BREXIT, according to the Adam Smith Institute, is the chance for Britain to zero-rate the corporation tax.
Retiring the tax would “reboot Britain”, according to Madsen Pirie, the president of the London-based think-tank that claims to honour the Scottish moral philosopher. In fact, the Adam Smith Institute brings disrepute on the name of the author of The Wealth of Nations (1776).
Smith’s canons on taxation lead inexorably to the proposal that, if economic growth is the issue, government should fund public services out of the flow of rents. By all means scrap a tax on profits – or wages – Smith would say; but do so by substituting a charge on rent.
But Mr Pirie is blind to that major fiscal insight offered by his hero. The consequences for post-Brexit Britain, if the government listened to the Adam Smith Institute, would be yet further disaster. For Pirie not only wants to abolish the corporation tax; he also wants to get rid of the capital gains tax. And the income tax should be flattened by reducing the top rate.
This is supposed to “make the UK a very attractive location for world businesses, and drive a real boost to economic growth”.
Some would profit from such a strategy, such as the owners of high-end properties who would sell their homes to foreign oligarchs who want to invest their money in “safe havens”. But for most people in the UK, the reduction of taxes would be matched by a boom in the price of land. House prices would surge through the roof – accelerating the trend towards the top of the current property cycle and a date with mass unemployment, home repossessions, the break-up of families, psychological stress and the other manifestations of poverty.
Why would this happen? The reduction in taxes does not mean more money in people’s pockets. Because of the special characteristics of land, owners can jack up their asking prices. Nice, for existing home-owners. A tragedy for those who, even today, cannot afford to buy or even rent the shelter they need.
Adam Smith would turn in his grave, if he knew what was being said in his name.