Keir Canute

“I stand here also as a black man” the Foreign Secretary portentously informed the United Nations. While sitting down. “I am a woman” was the overwhelming message of the Chancellor’s glossy video celebrating her position as the nation’s first female Second Lord (Lady?) of the Treasury. Their answer to the late Col. John Boyd’s famous question, “To be or to do?” seems clear, seeking praise for what they are rather than what they might achieve.

Which is probably no bad thing. For it hasn’t started well, has it? This does not, of course, mean it won’t improve. But neither does it mean that it won’t, like Baldrick’s poem, “tail off a little in the middle and the less said about the end, the better.” For, just as important as the few policies the government has produced, is the thought process underlying them and what we can see so far does not invite overwhelming confidence.

It is being reported that the Chancellor’s plans to close the non-dom “loophole” will be “tweaked” as analysis now reveals that it will raise no money and may even cost money. This is unfortunate since, before the election, it was apparently going to raise £2.6bn for school breakfast clubs and the NHS. It was, of course, surprising that, with such an easy source of money instantly available for worthy causes, no government had thought about tapping it before. But actually, they had, taxing non-doms being one of those zombie policies which refuses to die.

Every other administration (including every Labour government) which looked at it had concluded, as the OBR claim belatedly to have discovered, that it would raise no money. This is well known – I have not spent weeks trawling through Treasury papers in the National Archives to discover it. One might still think it is a good idea – a less equal but richer society or a more equal but poorer one are equally valid choices – but the Chancellor is unique in British history, not just as a female in her office, but in thinking that taxing non-doms would raise revenue.

One can, of course, be in a minority of one and still be correct, but non-doms are, by definition, wealthy and mobile. They have other places they can go. Everyone who has considered the issue has decided that, when tax push came to domicile shove, they would follow what they perceived to be their best interests and move somewhere more financially congenial. Ms Reeves, by contrast, appears to be the first to have assumed that a group of people who have dedicated their lives to becoming richer would magically choose to become poorer because she needs some help.

For policies create incentives and people respond to those incentives. Consider the Winter Fuel Allowance.

Ending this was, if you recall, absolutely vital for the nation’s finances. If that specific 0.1% of government spending were not cut, markets would panic, and the ensuing financial devastation would make the Truss weeks look like an all-inclusive holiday in one of Dubai’s more vulgar resorts. Those with experience of financial markets might channel their inner Sir Humphrey and describe the story as “interesting” (“bats**t”), investors rarely changing their minds on such small amounts of money and being reasonably indifferent to the source of revenue – a pound is a pound whether the government takes it from a pensioner or a paramedic. But let us take it at face value.

Given the stakes, one would expect the government to have done an impact assessment to make absolutely sure they would raise enough money. But, apparently, they had not. Then they had, but they weren’t going to show it to anyone. While this was going on, some of the pensioners who were eligible for Pension Credit (and thus Winter Fuel Allowance) but had not claimed it, decided that they would. Which, from the government’s point of view, is a double whammy. Not only will they have to pay out more in WFA than they thought, but they also have additional money to find to pay the new claims for PC. Exactly how much is currently unknown, but there are enough people eligible that the entire £1.5bn saving the policy was supposed to generate could be eaten up by the new spending. Oddly, since this was, just a few weeks ago, going to return us to the financial Stone Age, the government appears perfectly relaxed.

Or think about VAT on school fees. This will apparently raise £1.5bn (a number of which the government appears oddly fond). Well, it will as long as parents are willing to pay it and are able to pay it. But, of course, there will be those who cannot. And in their case, the state will need to step in, incurring costs and forgoing revenue. Nobody disputes this, the only argument is how many there are. The government think 20-40,000, others 80,000. At which point, once again, the maths stops working.

If these policies have a common theme beyond infuriating the Daily Mail, it is that they rely on others acting in the government’s interests rather than their own. Non-doms are supposed to choose to pay more tax, pensioners to freeze and hard-pressed public-school parents to dig deeper all because it is convenient to those in power that they do so. All of these groups have other options, but the government’s policy is based on their not using them. Which is fine as long as Free Will is confined to those in Ministerial Office, but unfortunate if it turns out to be a human universal.

We must deal with the world as it is, not as we would wish it to be. But this is a lesson the Labour leadership is curiously slow to learn. The Green New Deal had to be changed because interest rates rose, always, as I wrote at the time, likely since they were at record lows and have always mean-reverted. Nobody in the sector believes it is possible to decarbonise the grid by 2030, but that isn’t going to stop Ed Miliband from trying, even if the likely blackouts mean only one of his kitchens will work. Just last week, the Department for Energy Security and Net Zero decided to suspend the Laws of Thermodynamics so that more people would install heat pumps.

You can, Ayn Rand said, avoid reality but you cannot avoid the consequences of avoiding reality. The pre-election embarrassment over the Green New Deal might have taught the Labour Party this but, for a group of clever people, they appear curiously slow to learn, rolling out policy after policy which will only have their intended effect in their imagined universe. Back on Planet Earth, where reality gets the casting vote and people react to the incentives policy-makers give them, they will have consequences, consequences which the government will find unwelcome. King Canute, in the legend if not in reality, wanted the sea to obey him and not the laws of physics. All he got was wet feet.

Stewart Slater works in Finance. He invites you to join him at his website.

This piece was first published in Country Squire Magazine, and is reproduced by kind permission.

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