The red flag was hoist over the Treasury last week according to hyperventilating sections of the British press. “Return of Class War”! screamed the Daily Telegraph. “New Labour RIP”, growled the Spectator. Even the more sober commentators in the financial pages talked of the chancellor’s “vindictive and destructive” war on wealth which would provoke a new brain drain. “A great budget for Switzerland and Hong Kong”, according to Anatole Kaletsky in the Times.
And all because of a long overdue abolition of an unjustifiable tax break on pensions and a few pence on income tax for the superrich, which most of them won’t pay anyway. As the Queen of Mean, Leona Hemsley famously put it: “Only little people pay taxes”. Big people have tax lawyers. The Institute for Fiscal Studies questioned whether the measures will ever raise the £7bn in revenues projected in the Red Book because of avoidance schemes.
Which doesn’t mean the government shouldn’t try. It’s curious that taxing the wealthy is always presented as unfair, whereas tax avoidance is seen as morally acceptable. The taxes may not bring in a lot of cash, but a silent cheer went up nevertheless last week from all of those little people who have lost so much as a result of the delinquent behaviour of the financial elite. The post budget opinion polls revealed that increasing taxes on the rich is popular. Which of course is why the government did it.
Petty and vindictive? Well, we have a tax system which has long been a welfare state for the wealthy. I mean, why should a quarter of all the money the country spends on pension tax relief go to the top 1.5% of income earners? Higher rate pension tax relief never made any kind of fiscal sense. And talk of a return to punitive taxation is very wide of the mark. Look at websites like Wealth Bulletin and you’ll find that many accountants believe the rich have got off lightly given the current climate of opinion. Deloittes estimates that people earning over £250,000 a year will pay £12,000 more in tax as a result of the new 50% rate and he abolition of other reliefs - that’s if they choose to pay it. Poor old them; heart bleeds.
But if all the little people are going to have to pay thousands more in tax to pay for the mistakes made by the financial plutocracy, why shouldn’t the very rich pay a little extra too, if only to make the rest of us feel better? It’s a question of fairness. In the Great Depression, Franklin D. Roosevelt increased taxes on the rich (over £250,000 in today’s money) to an incredible 90% . He did this, not to raise revenue, but to legitimise increased taxes on the less well off. And you better believe they are coming.
If the superrich are not prepared to make even this week’s very modest contribution to the cost of repairing the economy wrecked by unrestrained greed, and insist on flying away to their tax havens, perhaps we should wave a fond farewell. I may be blinded by class hatred, but the masters of the universe haven’t exactly left the British economy in great shape. Free transfers might be a very good thing for the footloose financial elite. Let someone else pay for their bonuses and cope with the fallout from their inscrutable derivative trades. We’ll be paying the cost of their excesses for the next twenty five years.
However, I suspect it will take rather more than an optional fifty pence tax band to send the superrich packing. They’ve been doing very well here in the past decade. The top 1% of income earners - mainly people in finance, property and law - have seen an unprecedented growth in income and wealth, according to the IFS. Britain has become a deeply divided and unequal society under Labour, and the chancellor’s tax tweak isn’t going to alter that. Most of the rich set up companies and pay themselves in dividends which are taxed at a lower rate than income tax - a loophole the government is fully aware of, but has chosen to ignore. Private equity barons have famously been paying less tax than their cleaners. Financiers can declare themselves as non-domiciled and, for a flat fee of £30,000, shelter their entire foreign earnings from UK tax.
It isn’t being anti-capitalist to believe that plutocracy - the unrestrained accumulation of wealth and power by this small minority - is undesirable. The kind of entrepreneurial people who grow new businesses and develop mew products and markets don’t work in the City of London and they aren’t all that rich. 75% of new jobs are created by small businesses employing only a handful of people. Yet the crisis caused by the parasitical superrich is causing 300 of these small firms to go out of business every day, throwing hundreds of thousands of people out of work. No bail outs for them.
Last week, the IMF said that the bank rescues so far have cost the taxpayers of Britain £130bn. Now, call me a class warrior, but given that astonishing transfer of public money to delinquent bankers, the chancellor would surely have been within his rights to put a cap on bank bonuses and golden parachutes, as is being proposed by the EU. It’s widely accepted that the vast rewards sought by the financial superrich were a major cause of the financial meltdown.
But no, Gordon brown isn’t interested in limiting wealth. The budget measures were the very least he could do to meet the public demand for some kind of redress for the banking scandals like Sir Fred Goodwin’s pension. Brown is more interested in wrong-footing David Cameron than on eating the rich. The Tory leader, though, saw this one coming, and has wisely refused to reverse the 50p tax increase. The rich should take note. They should regard the tax hike as a symbolic gesture of collective atonement for the appalling mess that has been left by the era of low taxes and low regulation. With their unreasonable howls of anguish it is they who are now in danger of launching a real class war.