If this is radical right-wing tax policy, then the U.K. has become far too accustomed to high levels of taxation.
In just about any news story covering the Truss government’s new tax plans, you’ll be dutifully informed that they are “controversial.” Much of the British commentariat has settled on “reckless.” President Biden criticized it as “trickle-down economics.” What’s behind the freak-out?
The mini-budget announced by Chancellor of the Exchequer Kwasi Kwarteng includes the following tax changes:
- Cutting the basic income-tax rate from 20 percent to 19 percent
- Eliminating the top income-tax bracket, which effectively reduces the top marginal tax rate from 45 percent to 40 percent
- Canceling a scheduled corporate-tax-rate increase, thereby keeping the corporate-tax rate at 19 percent
- Cutting the stamp duty, a tax paid when purchasing property, and exempting the first £250,000 in property value
That’s hardly radical tax policy.
The income tax in the U.K. currently has a personal allowance of up to £12,570. Income from £12,571 to £50,270 is taxed at 20 percent. Income from £50,271 to £150,000 is taxed at 40 percent. Then, there’s an additional rate for income over £150,000, which is taxed at 45 percent.
Kwarteng’s mini-budget eliminates that top additional rate altogether, but that means all income above £50,271 will still be taxed at 40 percent (£50,271 is roughly $56,000). Median household income in the U.K. is £31,400.
On the one hand, the U.K. is much closer to a flat tax than the U.S., and it will be made even closer to one by eliminating the additional rate. But on the other hand, the U.K. is taxing upper-middle-class income at 40 percent, and it still will be after Kwarteng’s changes take effect. If that’s radical right-wing tax policy, then the U.K. has become far too accustomed to high levels of taxation.
The freak-out over the corporate-tax plans is the most absurd. They’re not cutting it at all; they’re just keeping it at 19 percent. And that’s not an unusual number. The average corporate-tax rate in Europe is 19.84 percent.
The headlines about the pound collapsing were overwrought. The U.K. currency is now trading at roughly the same levels as it was when Kwarteng announced the plans. Nearly all currencies have been falling against the exceptionally strong dollar in the past few months.
As Kevin Williamson pointed out, the largest single item in the mini-budget was not free-market at all: a £60 billion measure to subsidize household energy costs. Daniel Hannan told Williamson that other parts of the Truss government’s plans are more free-market, such as allowing fracking and loosening child-care regulations (the U.K. has the highest child-care costs in the world, although the U.S. seems to be trying to take that title), but those aren’t part of this mini-budget.
These tax changes come after Rishi Sunak raised taxes as chancellor in 2020 and 2021. Viewed with that perspective, Kwarteng is simply reversing previous tax increases. And as for debt concerns, Tyler Cowen pointed out that the borrowing to finance the lost revenue will be done at roughly a negative 2 percent interest rate. “What this debate could use is fewer adjectives and more numbers,” he wrote.
If Kwarteng’s plans are implemented in full, the U.K. will remain a relatively high-tax country with a relatively sound debt situation. It should be expected that the Left will freak out whenever a more conservative policy is proposed, but what we’ve seen in response to this mini-budget is above and beyond the normal hectoring about “trickle-down.”
There could be an identity-politics rage multiplier at work. Just as the Left in the U.S. reserves special anger for black and female conservatives, that these conservative tax changes are being proposed by a black chancellor working for a female prime minister should not be ignored. The Labour Party leader is a white man, as all full-time Labour leaders have been; meanwhile, the Tories are on their third woman prime minister, and her government includes the first black chancellor, the first black foreign secretary, and an Indian-origin woman as home secretary.
Cooler heads will prevail in the markets, and the U.K. will not be treated as a developing country, as some have said. Tory politicians seem to finally be realizing that the high levels of taxation in the U.K. are probably not the best thing for economic growth, and the stagnant British economy needs some relief.