Starmer’s defence pledges will trigger a tax bombshell
Here’s a cracker of a pub quiz question for you: what links mega-rich non-doms, nuclear-powered submarines, congestion in Wigan and the Bank of England’s former chief economist? The answer, as so often appears to be the case, is tax.
On the day that Keir Starmer unveiled a Strategic Defence Review that calls for nearly £70bn in spending just to upgrade the UK’s “inadequate” armed forces, a series of other news stories provided the context for the PM’s plan to create a “battle-ready, armour-clad nation.”
The latest research into the impact of the government’s reforms to the non-dom tax regime suggests that more than ten per cent of these mobile mega-rich taxpayers have left the country, getting dangerously close to the level at which economists warn the move will start costing the Treasury money. Chris Walker, the former Treasury economist who conducted a review, warned that the calculations underpinning the government’s policy were not much more than “a leap of faith.” That’s unfortunate, given that Starmer has just pledged a fleet of expensive new submarines. Those non-dom tax receipts could have come in handy.
Money for roads or missiles?
Meanwhile, as if to emphasise the fiscal Gordian knot facing the government, Labour MPs are putting pressure on Rachel Reeves to rip up her rules and commit to more borrowing in order to fund, among other projects, a new road in Wigan – something which Makerfield MP Josh Simons insists is necessary to prevent “rage” taking hold among voters in his Northern constituency. So what will it be, Prime Minister, roads or missiles?
Former Bank of England Chief Economist Andy Haldane recognised this dilemma yesterday, telling LBC that ministers will have to indulge in “a bit more borrowing, a bit more taxation and a loosening of our fiscal shackles.” The head of the Institute for Fiscal Studies, Paul Johnson, was a little more blunt, saying yesterday that the UK’s “very poor levels of economic growth” mean the government has “some really, really tough choices to make”. With the Spending Review on the horizon, u-turns to welfare cuts being planned, anxious Labour MPs flexing their muscles and a staggeringly expensive defence policy taking shape, it’s little wonder Johnson concludes that “some really quite chunky tax increases” now look necessary.
The PM may have conceded yesterday that “you can’t tax your way to growth” but the admission comes after he tried doing exactly that. Now, faced with a sluggish economy and an expensive shopping list, he looks set to repeat the mistake.