Tax Policy As Public Relations

Labour is dilly-dallying over a tax policy, one that has far more to do with public relations than it does the nation’s finances.

In theory, it is going to finally bring an end to the carried interest loophole, a rule that allows private equity chiefs to treat their gains as something other than income.

This lowers their tax rate from 45% to 28%. It has been going on for years and while safely out of power Labour has always regarded it as unfair.

Now it is dangerously close to government it might have to – gulps – actually do something.

New stats show that PE bosses made about £5 billion last year from the carried interest rule.

Estimates by Labour supporting economists suggest that closing this loophole might raise somewhere between £400 million and £600 million a year in tax revenue.

In the context of a total government tax take of about £1 trillion – mostly from income tax, VAT and National Insurance – £600 million is neither here nor there.

Much, much less than 1%.

The figures also assume that changing the tax law doesn’t change the behaviour of the people paying the tax. Since these guys are good at nothing if not moving money around, it’s a decent bet that the higher rate of tax leads to £0 extra tax revenue.

So from a fiscal raising point of view, it is probably pointless.

But tax isn’t just about money. Sometimes it is about morality or social judgement.

We think people shouldn’t smoke, so we tax it very highly. Driving a car is bad for the environment, so we make it expensive and hope more people will use the bus.

So making the PE folk pay tax at the same rate as many of the rest of us would be saying: you are not special. You are in it with the rest of us, whether you like it or not.

Society exists – be part of it.

Shadow chancellor Rachel Reeves’s last words on this topic were: “We will work with the sector in the implementation.”

Which is a starter-kit on a roadmap to a complete a climb-down.

A way better approach would be for Labour to say:

These people will pay tax at the same rate as everyone else as a matter of justice.

OR

We looked at it and from a practical point of view, it just wouldn’t achieve very much, and we are going to be all about actually achieving things.

Instead, fearful of a backlash from the business community it has been so desperate to woo, and from a public that is suspicious of rich people, it is already playing public relations before it even does any governing.

It’s not inspiring, is it?