Is soaking the rich the best way for Britain to dig itself out of the deep hole the public finances are in?

Labour seems to think so — it will raise income tax on high earners to 50 percent from next April. The LibDems seem to think so too judging from Vince Cable’s proposal for a tax on homes
worth a million pounds or more.

The attractions of such schemes to politicians are obvious.

It looks fair for those with the capacity to pay more to help fill the black hole in the public finances.

Such plans affect relatively small numbers of people and therefore are unlikely to cost many votes.

They satisfy a widespread thirst for revenge on wealthy bankers who are judged to have got us into this mess.

They are also classic examples of the law of unintended consequences.

Cable’s proposed “mansion tax” prompted angry letters to The Times pointing out it would hit pensioners whose home was their main asset but who had only a small income.

While the LibDems estimated the tax would affect just 250,000 homeowners, they didn’t bargain for opposition from millions more who dream of living in million-pound homes or who object to the principle of being taxed on a property you have worked hard to buy.

Some experts question whether Alistair Darling’s planned 50 pence tax rate on people earning more than 150,000 pounds will bring in much extra revenue.

Higher taxes tend to stifle the entrepreneurial spirit and wealth creation that the country will desperately need as it struggles to emerge from the deepest recession in decades.

The TaxPayers’ Alliance, which campaigns for lower taxes, argued in a report that the 50 pence rate would push the total tax burden on high earners to crippling levels, leading to fewer
entrepreneurs and jobs.

High taxes tend to fuel tax avoidance schemes and may encourage some high earners to leave the country, depriving the Treasury of their taxes altogether.

Darling’s 50 pence tax, announced in this year’s budget, was always seen of something of a trap for David Cameron’s Conservatives. If they promised to scrap it, it would fuel Labour jibes that they are the party of the rich.

The Conservatives — traditionally committed to cutting taxes — say they would keep the 50 pence rate if they win the election, at least initially. However, Cameron told The Spectator magazine this weeek the tax could go “at an early stage” if it turns out to raise no extra revenue.

But it’s not only the rich who are going to have to tighten their belts. The middle classes also look set to be clobbered.

The days of universal benefits, such as child benefits, may be numbered. Such benefits could in future be means-tested to help poorer families while abolishing them for the better-off.

With government borrowing set to hit a record 175 billion pounds this year, big spending cuts or tax rises, or more likely a combination of the two, will certainly be needed.

So far, the politicians have floated schemes that will not hurt many people, such as Cameron’s pledge to scrap the national identity card scheme.

Big-ticket defence items, such as the replacement for the Trident or two planned aircraft carriers, could be vulnerable.

Schools Secretary Ed Balls has gone farthest in spelling out the scale of the cuts, saying he could save 2 billion pounds from the schools budget without damaging teaching quality.

While the politicians like to make out that there are painless ways to save billions, the fact is whatever steps they take are going to hit some group or social class harder than others.

That’s why they are reluctant to detail the cuts or spell out the full extent of the belt-tightening that will be required before the election.

Even if they do give a glimpse of it before election day, expect more shocks and a rise in industrial action by affected workers once the next government is safely installed in office.