We do tend to think this isn’t a good idea

Obviously we think this is a bad idea:

Labour’s biggest union backer is demanding that Rachel Reeves imposes a wealth tax on the richest 1 per cent to give public sector workers a pay rise.

Ahead of the Chancellor’s first Budget in October, Unite has put forward a motion at the Trades Union Congress to demand the levy to raise billions for public services.

The motion from Unite, which gave Labour almost £2 million in the year up to the election, says such a tax would raise £25 billion a year and could be used “to give public sector workers a 10 per cent pay rise”.

Now several whys we think this is a bad idea are obvious. Wealth taxes are a bad idea because of deadweight costs. Every tax, by its existence, destroys some amount of economic activity. Wealth taxes do this more, per £ revenue raised, than income or consumption taxes. Therefore if more money is required then we make ourselves poorer by raising it through wealth, instead of income or consumption, taxes.

Then there is the point that we think government should not have more revenue anyway. Currently they’re getting 40% of GDP, 40% of everything, and the plan is that this should rise. We’d very much prefer 30% and number go down. We really do believe in that fructifying in the pockets of the populace idea.

But let’s be more specific. The current fashionable analysis of the UK economy is that it’s locked into a low investment and therefore low wage disequilibrium. We need to increase investment - possibly substantially - to shock it back into the preferred high investment, high growth and thus high wage alternative. At which point the insistence is to liquidate the current capital stock of the country to pay the wages of public sector workers?

How does that get past however few synapses are being employed here?

Tim Worstall