – in backing corporate
tax rises. Indeed Phillipson
can’t even commit to abolishing hospital parking charges for NHS workers.
It may be that the Sunak story is all wind and no substance. Some of us still remember Theresa May’s ‘burning injustices’, her call for responsible capitalism and proposal for workers on company boards, the sum total of which, in the fullness of time, was the banning of toilet charges at mainline train stations. But even if Conservative corporate tax rises turn out to be oxymoronic, the mere fact that they were put ‘out there’ and not denied is incredibly significant.
