Tag Archives: taxation

We need to focus on how we handle issues of taxation.  Opinion polls now show, for the first time in decades, that more voters favour raising taxes than cutting them.  That does not mean, of course, that such a majority is in favour of themselves paying more tax; there’s a natural tendency to support increases that fall on others, above all on the richest.  

Even before the COVID-19 pandemic struck, it was evident that the UK’s tax base was too low.  An ageing population, low levels of public and private investment, salaries in the public sector kept lower than in the private, local government, schools, hospitals, prisons and police all strapped for funds, all indicated the need for higher public spending.    The massive public spending which the pandemic is requiring – and will continue to require for months to come – adds to the pressure for an overall increase in taxation.

This is an existential issue for the libertarian right, strongly entrenched in the Conservative Party and its associated think tanks.  The mantra of the Taxpayers Alliance, the Institute of Economic Affairs (IEA), and others is that it’s impossible in the UK to raise more than 40% of GDP in tax, at most, and that for the economy to flourish public spending should be reduced to around 35%.   Their aim, of course, is to curb public spending by reducing public revenue.  Rishi Sunak has just promised to bring ‘the overwhelming might of the British state’ to bear on the pandemic and its economic legacy, in his speech to the virtual Conservative conference.  That’s anathema to his party’s right-wing.

The Institute of Economic Affairs has just published a new briefing paper which addresses the COVID-19 debt burden, the UK’s problem of low productivity, and recommends – deregulation and tax cuts, rather than increased investment in education and training for our workforce and in public infrastructure.  I thought the Laffer Curve had been discredited long ago; but the IEA depends on the illusion that cutting taxes increases growth to resolve the contradiction between cutting revenue, promising a balanced budget and raising public spending.

So what should we be saying in this right-wing dominated debate?  Starmer’s Labour is likely to be as cautious about sticking its neck out on this as on Brexit and other issues. Pledging an extra penny on income tax signals our willingness to raise revenue to underwrite higher public spending; behind that our economic team can prepare detailed proposals on other taxes, allowances and charges to support our next manifesto.  Green taxes, capital taxes (including on houses) must also be part of the mix.  If we were still in the EU, we would be coordinating our approach to the high-tech tax-avoiding companies, as well.

The IEA argument that a higher level of tax is unsustainable rests on their claim that tax avoidance blocks further revenue.  So we should go for the City of London’s tax avoidance industry, and call for the government to ‘take back control’ of the offshore network of UK dependencies and territories which facilitates its operation.  Germany and the Netherlands support successful mixed economies with levels of public revenue and expenditure several percentage points higher than the UK; so also does Canada, among English-speaking countries.  Many of the Conservative Party’s biggest donors are non-doms or offshore billionaires: we should highlight the close links between leading Conservatives and these major tax avoiders.

The developing consensus that the NHS needs more money, and that there is nowhere else for that to come from except increased taxation, shows that there are some things that voters may well be willing to pay more for in order to get better-quality service.  But we need, also, to recognise how strong the anti-tax lobby in this country is, and how difficult it will be to shift popular perceptions that others should pay more, but we deserve lower taxes ourselves.

Liberal Democrats beat themselves up about their collaboration in the coalition’s austerity programme.  Our mistake was not to mount a stronger argument in 2010 for funding a higher proportion of the adjustment through tax increases rather than cuts.

But we ought to recognise that all three parties have collaborated in the myth that decent public services could be provided without higher and more progressive taxation.

Margaret Thatcher set the tone, financing public services partly through the windfall revenues from North Sea oil – instead of establishing a sovereign wealth fund as the Norwegians did –  and partly through selling off state assets to fund current spending (‘selling off the family silver’, as the elderly Harold Macmillan had remarked).