Today Ed promised to cut the 10p tax rate which is a good
thing. However he wants to pay for it with a Mansion Tax which is not so good.
Without getting into the details of a Mansion Tax, which is essentially a
wealth levy, it’s fairly silly to cut a tax and then introduce another tax to
pay for it. This is not just because the government has to spend some of the
tax on the wages of people to administer it, but it means
that there is no net gain to the economy. Sure poorer people have more money
which they can spend on more things but it’s taken from richer people who will
spend it on things for themselves. As a result, because money has the same value whoever
buys stuff with it, there is no extra growth to the economy and no new jobs
(which is the best way to improve standards in living). Also because of the
particular choice of a wealth tax, the move means the poorest, although able to
buy more things, are less likely to invest their money as if they are
successful they will be hit by the Mansion Tax.
If you want to introduce the 10p tax rate, which will cost
around £7 billion, you have really got to do it by cutting Whitehall, cutting
the welfare budget (I’d personally look into a downgrade on the cap for how
much you can claim on benefits) or red tape around business. But just maybe Ed Miliband is doing
this. Maybe Ed isn't as stupid as he looks because the Mansion Tax actually
will only raise £2 billion, so there is a £5 billion hole to fill. Perhaps Ed
has decided to take our economic problems seriously and cut benefits or Whitehall? there is a potential gap in the political market to do so because the Coalition
hasn't taken this seriously yet.
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