Review of “The Joy of Tax” by Richard Murphy

Last year Richard Murphy, well-known through his involvement with the Tax Justice Network, expanded his ideas into a paperback book The Joy of Tax. His association with Jeremy Corbyn may cause Liberal Democrats to reject his ideas, but I argue here that even if we reject his solutions, which include both Basic Income and local Land Value Tax, we should take seriously his criticism of the existing tax system and his analysis of the purpose of taxation.

After a short historical introduction in which he develops the idea of tax as being the band that holds together the Social Contract between a people and their government, he examines how the Government raises its revenue. We are all familiar with the three big taxes: income tax, National Insurance and VAT, which together raise just under 65% of all taxation, national and local, but Murphy also looks at the large number of taxes that raise the remainder and the justification for them.

He covers six reasons why Governments should tax:

  1. Reclaiming money that the government has spent into the economy for re-use;
  2. Ratifying the value of money;
  3. Reorganising the economy;
  4. Redistributing income and wealth;
  5. Repricing goods and services;
  6. Raising representation.

Some of these will be obvious; some arise from the way he defines money, which takes account that the vast majority of the money in the economy is created by banks not by the Government.  I will touch on two of them: numbers 3 & 6.

What Murphy means by reorganising the economy is the Government ensuring that there is enough money in the economy for people to make the transactions they want without either inflation or deflation occurring. Long ago, before VAT, there was a tax called Purchase Tax and the Chancellor had what was called the Purchase Tax Regulator, which allowed small variations (10%) up or down in the Purchase Tax and excise duties rates to control the economy. This is a similar idea, although Murphy does not specify what taxes he would vary.

Raising representation may seem entirely divorced from tax, but we have all noticed that the highest voter turnout has been at the last two referenda, General Elections have lower turnouts, council elections still lower and council by-elections lowest of all. More people vote when they think that voting will make a difference; comparing councils’ responsibilities now with what they had in the 19th and early 20th Centuries, when your local council might provide you with water, gas, and electricity as well as the services we are used to, illustrates how many powers have been lost. Murphy is an advocate for councils raising all or most of their revenue locally, with Government subsidies mainly for the poorest areas.

Murphy challenges our preconceptions about taxation and while I am unconvinced that the taxation consequences of Basic Income at the level he proposes can ever be sold to the voters, his approach to thinking about taxation is something that I would largely commend to the Party.

* Laurence Cox has been a party member and activist since 1981. He was a local councillor for 10 years and served on the Pensions Working Party that created the Citizen's Pension policy in 2004.

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8 Comments

  • Tom Papworth 20th Feb '17 - 5:18pm

    On “Reorganising the economy”, the government does not need to vary a specific tax to “ensuring that there is enough money in the economy for people to make the transactions they want without either inflation or deflation occurring”.

    Firstly, this is properly the function of the Bank of England, which uses interest rates to influence the money supply and so prevent inflation or deflation. They’ve been doing rather well recently (better than they intended, in fact) as inflation has been very low.

    Secondly, government considers the macroeconomic impact of taxation and spending in every budget.

  • Laurence Cox 20th Feb '17 - 5:40pm

    Tom,

    Thanks for your comment. The difficulty with the Bank of England interest rate mechanism is that it is designed to work in the medium term. The BoE looks at what it thinks inflation will be in two years’ time (looking through any short-term fluctuations) with the aim of getting it close to the 2% target through setting interest rates. Errors on either side of the target are seen as equally bad, so an 0% inflation rate is just as bad as a 4% inflation rate (but harder to do anything about). Going back to my Purchase Tax Regulator analogy, this was something that was designed to be adjusted intra-year (so could have been used to deal with price changes caused by the sudden fall in the £ following the Referendum).

  • A Land Value Tax simply makes too much sense. Alas, big land owners tend to also be fairly politically active at the local level. A Land Value Tax is far more progressive than Income taxation.

    As for the “Bank of England” managing inflation, lol. They’re basically managing their profits.

    https://www.progress.org/articles/in-the-belly-of-the-fed

  • Laurence Cox 24th Feb '17 - 5:07pm

    In the last paragraph of my review, I included a couple of caveats:

    ” …and while I am unconvinced that the taxation consequences of Basic Income at the level he proposes can ever be sold to the voters, his approach to thinking about taxation is something that I would largely commend to the Party.”

