Bill Carmichael: Archbishop wrong to think taxing more will help Britain's poor

Our economy is broken with increasing poverty and high levels of inequality and we need radical reform to make the system more just and fairer for ordinary people. So says no less a figure than Justin Welby, the Archbishop of Canterbury, who has co-authored a report for the left-wing IPPR think-tank.

Archbishop of Canterbury Justin Welby.

And the solution for these problems, according to Archbishop Welby’s report published this week, is more government intervention, tighter regulation and – yes, you guessed it – massive increases in taxation.

Isn’t it amazing that the only suggested solution to every single problem – from global warming to the obesity epidemic – is to force people to pay more tax? It is the magic bullet for every ill in society, but it never seems to actually work.

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So, according to our most senior Church of England cleric, our society is cruel and unjust and the widening gap between the filthy rich and the desperately poor needs urgent action – right? Ok, believe this if you want to feel good about yourself and demonstrate what a virtuous and fine person you are, but the actual facts tell a very different story. For example, according to the Office for National Statistics, inequality in the UK has narrowed over the last 10 years and is now at its lowest level for 30 years. That’s right – the gap between rich and poor is decreasing, not increasing.

Indeed a benefits claimant today is better off than the average working man 60 years ago, who typically worked 48 hours a week with just one week off a year. And extreme poverty – living on less than $1.90 (£1.47) a day according to the World Bank – simply does not exist in the UK.

Compared with millions of people in the developing world living in genuine grinding poverty even those on benefits in the UK are comfortably off. Harold Macmillan’s comment that “we’ve never had it so good” has never been truer.

Archbishop Welby wants to abolish inheritance tax and replace it with a new “lifetime gifts tax” that will raise an eye-watering £15bn a year from taxpayers, many of them far from millionaires.

The assumption here is that ordinary people cannot be trusted to spend their own money wisely and the state must take it off them and give it to politicians 
to spend on their behalf. Because, you know, that’s apparently more “fair” and “just”.

Mr Welby also wants to raid company profits with a £13bn a year increase in corporation tax. Who can argue with that? We all hate big companies, don’t we (unless they employ you) and profit is a dirty word (unless your pension depends on it). The assumption here is that increases in corporation tax rates will provide more money for the government to spend on schools, hospitals and benefits. Simple, isn’t it – higher tax equals more money!

But is it actually true? If it was, you would expect the huge cuts in corporation tax made by the Conservatives to have resulted is a massive reduction in the government tax take. But exactly the opposite has happened.

In 2010, when corporation tax was levied at 28 per cent of profits, it raised £40bn a year. Since then the rate has been reduced to 19 per cent and guess what? Last year it raised £57bn – an increase of over 40 per cent.

That’s right – lower taxes have resulted in huge increases in the government’s tax take. How so? Quite simply lower taxes stimulate economic activity and more companies pay tax – albeit at a lower rate.

Conversely, higher taxes can damage economic growth, reduce employment and as a result cut government tax revenue. You can see exactly the same thing happening in the US where President Donald Trump’s decision to cut personal and company taxes has put rocket boosters under the economy, which grew by over four per cent in the last quarter.

As an added bonus thousands of jobs are created – as we have seen in the UK where employment is at the highest level since records began. And all these new workers pay income tax and national insurance and more VAT because they spend more when they are in work.

All this extra taxation benefits the government’s coffers and provides more money for the public services we all value.

So the message is clear – if Archbishop Welby really wants to help the poor and provide more money for schools and hospitals, he should be lobbying for big cuts in taxes rather than the big increases he is currently demanding.