The Laffer curve - Rachel needs to go back to school.

 The Laffer curve is an economic observation that higher levels of taxation result in less tax revenue.

Before Labour came to power, UK taxation levels were already high and now they are even higher. The tax burden  when Labour came to power was 35.3% and is increasing. To put that in context at the end of the second world war it was 37.6% when a massive re-building programme was needed.  1993, a year I remember fondly, it was just 28.4%.

The Laffer curve is a perfect example of "measurement drives behaviour". 

I routinely hear from people (including plumbers, hair-dressers etc)  - "There's no incentive to work hard or better yourself".

If you tax wealthy non-doms excessively don't be surprised when they modify their behaviour and flee the country. In fact the exodus is not limited to non-doms.  Millionaires are leaving to more business friendly countries like Italy. I know several millionaires who abandoned the UK in the last 12 months.

 If you introduce VAT on private school fees, dont be surprised when schools (a business) shutdown and hard working parents, struggling to find the extra money, modify their behaviour by transfering their children into state schools, increasing the burden and costs on the state.

Personally this last year has been a perfect example of measurement driving behaviour.  My first plan is to move abroad (zero tax revenue for Rachel) as I've simply had enough. My plan B is to not work so much and burn through savings - there's simply no incentive to work or save.  I could easily generate another £30k in revenue for my little business but why bother. What's the point when I'll be taxed at 60%+ marginal rate. It's not worth my effort - I dont need the money right now and there are no longer incentives to save the money as it will be taxed yet again.

 I would rather have my free time  to enjoy things than the small amount of money that Rachel let's me have.  It' also gives me some satisfaction knowing that I am not a slave to Rachel. I now have more time to write blogs like this.

It seems to me that Labour think we have no free will and that we are little more than their tax slaves and expect them to work for free. Yet the reality is that people quickly figure out what the rules are and adjust their behaviour. I still have free will and can choose not to be Rachel's tax slave.

I have a friend who has a sailing school - largely to subsidise the running of his yacht. He could easily double his turnover but instead he keeps the turnover below the VAT threshold as crossing it completely alters his business case from a "hobby" profit to a trading loss. Why on earth would he do that?

There are probably millions of small businesses in the same position - stiffling growth.

I wrote this blog on why so many pubs are closing

All these things are a brake on the economy. Rachel wants growth but taxation is discouraging entrepreneurs from doing anything (or they up sticks and move to a more business friendly country).

Well it seems I am not alone. Having read an article (and comments) in the Spectator there are a large swathe of people in my age group that are thinking the same. Some are considering early retirement. What's the point in having  a large pension pot now that will be subject to potentially 85%+ inheritance tax on your death. Why not burn through it and enjoy it? I've been thinking the same except it's quite a complicated probability calculation unless I know exactly when I am going to die.

Other Spectator readers were winding down their businesses or reducing their work load - the risk / reward or effort / reward was simply no longer there. End result - less tax income for Rachel.

Now these people are probably the top tax payers. Taxing the rich is not a good plan The top 10% of earners pay 60% of all tax. Let's assume just 20% of these top tax payers decide to stop working or adjust their work so they are now basic rate tax payers. That means the tax take from the top 10% falls to 48% from 60%.  That's a huge black hole for Rachel.

Rachel's problem is she is spending more than the tax income. Considerably more.  And she's hitting the credit card to fill the gap. But previous moronic governments have done the same and run up a huge debt which is costing more and more each day in interest payments to China. The likelihood of increased tax take is low - especially beyond 1 year (once someone is burned they modify their behaviour). The only real choice she has is to cull public spending OR the more challenging task of getting the vast number of people not working to work and start paying taxes (but it's difficult to find jobs for these people when businesses are scaling down or going under due to the high levels of tax).  However the economically inactive (but not claiming benefits are likely to balloon as people take early retirement, scale down their businesses etc). 

Doubtless Labour's solution to this is to create more public sector jobs....I don't think they get that "Government" is not a product that other countries want to buy from us. More public sector jobs just makes the problem bigger not smaller !

Sadly for Rachel - no-one in her party is listening.  I think she knows that she needs to cut public spending massively in order to liberate the economy but her communist colleagues are greedily thinking about the cash they can force-ably extract from the "wealthy".

The problem with socialism is it works fine until you run out of other people's money.

The best thing she can do is surprise Two Tier Kier by resigning and publicly explaining that the Labour plan is flawed.  But she wont do this. 

Good luck Rachel - myself and millions of others have other plans for OUR money and OUR future.

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Watch the excellent interview with Arthur Laffer.  He manages to simplify behaviour into really simple quotes.  "If you incentivise people to be ill - don't be surprised if you get more sick people"