Note even Labour are saying do not raise taxes yet:
This is how you kill off a recovery
Rishi Sunak has guided the economy through these dark times with calmness and dexterity. The furlough scheme has supported millions of jobs and Eat Out to Help Out brought light and life back to our high streets last summer.
Now, though, I hear worrying murmurs from the Treasury that Sunak would be well advised to ignore. There is talk that his aides are pressing him to start paying for the enormous costs of the Covid-19 pandemic by increasing taxes, specifically taxes on business and capital, such as corporation and capital gains tax. They want him to announce these in the budget on March 3.
These taxes “poll well”, of course — robbing Peter to pay Paul nearly always gets the ardent support of Paul. They are viewed by many people as taxes on wealthy individuals or anonymous corporations, and (the argument runs) this money is needed to restore the nation’s balance sheet.
This is a dangerous and misleading picture. In reality, these are taxes on investment and entrepreneurialism, and ultimately on the nation’s prosperity.
This would be a terrible route to choose, one that would risk suffocating any economic recovery before it has even started and would deal a body blow to Britain’s reputation as a business-friendly environment.
The UK faces the huge dual challenges of recovering from Covid and forging a new identity after Brexit. More than ever we need the investors, entrepreneurs, innovators, venture capitalists and businessmen, British and foreign, large and small, who will invest in start-ups and existing businesses.
Any increase in corporation or capital gains tax would be a direct attack on them and on the proposition that post-Brexit Britain will be a new and exciting place to invest. This would have a major impact on our longer-term economic outlook. If we want the UK to be a crucible for entrepreneurs, new business, stock market listings and innovation, then we shouldn’t even consider such a step, especially not now. The economy shrank by almost 10 per cent last year — and any increase in taxes would hit a smaller economy even harder. Many entrepreneurs have seen their profits evaporate and their balance sheets shrink alarmingly. They need encouragement, not a further burden.
I know all this to be true because I was one of those entrepreneurs. I started a small company with four staff in the Margaret Thatcher era and built it into a FTSE 100 broker-dealer called Icap (later NEX). I now invest in a broad portfolio of businesses. I and my business have always been UK taxpayers.
Throughout my career, my business, like every other, was exposed to global competition. If the tax burden on British businesses and investors becomes too high relative to those borne by their international competitors, they will suffer. Some will choose to move away; others will simply not start up here.
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Talent and capital are more mobile than ever. You can transfer money anywhere in seconds. Leaders and investors move where the opportunity is greatest and the tax rate is the most attractive. Look at the success of Ireland after it lowered its corporation tax rate to 12.5 per cent. Recall the increase in tax revenues when George Osborne progressively lowered UK corporation taxes. The Laffer curve works. I would go so far as to say that a truly bold leader would set out a narrative of lowering taxes over time.
Labour always wants to increase tax on capital and the so-called wealthy because they really do not understand wealth creation. They believe, simplistically, that there is a finite pot of money that needs to be shared out fairly. They are resentful of individual success and exceptionalism. Conservatives know this to be rubbish.
There is also a harsh irony that the EU was, and still is, terrified that Brexit Britain will lower taxes, thereby attracting huge capital inflows and talent migration. Have we totally lost sight of this great opportunity?
Furthermore, I do not necessarily believe that the nation’s finances, badly damaged though they have been by Covid, need such immediate and drastic action. While the gross national debt-to-GDP ratio is back near wartime levels, the costs of servicing that debt remain very low. The government continues to be able to borrow at rates of far less than 1 per cent. The interest cost of the extra Covid debt may amount to some £3 billion a year — a big sum in absolute terms but trivial compared with some projects, such as the £100 billion cost of High Speed 2 rail.
I have faith that our prime minister and chancellor will ignore the siren calls for tax increases and that courage, wisdom and experience will prevail.
Lord (Michael) Spencer is the founder of NEX Group, the markets and trading business sold to the owner of the Chicago Mercantile Exchange in 2018
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