Booze, chocolate, meat, flights: What will Labour tax next?
Pitiful growth forecasts will tempt Reeves to impose sin taxes on everything from a can of coke to a holiday, says James Price
I’ve previously called the Chancellor Reeves the Roundhead in these pages, in honour of her fun-killing ways. But she’s not the first Chancellor to tax having a good time.
A tax designed to disincentivise behaviour, or at least recoup the perceived costs of that behaviour, is known as a Pigouvian tax, and they are used today on everything from cigarettes, alcohol and sugar to fuel duties and even the blasted payment for plastic bags in shops.
There come points where these sorts of taxes become self-defeating, as all taxes do. In Britain today, this is increasingly true of various ‘sin’ taxes – or fun taxes, as I’d rather we called them.
The most heavily taxed are the original target of sin taxes – tobacco. The Office for Budget Responsibility (OBR) has said that the evidence shows that the duty rate for cigarettes is already beyond the peak of the ‘Laffer curve’, the revenue maximising rate of tax. At least 80 per cent of what you would assume you could yield from a ‘static’ raise is lost to behavioural changes. You might think that this is tax, ostensibly to encourage smokers to quit, is just doing its job? But while legal tobacco sales have halved in recent years, the number of smokers has only dropped by 0.5 per cent.
What is happening is that the high costs have forced smokers to switch to illegal or counterfeit cigarettes. These are full of God knows what horrors and the revenues from these fags are going into the hands of criminals. The government’s excessive taxation is literally helping fuel crime, rather than raising revenues.
With this trend set to continue, the government will have to find other ways to fill its coffers. Ordinarily the easiest way to do this would be to try to stimulate economic growth. But on Wednesday the OBR revealed this will remain below a pitiful two per cent for the rest of the parliament.
A slippery slope
Yet instead of admitting they got it wrong with their jobs tax, Labour will look to raise money in other ways, and the slope will get slipperier. To someone wielding the sin tax hammer, everything starts to look like a sin. To this end, smokers are likely to be merely the canary in the coal mine, and whatever your vice of choice is, you should prepare for it to get whacked. Soon we could see moonshine follow fags as coming from illicit sources. Then there will be contraband chocolate bars as the sugar tax is increased, presumably along with an admonition that eating a Kitkat is bad for ‘our NHS’.
And meat has long been discussed as the next frontier – Ed Miliband will be wheeled out to say that cow farts are killing the earth, and before you know it his greatest enemy – the bacon sandwich – will have a huge tax slapped on it. Fancy a bootleg of lamb, anyone?
Ed Miliband will be wheeled out to say that cow farts are killing the earth, and before you know it his greatest enemy – the bacon sandwich – will have a huge tax slapped on it
I’m only being partly facetious here. Despite being presented with the evidence that excessive taxes are fuelling crime and lowering revenues, too many politicians are unable to break away from mind-forged manacles and pursue a different path.
Now ask yourself, if sugar, booze and meat are subject to a punitive tax hike, what could be next? And what could this mean for taxes, on insurance, on flights or on banks?
You may not care about cigarettes, or a pint of lager, or a can of coke. But if Labour doesn’t stub out this tax obsession, all our dreams could go up in smoke.
James Price is a senior fellow at the Adam Smith Institute