Graham's latest column for The Journal

18/10/2017

This month I have attended some very interesting events, one was launch of South Tees Development Corporation  regeneration plans (pic) another was very interesting breakfast to discuss industrial strategy and skills held at a prominent Further Education college. During the course of three presentations I heard numerous nudges for more public spending on FE, all couched in different ways and all perfectly reasonable from the point of view of the FE provider.

In the Q&A session afterwards I related a story of one of my own staff, who I took on straight from an FE college. This highly-capable young man was discussing our business with me and I told him about the profits it earns. At first he thought I was very rich. Given I own the business he was under the impression that all of the profits went directly into my pocket. What followed was an explanation of the tax that is paid, the investments which come from the profits, the need to set money aside for working capital and only then pay me a return.

This discussion confirmed my view that many young people are leaving education with little or no understanding of the world of business or the importance of enterprise and the necessity of profits. It is a situation that needs to be urgently addressed by those working in education. At all levels of education - schools, colleges and universities - the emerging new orthodoxy is that business and wealth are there to be taxed in order to provide money for politicians’ favoured public spending projects. It is the idea that tax needs to be calculated to provide incentives and fairness that seems radical.

A fair tax system is a critical part of building a fairer society. Today, the richest 1% pay over a quarter of all income tax while 4 million of the lower earners have been taken out of income tax altogether. However, the consensus about the importance of enterprise, incentives and wealth has begun to crumble. Socialist ideas that were discredited by the experiences of the 1960s and 1970s – when I was growing up – have re-emerged among a new cohort of young people with no memory of what happened. High spending Governments simple ran out of money, despite the highest tax rates in British history.

Now Labour has a policy of a 45% tax band on those earning more than £80,000 and a 50% rate for those on more than £123,000. It is easy to shout about taxing the rich at a student protest, but after years building a business it is galling to find that a party that aspires to Government wants to confiscate half your income. Such measures also stimulate aggressive tax planning and slow down the economy.

Labour has seized on an IMF report about tax to justify its potential raid on Britain’s entrepreneurs and wealth creators. According to Labour the ‘IMF Fiscal Monitor: Tackling Inequality, October 2017’, suggests there should be significantly higher taxes on the rich. However, I took the trouble of reading the report and thought its conclusions were very different for the UK. The report is global, discussing inequality across the economies of the world. It highlights access to benefits, which in many countries are very weak, and compares this to the top level of tax. When fed into a computer model labelled ‘Coverage and Progressivity of Safety Net Systems in Eight Countries’, essentially contrasting top tax rates with the availability of benefits, the UK comes out as an example to follow. In fact, when the IMF looked at the ideal top rate of tax it came out with a figure of 44%, slightly lower than the UK’s rate of 45%. It seems the IMF, which Labour has been so keen to claim backs its policy, thinks the UK has got the balance about right.

What is not so right is the belief Labour is encouraging that all its spending can be funded by taxing the rich. It says more money needs to be spent on everything from tuition fees to Universal Benefit, the NHS and Schools. In the end though, the rich can move to another country to avoid high tax and, for the purposes of clarity, the rich under Labour’s plan will also include highly-skilled and well-paid workers who would be hit by the new levels of top rate tax – it is a phenomenon of the 1970s that should be taught in all schools called, the ‘brain drain’.

I attended the college where the breakfast event was held. I achieved a modest BTEC qualification and didn’t go to University. Next year, I have been in business thirty years, I wish some of the knowledge I gained in that business journey had been available to me when I was starting out.



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