Treasury cash cows

Motorists, like smokers and drinkers, have long been cash cows for the UK Treasury. The claim that tax monies raised from them pays for the costs they impose has always been spurious. Treasury receipts from motor insurance and fuel duty are claimed to cover the costs of road-building and highway maintenance, but they have always far exceeded those costs and gone into the general Treasury fund that pays for government spending.

It is sometimes claimed that smokers and drinkers impose costs on the NHS that justify the high taxes on their products, but this completely ignores the fact that earlier deaths from unhealthy lifestyles save the government far more in pension payments than the NHS costs they impose.

The impending switch to electric vehicles, delayed though it is now to be, poses problems for the Treasury, as they search for ways to make up for the looming loss of fuel duty revenues. The idea of a ‘tyre tax’ has been floated, with claims that rubber particles from tyres constitute a bigger hazard than the fumes emitted when fossil fuel are used. The thinking behind this is that electric cars have tyres that can be taxed if fuel duty disappears when the switch away from fossil fuels takes place. It is entirely possible that a Treasury desire to plug revenue losses might have supported the 5-year extension for petrol and diesel cars.

The Treasury mindset with its static model of the economy gives little attention to the basic truth that all taxes change behaviour. Increases in tobacco duty motivate people to seek black market, untaxed cigarettes, which are hard to regulate. Increases in income tax will lead more people to seek tax shelters. Limits to tax-free pension saving will lead some to take early retirement. For most taxes there are unsought consequences not envisaged by those who levy them.

The Treasury, looking only at the in-box, seeks to shore up the public finances by raising revenue wherever it can. Government should be looking instead at the out-box, the money that flows out to maintain its spending.

The government is looking to tax vaping, nominally to ‘protect children.’ The reality is that if the aim of abolishing smoking completely is achieved, the Treasury will be looking elsewhere to plug the loss of tobacco duty.

If they looked at the out-box instead of constantly trying to keep the in-box topped up, they might look at how many people are employed as diversity officers, as awareness officers, or the personnel whose salaries pay for language changes that are ‘inclusive.’ It might look at all the non-productive personnel it employs.

In the unlikely event that a government appeared that was prepared to do this, they would not need to milk their cash cows so aggressively.