    That was mainly a result of the 500-word limit on contributions and I want to take this opportunity in the comments to clarify these.

    I wrote ‘largely’ because Murphy’s position is “Tax is actually the Government’s money that we sometimes hold on its behalf.” (p46) This is the opposite extreme from some politicians who talk about ‘taxpayer’s money’. My cavil with Murphy here is that if tax is the Government’s money, there is no overriding requirement that it be spent wisely. It also goes against the good Liberal principle that power flows from the people; we are citizens not subjects.

    Basic Income is a subject that is rapidly rising up the political agenda and it is one where Murphy has his own ideas about income levels. In one sense the majority of us receive a Basic Income already, but we call it the income tax personal allowance. Anyone earning over £11,000 (and less than £100,000) will receive £2200. For those in employment and below State Pension age there is also the National Insurance Primary threshold of £155 per week (£8060 per year), which is equivalent to receiving £967. The proponents of Basic Income advocate replacing these with Basic Income.

    (continued …)

  • Laurence Cox 24th Feb '17 - 5:08pm

    There are as many different proposals for Basic Income as proposers, but I will concentrate on three and just consider payments to a single working-age adult.

    Malcolm Torry’s work at LSE for the Citizen’s Income Trust proposes a citizen’s income of £60/week:
    http://citizensincome.org/research-analysis/an-evaluation-of-a-strictly-revenue-neutral-citizens-income-scheme/

    To make this revenue neutral, he has to raise all income tax rates by 3p in the £ and remove the UEL on NI. The former would raise an extra £16.5bn according to IFS. Removing the UEL would raise £26bn from higher earners. As the Lib Dems have advocated 1p on income tax for education, I think a 3p increase could potentially be sold to voters if the benefits are apparent.

    The Green Party of England and Wales propose a citizen’s income of £80/week (just above the JSA rate):
    https://policy.greenparty.org.uk/assets/files/Policy%20files/Basic%20Income%20Consultation%20Paper.pdf

    It is not straightforward to compare this proposal with Torry’s, but taxation is at least £41bn higher through the partial removal of income tax and NI relief on pension contributions and anyone earning over £32k will be paying tax at a marginal rate of 52% (for Torry it is 55% at over £42k).

    Murphy’s proposal (with Howard Reed) is for a £192/week basic income. It goes without saying that to pay for this he has to increase taxation massively with a 25p starting rate and a 50p basic rate of tax plus higher rates (this is an increase from the policy paper with Reed). He is coy about the income level at which the basic rate kicks in, but as he needs to raise more than twice the existing total from income tax and NI combined it will probably have to start below the median income.

    http://classonline.org.uk/docs/2013_Policy_Paper_-_Richard_Murphy__Howard_Reed_(Social_State_-_Idleness.pdf

  • Richard Schofield 15th Jun '17 - 4:20pm

    Really interesting Laurence. On balance would you favour introducing BI at say the Tory or Green Party levels? Some of the benefits propounded include flattening out cash flow for those which uneven work patterns, breaks for training, caters etc, do you see these benefits as real and achievable? Many thanks, Richard

  • Laurence Cox 27th Jun '17 - 4:50pm

    @Richard Schofield

    I think that a UBI policy needs proper ‘selling’, which would include explaining to the voters that almost all of them already get a BI in the form of the Income Tax personal allowance and the LEL on NI contributions, so UBI would give an immediate benefit to those on low (or zero) income, while the majority who are paying standard rate income tax would be not worse off than they were before.

    The removal of the UEL on NI contributions would make the tax system more progressive, which is desirable, and as long as we limit the maximum tax rate that anyone can pay to less than 60p in the £, we will probably not see a response like that to Hollande’s tax proposals. After all, Margaret Thatcher had a 60p top rate of income tax between 1979 and 1988 (reduced from 83p in 1979 and reduced to 40p in 1988) and this was a time when Government revenues were buoyant thanks to North Seal oil.

    I would be fairly comfortable with UBI at the Citizen’s Income Trust level (Torry), although it doesn’t eliminate the need for as many benefit payments as the Green Party’s proposals do. I don’t think that I could support UBI at levels much above the latter though.

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