"Taxing the rich is good for society"
"We have to tax business more to redistribute the wealth to the poorest"
"Taxing private schools is a great way to make the education system fairer"
On paper, all of these things sound good and noble but they are all fallacies as I shall lay out below.
I want to make clear before going any further that it is my belief that the previous un-conservative Conservative government were as unsupportive of business and working people as the current Labour government, who are merely carrying on the Conservatives work of higher taxation.
"Taxing the rich is good for society"
Let's take taxing the rich, where I define rich not at all by salary, but by the assets someone owns being worth over £10 million. I don't bother about salary as you could be someone earning a £1 million a year, spending £1 million a year and not investing anything, then lose your job and you own as much as someone earning £10k a year investing nothing. First of all, in any society there will always exist those who are greatly richer than others due to rare skills that allow them to invent things and sell their companies for a profit, those who are great at climbing the ladder at work, and those who invest and place bets on companies that with huge amounts of luck go on to be the Apple's or the Google's of this world. If we accept that there will always be rich people no matter what we tax, and if we also accept that those rich people due to being rich can locate themselves anywhere in the world, then what you should be doing as a nation is creating a system that motivates as many of those rich people to stay in your economy paying tax, and often leading companies and employing thousands of people. 5000 rich people paying 20% tax on CGT is better than no rich people paying 40% CGT. We must create a system that keeps the brightest and best investing and working in the UK.
Now, let's dig in to one of Labours main ways they are thinking of taxing the rich; increasing CGT. The aim of this is to ensure that "rich" people pay their fair share on the sale of assets. All sounds good, except when you realise that:
Most of the founders of startups are not rich at all, and took a massive risk by leaving their more stable salaried jobs with the hope of starting a company and hopefully exiting at a large profit.
9/10 yes, I repeat, 9/10 startups completely fail with no exit at all.
People working in startups often take massively reduced salaries to keep the company going with the hope of an exit.
It can take 7-10 years to achieve an exit.
When you read the above, it is unbelievable that anyone starts a company at all, so the respect I have for founders who take this risk is huge. As such, you need to create a tax system that motivates people to want to start a company, that then hires people, innovates and grows the economy. Those people that get hired early in a startup often get a percentage of the company meaning they have a chance to increase their wealth upon an exit. If you raise CGT, you will reduce the number of people willing to take the risk, reduce the amount of amazing businesses that could be started here who pay tax and grow the economy, and reduce the amount of job opportunities for people looking to make it in life. Raising CGT is a short termist solution driven out of jealousy for those who spend sometimes more than 10 years of their life working tirelessly growing a business and employing many people with the hope of getting rich. The BOLD move would be to actually reduce CGT to provide even further motivation for people to start companies and then long term increase tax receipts through their being more amazing companies part of the economy with more exits. 20% CGT of 100 exits is better than 40% CGT of no exits.
"We have to tax business more to redistribute the wealth to the poorest"
Labour have talked about increasing corporation tax on companies as a way of increasing tax revenues which sort of sounds good morally, but in the end has the opposite effect that you want. If corporation tax is raised, companies will have to find ways to reduce costs to be able to pay the extra tax, which often means firing large numbers of employees, hardly good for the average person. We need to have competitive corporation tax rates. The UK's current tax rate sits at 25%, which when you compare to the US at 21%, Ireland at 12.5% and UAE at 9% is far too high. Is it any wonder companies would rather re-locate away from the UK when the taxes are so high. A reduction to 15-20% would signal to the world we are open for business and we want you here, and in the long term would increase tax revenues and the amount of jobs available.
On top of this, the salaries that CEOs at large companies command is often in the news, where it is implied if we taxed those CEOs more then we would make life better for the employees. But again, this is somewhat of a fallacy. Let's take Walmart as an example which has 2.1 million employees globally, and whose CEO took home $26.2 million in total compensation last year. Let's say we decided to pay him $0 and distribute his earnings across the 2.1 million employees. Then each year every employee would get $12.48 more in salary per year. Do you really think that is changing any of the employees lives? I think not. I do however think that the salaries of CEOs should be heavily performance based so that they only receive the top level of their compensation if the company overperforms. I have seen first hand how a top level CEO can transform a company for the benefit of all the employees, and these people are rare to find and as such command salaries equivalent to the predicted benefit they will have to the business as a whole. We want as many of these CEOs to decide to move to the UK as we can to help improve the economic situation for everyone.
"Taxing private schools is a great way to make the education system fairer"
Finally, Labour have talked about having private schools pay VAT at 20%. This sounds great on paper, charging "rich" people even more to pay for their kids to go to a school. Except when you realise a few things.
Many of the parents who send their kids to private schools are not rich at all, and sacrifice the quality of their own lives to try give their children the best education they can afford. Also, it's not like if you pay for private schooling you can claim back against the taxes levied for state schooling; these parents end up paying for private schools for their kids as well as the state schools of other peoples kids.
16.7 % of pupils at private schools have SEN (Special Educational Needs) support and 5.7% have an EHC (Education Health and Care) plan. Many of these are in private schools because the state sector can't deliver the support these kids require.
Many of the schools themselves are run with very tight budgets. Not all private schools are like Eton or St. Pauls who do have vast budgets to spend.
So, adding a tax of 20% to these schools is going to have the below effect:
Many parents who had tight budgets will no longer to be able to pay the fees for private schools. Those with rich parents as defined above will not be effected, so this policy will punish the hard working middle earners. This will cause thousands of pupils to be pushed in to the state sector, whose class sizes are already too big and make education even worse for those in the state sector. Again, making things worse for all parents with kids in state schools, the very people the policy is proposing to help.
Many of those kids who will no longer have parents who can afford private schools have SEN and EHC plans. These kids, many of them with serious learning difficulties, will be thrown in to a state system that we know does not have the means to support and look after them, hence the parents moving them to private schools. This will be a travesty for those children who really need extra support and won't get it.
Many of the schools which were close to closing down will have to close down with VAT being levied on them. This will cause thousands of kids to have to go to state schools, which are already struggling and make education worse across the entire state sector.
So this tax on private schools with the proposed Labour goal to improve education is actually going to have drastically the opposite effect across the state sector. It is a tax on ALL education in the UK and should not be implemented at all. Again, because of Labours jealousy of a few rich people they are going to try level the playing field, which in some sense it does, but to lower standards for all except the few rich people. Sounds almost like communism to me...
The result
What seems on the surface good and noble things for Labour to do, is actually going to have the complete opposite effect. There will be less innovative companies started, meaning less wealth creating jobs. Less companies will decide to headquarter here meaning less tax collected for the government. And our education system will have tens of thousands of pupils pushed to the already creaking state system, leading to worse education for all, especially those with Special Educational Needs.
Labour are continuing to do what the previous un-conservative Conservative government did for the last 14 years, leading to stagnation of our economy and a lowering of standards. What we need are bold ideas and policies that are well thought through with the overall outcomes understood and with the desired effect of increasing standards for all. Not ones that are born out of jealousy and sound good in paper, but will make us all worse off; we musn't bite our nose to spite our face.
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