Taxing The Rich Is Bad Politics and Rotten Economics

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Britain's public finances

Class warrior

Dec 10th 2009From The Economist print edition

Bashing the rich is bad politics and rotten economics Corbis/EPA/Alamy

GORDON BROWN has been many things in his time: co-author of market-friendly New Labour, Prudence with his hand on the Treasury tiller, friend of Britain’s all-important City. Now, with a general election less than half a year away, a new prime minister is emerging. The well-off, already set to lose half of their earnings above £150,000 ($243,000) to the taxman, face a further cut to tax relief on their pension contributions; a promised increase in the inheritance-tax threshold has been shelved; those with offshore bank accounts will have their feet held to the fire, American-style. Mr Brown’s Conservative opponents, by contrast, have dreamed up their tax policies “on the playing fields of Eton”. Mr Brown’s inner class warrior has finally stepped forth (see article).

As one of the few set-piece occasions before the general election due by June for Mr Brown’s embattled government to make its case to voters, the pre-budget report (PBR) on December 9th (see article) was always likely to be more political than sensible. Even so it disappointed. Alleged dividing lines between Labour and its main opponents, the Conservatives, were dug deep into the sand: Labour, the party of the many, devoted to protecting public services and “going for growth”; the Tories, protectors of privilege and gleeful spending slashers.

Taxing bankers

Bankers’ bonuses are at the political centre of this issue. The banking system has received over £840 billion in state support one way and another, according to the National Audit Office. The money was intended to make banks safer (ie, to build up their capital) and more useful (eg, to encourage them to lend more) and has helped, in the event, to make them more profitable. Bankers in Britain were rumoured, until this week, to be in line for billions of pounds in bonuses for the year to April. Taxpayers are furious.

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