Many voters are quick to celebrate government spending directed towards them, but often fail to question the source of the funds, according to commentary by Daniel Hannan. This trend, he suggests, allows politicians to maintain control over an electorate that is "cowed, demoralised and incurious."
Recent budgets have been characterized by numerous small-scale allocations across various sectors, charities, and constituencies. Examples cited include funds for literacy initiatives, craft brewers, and event spaces. Hannan argues that beyond the immediate cost, each grant, rebate, and exemption adds layers of complexity to an already intricate tax system.
Tolley's Tax Guide, a resource for tax professionals, has expanded significantly in length over the past two decades, a trend attributed to successive Chancellors. This growing complexity, Hannan contends, acts as a drag on economic growth, akin to the overall tax level. He posits that while few voters object to a complex tax system in principle, many groups benefit from specific allocations, making it politically difficult to simplify.
This complexity, coupled with frozen tax thresholds despite rising salaries due to inflation, is pushing more individuals into higher tax brackets. The commentary draws a parallel to 1945, suggesting that current tax levels may be the highest since World War II, a period of national mobilization. The Institute for Fiscal Studies projects this decade to be the worst for household incomes since that era.
Hannan references the 19th-century economist Frederic Bastiat, who distinguished between economists who consider only immediate, visible effects and those who account for foreseen, long-term consequences. Applying this to current economic policies, Hannan suggests that popular measures like minimum wage increases may have negative consequences, such as reduced hiring and a lower overall tax yield.
Furthermore, he argues that national decisions, such as embracing Net Zero policies, stringent lockdown measures, and resistance to new housing developments, have had unforeseen economic repercussions. The perceived availability of a "magic money tree" during the COVID-19 pandemic, fueled by large-scale government spending on programs like furlough, has made the idea of repayment through tax increases or spending cuts unpopular.
The commentary highlights that significant spending increases initiated during the pandemic are now viewed as permanent entitlements. The British state is described as a machine where automatic tax increases through fiscal drag are insufficient to meet the demands of healthcare and social security budgets, leading to substantial annual borrowing. A significant portion of this borrowing is used to service existing debt.
The author criticizes the practice of direct payments to households, characterizing it as a populist measure that appeals to voters' desire for immediate benefits without acknowledging the ultimate cost. The piece concludes that taxes ultimately fall on individuals, whether directly or indirectly, and that a continued demand for "free" services without understanding the financial implications will lead to negative economic outcomes, for which politicians will be blamed, but voters will have ultimately driven.