‘Soaking the rich’ for an undefined ‘fair share’ of tax is not the solution to tackling public sector debt and the UK’s economic woes. Yet it was one of the few memorable themes to emerge from an otherwise uninspiring Liberal Democrat Party Conference this year.
This very public tinkering with taxation is simply a crowd-pleasing ruse to draw attention away from the government’s lack of vision and leadership. What the UK, and the contracting sector, really needs is an economic growth strategy.
The top 10% of earners in the UK already pay more than 50% of all tax revenues collected and the top 1% of earners pay 27% of all tax collected. And there are a good number of contractors included in that mix. What’s so unfair about these statistics?
The evidence suggests that the peak of the Laffer Curve has been reached, following falling income tax revenues after the imposition of the 50% top rate of tax. So the maximum tax juice has already been squeezed out of higher earners; they cannot be tapped for more money.
And although public spending has fluctuated wildly, the amount of tax collected has remained fairly stable for the last 35 years, at around 38% of GDP, irrespective of what governments actually do. Therefore to increase the level of taxation, the government must try something new and positive, not simply continue to tinker around with fiscal policies that make great headlines but generate little actual tax.
The only source of additional income remains middle-income earners, the so-called ‘squeezed middle’, which includes the vast majority of contractors and freelancers.
But increasing the tax burden on this group, alongside rising commodity and fuel prices, not to mention measures such as quantitative easing that drive up inflation and reduce the real value of incomes, will depress consumer spending. And doing that slows economic recovery. Low economic growth in turn reduces tax income, which is where we started.
What’s the solution? Well, the UK needs the leadership and vision to create a growth strategy for the economy, and the strength of purpose, political will and resolve to implement the strategy without constantly being side-tracked by the everyday political ‘mood music’.
These are two elements that are singularly lacking in the government of the day. It has proven to be a government that routinely prefers to divert the electorate’s attention away from its failings by attacking the existing and future wealth creators. And its attacks extend to the flexible labour force that actually makes entrepreneurial ideas happen.
The government’s 38% slice of the nation’s wealth can only grow by increasing the size of the UK’s economic pie, not by increasing the scope of taxation. And the UK’s economic pie will only get bigger with an effective economic growth strategy.