Daniel Hannan: Consumers are the ones who ultimately pay for tax rises

Daniel Hannan: Consumers are the ones who ultimately pay for tax rises

The logic of the argument is self-evident. A business has suppliers, staff, customers.

When you calculate the cost of services or goods that you offer you take into account the prices charged by your competitors, the cost of your supplies including infra-structure and tools of the business and the cost of having a certain number of staff. You look at the income of the business.

When taxes rise or the costs paid to your suppliers rise or the salaries paid to you staff rise or the taxes paid rise you have to make adjustments. If the equity of your business calculated by deducting your costs from your income starts to fall, you need to put up your prices. This can be done up to a certain point until you start losing customers to the competition that offers cheaper prices. So what next?

You can try and reduce operational costs and you have a look at the number of staff that you employ. Is the number of staff that you pay for justified by the equity of your business? You could lower salaries and this can be extremely unpopular and your workforce most probably will not want to get less pay. So what do you do? You start laying off staff. Now, you can continue laying off staff until the point when the business is no longer capable of being operational. The last move is to close down the business.

What happens when you close down your business? Your staff will lose their jobs and claim unemployment benefits. They are no longer going to be a direct burden for you. They are going to be paid with taxpayers money. Your suppliers for whom you are a customer are going to lose a source of income making them reconsider their pricing policies and the number of staff that they themselves have. So they too might decide to close down business if they lose a certain number of customers and their employees are going to become unemployed to get welfare payments paid by taxpayers.

When a big industry comes to an end, there is a network of associated industries that can fall with it and if enough industries disappear this ultimately leads to mass unemployment.

Therefore taxes are a very sensitive issue. You want to take the apples but if you also cut the trunk and the roots of the tree there are going to be no apples.