Ministers should heed warnings that crippling levels of taxation will only drive down growth
It’s called the Laffer Curve - but no one is laughing
Evidence that the economy is heading in the wrong direction continues to stack up.
Earlier this month, the Office for National Statistics said gross domestic product contracted unexpectedly in May, marking the second month in a row of falling output.
It then emerged last week that inflation had risen to a near 18-month high in June. The increase to 3.6 per cent was unexpected, with most economists forecasting the rate would remain unchanged at 3.4 per cent.
This suggests the country faces the prospect of dreaded “stagflation” - negative growth combined with rising inflation.
To add even more to Chancellor Rachel Reeves’ woes, UK unemployment has now reached its highest level in four years, hitting 4.7 per cent in the three months to May.
Soaring national debt
The national debt is now such that the Treasury is spending upwards of £100 billion a year simply on interest payments - and last week’s inflation figures will only increase the rate of government borrowing. Meanwhile, the tax burden is at its highest level since the Second World War.
Forecasters predict Ms Reeves will have to raise taxes even further or slash spending by £20 billion or more in her forthcoming budget. But as she considers ways to raise more revenue in the autumn, the head of the Office for Budget Responsibility, Richard Hughes, has warned the Chancellor that “higher and higher levels of taxes” are not good for growth.
It is a message that could also be directed at ministers in Scotland - the most heavily taxed part of the UK - where the Scottish Retail Consortium has today issued a warning that a business rates surcharge north of the Border means firms are paying £9 million a year more than their counterparts in England.
Both Labour and SNP ministers appear unwilling or unable to understand that we are now well beyond the point at which current levels of taxation are sustainable.
Ever higher taxes will only drive down growth, as wealth and wealth creators leave the country.
It is called the Laffer Curve. But no one is laughing now.
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