Politicians on the right are obsessed with tax cuts, those on the left are obsessed with taxing the rich.
But it’s not how much you tax people so much as how you tax them. That’s why Rishi Sunak’s plan to cut the basic rate of income tax from 20 per cent to 18 per cent, as revealed by The Times last weekend, has largely met with so much bafflement.
The chancellor presumably thinks that this is an election winner and wanted to silence all those backbenchers still despairing at the party’s plan to impose a 1.25 per cent social care levy. The truth is that cutting income tax is an act of self-harm at a time when he is spending hand over fist on a measure that no one will actually notice.
For someone on £60,000 it equates to £62 a month, which is barely enough to take a family of four to the cinema.
He’d be better off sorting out the mess that our tax system is in — that would be the bold move that would really win some votes.
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To begin with there is child benefit, which penalises single parents who make £60,000 but leaves some two-parent households making £98,000 still able to claim.
Or the pensions system, which is forcing doctors and GPs out of work because of the muddle over their annual and lifetime allowances that leaves them facing huge tax bills. It’s true that this is because they are paid so much and get such a fabulously generous pension, but the reality is that anything that disincentivises them from working, especially during a pandemic, needs reviewing.
The way pensioners are taxed is a mess too. Increasing numbers now have regular employment and yet pay no national insurance on their earnings, plus they can get a winter fuel payment that they don’t need.
The new social care levy, which comes in from April, further highlights the silliness of this system by levying a charge on earnings, but not on pension income. So those who are most likely to need social care the soonest don’t pay.
Then there is the way that some small business owners are effectively allowed to take income from their business and pay lower rates of tax than the employed.
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And then there is stamp duty and inheritance tax, which despite being relatively small contribution to the Treasury coffers create some of the loudest voices of discontent. That’s because they often involve large sums of money, so the pain is greater.
The reason they hurt even more is because they are also largely a tax on property price growth, which for the most part is unearned. This creates the odd situation where we are more willing to accept taxes on earned wealth than we are on luck.
The chancellor is in a muddle. Rational voters know that the pandemic has cost us billions and that it needs paying for.
And what they want in return is a well-run economy that taxes us all fairly — not necessarily less.
@jimconey
