Tax Rises or Cuts? UK Government Faces Dilemma Over How to Pay for Coronavirus Spending

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Oliver JJ Lane

The Prime Minister is being lobbied by colleagues to resist the temptation to ramp up taxation to pay off the huge extra spending incurred for coronavirus aid, arguing the familiar principles of the Laffer Curve.

At least one senior colleague of Prime Minister Boris Johnson has cautioned against the perhaps obvious approach to higher government debt, with hundreds of billions of sterling more of deficit expected this year. By increasing taxes — and a wide range of further grabs by the government are reportedly being explored — the much-needed revitalisation of the economy could be strangled in the cradle.

While the proportion of wealth taken would rise, the argument goes, the damage to the overall wealth potential of the nation is so great, rising the overall tax take actually stagnates or falls. The unnamed cabinet number quoted by British newspaper The Times articulated the point: “It is completely the wrong approach; it would entrench the downturn… We should be looking at policies that open up the economy — we will need fiscal stimulus. Taxes need to be lower rather than higher.”

The principle that there is an optimal level of taxation in any given nation, beyond which point returns for the exchequer progressively falls away as the economy is strangled or offshored, was famously illustrated by American economist Art Laffer. The Laffer Curve is deeply controversial among left-wing economists, who tend to argue for ever-higher taxation.

That pressure for tax rises from the left is also being brought to bear on the Prime Minister through the theoretically impartial civil service, according to Daily Telegraph editor Allister Heath. Recording the potential coronavirus has created — so the left perceives — to change the UK economy into one of high state control and taxation in the newspaper, which has a close relationship to the ruling Conservative party, Heath notes:

Johnson wasn’t elected to turn Britain into a self-governing Brownite utopia. This must be a Tory government or else it will fail. If they have any sense of their own survival, of their self-worth, of the veracity of their core values, the answer from the Government, the Tory party and Right-leaning voters to all of these Left-wing, statist proposals needs to be unequivocal: over our dead bodies.

This crisis will not be used to undo 2016 and 2019, destroy the centre-Right and turn Britain into the kind of country that Keir Starmer and Ed Miliband dream to live in, they must insist. There will be no massive tax hikes and no war on wealth. This is not a transformational moment for the welfare state: furlough was a necessary evil in a once-in-50-years emergency, not the new normal each time the business cycle turns.

As Breitbart London’s James Delingpole noted Wednesday, there are plenty of government vanity projects ripe for the block before the taxman even considers putting his hand into the nation’s pocket again, among them the billions spent on foreign aid, the new HS2 railway, and costly carbon-neutral programmes.

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