Tax, Incentives, and Common Sense

Mrs P works in a field that is feeling the chill wind of official regulation sweeping over it. Like other professions before it, hers is realising that the Government does not believe that they are "in it" for anything other than their own naked self-interest and therefore must be watched over sternly. Concepts such as professional care for one's clients; the detached approach of advising the client according to their needs not the advisor's, once the basic characterising feature of a profession, are simply not believed. The reason is as simple as it is obvious - that our current leaders cannot conceive of such an attitude, cannot understand it, and therefore do not believe that anyone else can. Of course, the effect will be to eradicate that concept, slowly but surely, and thereby eventually prove them right.

But that is not my point today; I digress. She is at a level in her field that means she might not reach the magic experience level in time to meet the official test for qualification. Those before her will, easily, and those after her will have learnt their craft on academic courses largely similar to hers, but which were officially blessed and which therefore allow swift qualification. Left in the middle, Mrs P will have to choose between paying for another course to learn what she already knows and gain a new certificate to sit alongside her existing one, or leave. In short, professional regulation is going to have its usual effect; impose costs, and achieve little.

My accountant is also pointing out to me that the new 50% tax band is going to hit me hard. On the current 40% rate, the combined effect of NI, cashflow, HMRC's "creative" definitions of income, and so on means that I kiss goodbye to about 65% of my income, so I can expect that to jump to about 70%. Yes, I'll readily admit that I'm still quite comfy, but this is in fact a 15% drop in my income. On top of the 30% (or so) drop that Gordon's recession has already imposed on me, that is not going to be fun.


Meanwhile, I have just received a bill from DVLA for the issuance of a little disc which, if displayed, gives me the right to drive my car off my drive. The bill is much bigger this year because my car is, to use a technical term, "not rubbish".

These three, combined, show that there is a major intellectual fault at the heart of New Labour. One that perhaps explains the title of this most excellent book. My point might not be obvious yet, so I'll explain further.

New Labour tell us that regulation of Mrs P's profession will raise standards and make everything better for her clients and potential clients. This is because, they say, it will raise the standards of her profession and give clients confidence. The additional burdens and costs will (apparently) not drive her, her colleagues, and her potential future colleagues away - thereby leaving clients with fewer professionals to choose from, in turn reducing competition and actually reducing standards, pushing up prices, and making it harder to actually find someone. No, says New Labour, standards will rise and the members of the profession will simply accept the new regulations and their associated costs.

Likewise, the 50% tax rate will simply be paid by people like me. We won't just leave the country. We won't just give up and do something much less stressful and only marginally less financially rewarding instead. We won't try to rearrange our affairs so that our HMRC-defined income drops below £150k - arrangements that would long outlast New Labour. We'll just pay up, with no effect on our behaviour. Laffer curve? New Labour merely laffs at it*.

The increase in my road fund licence, however, works to a completely different logic. This time, the increase in tax will, I am told, motivate me to abandon my thirsty but powerful Bavarian steed and propel me into the arms of a new Fiat, maybe, or one of those little French cars, or maybe even Satan's very own environmental wolf in sheep's clothing**. Because of course, when buying a car worth many tens of thousands of pounds, I'm going to be dissuaded by the fact that its annual tax is £175. If I keep the car for five years, as I hope to, that will add up to nearly nine hundred pounds! Gosh, cancel the order! That makes all the difference!

The same applies to all environmental taxes, and to the long-established "sin taxes" on alcohol, tobacco, and the like. These are meant to adjust our behaviour to confirm to officially-sanctioned norms, whereas the taxes aimed at raising cash (and the regulations aimed at creating something to do for all the bureaucrats bought with that cash) are all assumed to leave us unaffected.

This is rubbish, pure and simple. It is simply ludicrous to expect people to believe that a £100 rise in my car tax will change my behaviour, but a £5,000 or 10,000 rise in income tax will not.

And that is yet another reason why Gordon is a Moron.

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*sorry. I should probably be shot for that one.
**whose name may not be mentioned in this blog