Jeremy Corbyn/John McDonnell have announced their brave new world of far-left socialism. What will be the impact of trying to tax the rich and business to engage in unaffordable social engineering and to destroy the UK economy? Let us illustrate this in terms that Labour supporters should understand. It’s a sobering message.
Suppose that once a week, ten men go out for beer and the bill for all ten comes to £100. If they paid their bill the Corbyn expects to collect our taxes, it would go something like this:
- The first four men (the poorest; out of work, zero hours, etc) would pay nothing
- The fifth (labourer) would pay £1
- The sixth (skilled worker) would pay £3
- The seventh (professional) would pay £7
- The eighth (management) would pay £12
- The ninth (executive) would pay £18
- And the tenth man (richest) would pay £59
The ten men drank in the bar every week and seemed quite happy with the arrangement until, one day, the owner caused them a dilemma. “Since minimum wage, corporate and income taxes have been increased” he said, “I have to increase the cost of your weekly beer by £20.” Drinks for the ten men would now cost £120.
They realised that £20 divided by five is £4 but if added to everybody’s share then not only would the first five men be drinking for free, but the sixth man would have his contribution increased by 133%!
The group still wanted to pay their bill the way we pay our taxes. The first four men were unaffected. They would still drink for free but what about the other six men – the paying customers? The fifth member was employed by a small business which could not cope with the increases so was made redundant thus joined the first four and paid nothing. How could the remaining five divide the £20 increase so that everyone would pay his fair share?
The bar owner suggested that it would be fairer to increase each man’s bill according to the principle of the new tax system and he proceeded to work out the amounts he suggested that each should now pay.
The result was that the fifth man, like the first four, now paid nothing (a 100% saving).
- The sixth man now paid £4 instead of £3 (a 33% rise)
- The seventh man now paid £9 instead of £7 (a 28% rise)
- The eighth man now paid £15 instead of £12 (a 25% rise)
- The ninth man now paid £22 instead of £18 (a 22% rise)
- And the tenth man now paid £70 instead of £59 (a 16% rise)
Each of the last five was worse off than before with the first five now drinking for free.
But, once outside the bar, the paying men began to compare their rises.
“I paid 33% extra; double the tenth man,” declared the sixth man. He pointed to the tenth man, “his share was much less than mine!”
“That’s true!” shouted the seventh man. “Why should he only pay 16% when I paid 28%? The wealthy get all the breaks!”
“Wait a minute,” yelled the first five men in unison, “we can’t get a job because of this new system. This new tax system exploits the poor!”
The nine men surrounded the tenth and beat him up demanding a greater contribution from him.
The following week the tenth man didn’t show up for drinks, so the nine sat down and had their beers without him. But when it came time to pay the bill, they discovered something important – they didn’t have enough money between them to pay for even half of the bill!
And that, ladies and gentlemen, is how the Corbyn/McDonnell tax system will work. The people who already pay the highest taxes will naturally consider their position. Tax them too much, attack them for being wealthy, and they just might not show up anymore. In fact, they might start drinking overseas, where the atmosphere is somewhat friendlier, and take their business with them. This happened in the late 1970s when higher rate tax rates were 83%. Didn’t work then; won’t work now.
Lest we forget when Labour lost the General Election to the Conservatives in 2010. Liam Bryne, Chief Secretary to the Treasury under Gordon Brown, left a note for his successor stating, ‘I’m afraid there is no money.’ This has been the case with every Labour Government since the war.
Any political promises more than 5 years away are pure fantasy because they exceed the term of a Government and thus why spades of such promises are put out there to woo the gullible. As for free broadband (re-nationalise BT with 5G driving future internet access?? – whoops), there is no such thing as a free lunch. Even the air you breath leaves you exposed to pay taxes. Anything for free will be abused, as we see in the NHS. Someone has to pay at the end of the day.
There is also an assumption by Corbyn/McDonnell that the financial community will agree to fund an additional £55 billion p.a. for 10 years – not likely, not least because much of this funding is not directly linked to increased productivity. A more likely consequence of a Corbyn Government would be a downgrade in the UK credit rating which would increase the cost of any available borrowing thus negating the McDonnell argument that borrowing will be cheap. The more modest extra £20 billion p.a. for 5 years spending pledged by the Conservatives will raise eyebrows in the financial markets; even with a majority Conservative Government.
It is only possible to spend if you have a strong underlying economy. Without the rich, and wealthy businesses to provide jobs and generate profits upon which the Government depends to accumulate tax revenues, there is no money to spend.