Last September I wrote about how our Government and its peers around the world are running out of money as they face ever growing public spending but limited new sources of taxation. I studiously avoided suggesting where the Chancellor might find some tax to plug the gap.
As we inch closer to the general election the think tanks are falling over themselves to drum home this point. Last week the National Institute of Economic and Social Research (NIESR) said that unless the next government rips up the fiscal rules, something neither party wants to do, it will be forced to raise taxes. The Institute of Fiscal Studies has been making this point regularly for months: we can’t have European public services with American levels of tax. And now the government has decided to make it an election issue, with the Chancellor Jeremy Hunt speaking last week at a podium emblazoned with “Labour’s Tax Rises”.
So perhaps it’s time I come off the fence and indulge in a bit of speculation. What follows is not a recommendation. But if tax rises are coming it pays to a think about where they realistically might come from.
Any politician grappling with increasing taxes, whether that be increasing existing taxes or introducing new ones, must weigh up a few factors. Unless the tax is simply a political gimmick, it should bring in enough cash to make a difference. It mustn’t inhibit economic activity so much that it ends up costing the exchequer more than it brings in. It should ideally be easy to administer. But above all, it shouldn’t annoy the electorate too much.