UK government’s fiscal black hole raises a burning question


Cannabis is now legal in several states in America, including California and Colorado

Prominent writer Max Hastings wrote this week in a devastating critique of the UK government that he is culturally right but economically left.

Who could dispute this, as old shibboleths are maintained or reestablished in august institutions like the National Trust and the Greenwich Maritime Museum at the same time as huge deficits are being built up to pay people to stay safe? and do not work?

While cultural response is difficult to measure other than by the number of headlines or tweets, the financial impact is at least easily quantifiable by our own national statistics office, and still largely culturally and politically neutral.

The numbers involved are incredibly large.

The leave program cost £ 58bn. The self-employment subsidy cost £ 19.7bn and Eat Out to Help cost £ 800m.

At the same time, ordering people not to go out has had a predictable impact on tax revenues. HMRC collected £ 584.3bn in fiscal year 2020-2021, down 7.8% or £ 49bn from the previous year.

VAT was down 22%, fuel taxes were down 24% to £ 20.9 billion.

Certainly, now that the economy is recovering, revenues should start to rise again. But that does not solve the major problem: how will the government recover the money it borrowed to finance this huge exercise in socialist finance?

A figure of HMRC stands out in a different way.

During the pandemic, duties on alcohol rose to £ 12.1 billion, as wine and spirits consumed at home more than made up for the loss of tax on beer and cider usually consumed in pubs .

If this type of revenue collection were extended to a newly legalized cannabis industry, it could bring in considerable sums of money for the government, without the need to provide comparable figures for previous years. In other words, the legalization of cannabis and the introduction of a cannabis tax could constitute a one-time exceptional gain for the government whose cupboard seems otherwise empty.

Will the current administration take such a step?

Right now there is talk of capital gains tax rate adjustments and pension relief adjustments, neither of which will be particularly popular. It can be argued, however, that for large swathes of the country, and in particular for the younger demographic, legalization and subsequent taxation of cannabis would in fact be popular.

For pragmatic chancellors, ignoring the possibility of a popular tax is like staring a gift horse in the face. But what does the famous red wall think? Perhaps that is the crucial question, because as we have noted, if this government is economically socialist, it is culturally conservative.

The short-term future of cannabis legalization may therefore depend on the particular lens it perceives in the corridors of power: a culturally conservative perspective or an economically socialist perspective.


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