So many people appear to have become politically subdued, disheartened and unwilling to look beyond the immediate headline. We welcome government spending when it benefits us, but rarely pause to ask how it will be funded.
We applaud increases in the minimum wage while lamenting the shortage of opportunities for young workers. We support tougher treatment of landlords, then ask why fewer homes are available to rent.
Our politicians, regrettably, understand this contradiction. They know how to manage an electorate that has become dependent on the state, dissatisfied with its lot and reluctant to challenge official assumptions. This week’s Budget was, in many ways, the Budget we have invited them to deliver.
The broader picture is revealing. Many commentators had predicted a painstaking Budget filled with minor changes, narrowly targeted subsidies and technical adjustments. Instead, the Chancellor seemed almost determined to fulfil that caricature, distributing modest sums across industries, charities and local projects.
Almost every interest appeared to qualify for its own line in the Budget: £15 million for Dolly Parton’s literacy campaign, £10 million for craft breweries and £6 million for an events venue in Glasgow.
The issue is not simply that these measures require taxpayers’ money. Each grant, tax break and special exemption also adds another layer to an already unwieldy tax system.
As the tax code grows more expensive and difficult to administer, the return diminishes: more economic pain is created for every pound of revenue collected.
Our politicians understand how to keep a frustrated, state-dependent and compliant electorate under control. This week, Daniel Hannan argues, we received the Budget we had asked for.
Tolley’s Tax Guide, the semi-official handbook used by accountants and tax advisers, has expanded from 728 pages at the beginning of the century to 1,024 today. Successive Chancellors share the blame. Gordon Brown was a particularly prolific contributor, although George Osborne also added his share. Yet few Budgets have generated so much extra complexity while delivering so little substantial change.
How many people recognise that a complicated tax system can damage economic growth just as surely as high tax rates? The two are linked: removing a mass of small exemptions and concessions could make lower rates possible, much as filling the holes in a Swiss cheese would reduce its overall height.
Even setting that argument aside, complexity carries its own costs. Time spent dealing with accountants, rules that distort behaviour and incentives that encourage inefficient decisions all weigh heavily on growth.
The political difficulty is obvious. Very few voters will object to an intricate tax system in principle, while countless groups are pleased to receive a grant or concession designed for them. The same applies to taxation more broadly. One of the most important figures in the latest Budget was never mentioned by John Healey: around half a million people are being pushed into the higher-rate tax band as frozen thresholds collide with rising nominal wages.
The description ‘higher-rate taxpayer’ now covers people whose circumstances would have placed them nowhere near that category in the early 2000s.
One might expect a strong public reaction. Once every measure is accounted for, tax levels could prove higher than at any point since 1945. In that year, the country had mobilised its resources for the war against Hitler. What, exactly, is the justification now?
The Institute for Fiscal Studies has warned that the coming decade could be the weakest for household incomes since the Second World War. Can we connect that bleak forecast with the individually popular spending promises made by governments?
The French economist Frédéric Bastiat identified the problem as early as 1850. A poor economist, he argued, looks only at the immediate and visible result; a good economist also considers the consequences that will emerge later. The distinction matters because a policy that appears beneficial at first can ultimately produce damaging results.
That is the warning behind a higher minimum wage. It may receive warm approval from BBC commentators, left-wing think tanks and people concerned about low-paid workers. But the longer-term effects may include fewer new hires, a smaller tax base and greater reliance on benefits.
As a country, we have ignored Bastiat’s lesson for years. We accepted the drive towards Net Zero, only to become angry when energy bills rose. We oppose new housing near our own communities, then complain about the cost of renting or buying a home.
We call for greater protection against dismissal, and then express surprise when businesses become more cautious about taking people on.
No project seemed too small for a Budget announcement: £15 million for Dolly Parton’s literacy campaign, £10 million for craft breweries and £6 million for an events venue in Glasgow.
Most consequentially, we demanded – partly thanks to the BBC – a strict lockdown, and have railed ever since at the tax rises and rampant inflation that were its ineluctable consequences, blaming our politicians for the slide in living standards rather than looking in the mirror.
Ah, the lockdown. That was when the balance tilted definitively against freedom. The sight of all those trillions of pounds being conjured into existence for furlough payments, Wagamama lunches and business grants convinced us that there was, after all, a magic money tree. The idea of having to pay it back, either through spending cuts, tax rises or inflation, leaves a lot of people genuinely outraged.
Those are the parameters within which our political parties now operate. The huge increases in spending that were authorised in March 2020 as a supposedly emergency measure are now treated as an immemorial part of the constitution, a birthright. We can hardly blame John Healey for leaning into the public mood, giving us the goodies we want while refusing, just as we refuse, to consider the second-order consequences.
The British State is now becoming a machine where taxes go up automatically through fiscal drag, but the demands of the healthcare and social security budgets are so vast and insatiable that there is never enough.
We are borrowing £115 billion a year, and spending almost every penny of it on fending off past creditors – that is, servicing interest on previous borrowing.
The Chancellor acknowledges that problem. He says, and he is right to say, that there is nothing progressive about spending more on debt interest than on education and defence put together. But, like his predecessors, he keeps spending today while talking vaguely about some belt-tightening further down the line.
In the meantime, in the kind of move that would disgrace a Latin-American caudillo, he is literally paying money into people’s bank accounts: £100 for every household in a council tax band of A to D, the swing voters.
We can sneer. We can call it populist. We can call it crowd-pleasing. But the reason it is popular, the reason it pleases crowds, is that, as a country, we keep failing the Bastiat test. We vote for freebies, and gaily assume that the bill will fall on someone else: landlords, banks, energy companies.
We seem unable to process the concept that all these taxes, in the end, fall on us. Your bank will no more pay the bank levy than your house pays the council tax, your car the excise duty or your TV the licence fee. You will pay as a depositor or a borrower. All taxes fall on human beings.
If we refuse to understand that, if we keep voting for more and more ‘free’ stuff, we can hardly blame our politicians for the cataclysm that will surely follow. We are getting precisely what we demand.
Lord Hannan of Kingsclere is an independent peer and director of the Institute of Economic Affairs.
