Andy Burnham’s wooing of Jim O’Neill has been “quite a dance”, according to the former Goldman Sachs economist. Cynics thought that Mr Burnham, when he was still mayor of Greater Manchester and the Labour candidate for the Makerfield by-election, wanted to reassure the markets by co-opting the cross-party credibility of Lord O’Neill, who had been a Conservative Treasury minister.
As prime minister, Mr Burnham offered to make him a minister in the House of Lords again, but Lord O’Neill did not want to vote as instructed by the Labour whips – even under the new prime minister’s more relaxed system of party discipline.
Mr Burnham then wanted to appoint him as a special adviser – a “super-spad” – but Lord O’Neill was again reluctant, not wanting the trouble and expense of putting his assets in a blind trust, as he would be required to do.
Finally, the prime minister suggested a more informal advisory role, limiting the information given to him so that he would not need to set up a blind trust. Lord O’Neill still refused. He said: “Why don’t I just be Jim O’Neill and talk to you whenever you want to talk to me and not have any need for this stuff?”
It may be that Lord O’Neill feared that he might disagree with the government, particularly on tax policy, but the result of his declaration of independence is that he can speak his mind in public – as he has done in an interview this weekend – and possibly have more influence that way.
His specific point was to warn John Healey, the chancellor, against an increase in capital gains tax (CGT). That would be “stupid”, he said. “At a time where a lot of business still struggles from Brexit and struggles from the changes in national insurance and the labour market changes to zero hours – to have that and inheritance tax, it would be yet more, and obviously at a time where the country’s growth rate has been so weak.”
Lord O’Neill is right. The idea of “equalising” rates of income tax and CGT has a superficial appeal, but it overlooks the effect of inflation in creating artificial gains. Unless the tax system goes back to the complexity of adjusting for inflation – in which case the yield from higher rates would be wiped out – higher CGT would be oppressive.
Not only would it discourage entrepreneurs from creating wealth and jobs, it could end up costing the Treasury revenue because business owners would defer selling their companies or move their money abroad.
Lord O’Neill makes a wider point: that further taxes on business generally will suppress wealth creation and crush the optimism so necessary to business success. He praises Mr Burnham for creating a spirit of, “I’m going to be a happier kind of positive person,” and warns that tax rises would go “against that”.
The sense of hope engendered by the change of prime minister is not just a political gain for Mr Burnham, it is an important element of economic policy, boosting consumer confidence and supporting risk-taking.
It would be foolish of Mr Burnham and Mr Healey to crush that essential ingredient of a pro-growth policy by taxing the wealth creators more. Lord O’Neill argues that, if money has to be found, it should come from ending the triple-lock uprating of the state pension and from savings in the welfare bill. It is hard to disagree, although in the short term – and despite the effects of war in the Middle East – it may be that Mr Healey can balance the books without either tax rises or spending cuts.
Whatever Mr Burnham and Mr Healey decide, however, the country cannot afford the depressing effect of further taxes on the wealth creators. The prime minister may not have secured Lord O’Neill’s services as a minister or an adviser, but he should be guided by his advice all the same.