Instead of taking the fiscal challenge seriously, the Government last week boxed itself into a permanent boost in public sector salaries without expectation of higher productivity. In exchange, it cancelled some major capital spending projects and announced its intent to raise taxes in the forthcoming budget. The unions could also end up going on strike again very soon, after learning the new Government will succumb to the pressure of industrial unrest and not use “minimum service” laws.
This fiscal plan could look positively foolhardy after this week. Just as the global economy is faltering, Britain is raising taxes on investment and entrepreneurs. The end of non-dom status has already stimulated plenty of talk among wealthy expats about leaving the UK to avoid new tax liabilities. The nation already lost 16,500 millionaires between 2017 and 2023, a loss topped only by China, Japan, and Hong Kong in the last decade. This ultimately means fewer big contributors to the Treasury living, working, and starting businesses in Britain.
Meanwhile, there is speculation about an increase in capital gains tax and a reduction in pension tax reliefs in the October Budget. These tax rises would be particularly damaging, dampening interest in saving and investment. According to our research, the Labour manifesto promised 62 increases in regulation, including many major changes to employment law that will push up the cost of employing people.
The new Government has talked a lot about making “hard decisions” to fix the country. Much sooner than most expected, the situation is becoming even harder.