London housing stock: a modest tax suggestion

“London: the City that Ate Itself” screamed the Guardian this morning before regurgitating, semi-digested, some familiar arguments about “Asians” buying investment properties in London to leave empty as “safety-deposit boxes in the sky”.

All of us who love London will care enormously about the pressure on housing stock that leaches colour from our city. But it’s important to diagnose the disease before we prescribe its cure.

Long term vacant properties (empty for six months or longer) in London have declined from 42,600 in 2004 to 20,795 in 2014 (see Table 615). Expressed as a percentage that decline is sharper still. London’s total housing stock in 2004 was 3.158m and in 2014 3.428m (Table 125).

Looked at in this light, the modesty of Government’s response to ‘the problem of empty properties’ is hardly surprising. Government introduced the Council Tax: Empty Homes Premium which (as of 1 April 2013) permitted Local Authorities to charge a Council Tax premium of up to an additional 50% on properties which have been unoccupied and unfurnished for more than two years (and with a period of occupation of six weeks or more resetting the two year clock). And the IPPR has pointed out that the premium is applied in only 1 in 4 properties included in the above ‘long term vacant’ figures.

However, data from the 2011 Census suggests a rather different problem. The figure for “household spaces” in London which are either unoccupied or used as second homes is 121,100. Expressed as a percentage this ranges from 0.5% in Waltham Forest to as high as 28.6% in Knightsbridge and Belgravia. Nationally, this figure rose  21% between 2001 to 2011.

This is not the place for a description of all the challenges (and opportunities) that second-home ownership creates for policy-makers. These will, of course, differ between markets. But demand for housing in London is substantial; supply is constrained; and if competition between buyers takes place on a playing field defined only by the ability to pay the initial asking price there will be inevitable consequences for that which we love about London.

Not so long ago Councils routinely offered discounts to second home owners. But the Empty Homes Premium jettisoned the link between use of local infrastructure and liability to pay local property taxes. Is it time to ask whether we should go further? Might we give local authorities further powers to reshape – through the imposition of Council Tax premiums – the competition for housing stock between those who choose to keep a second home in London and those on whom the life of the city depends?

Tax in a Cold Fiscal Climate

The following is my contribution to last night’s ICAEW Wyman Symposium.

I am a Queen’s Counsel. You would, therefore, be surprised were I to begin otherwise than with some flamboyant – and on analysis rather tenuous – display of my qualities as Renaissance Man. And not merely surprised. You would leave this evening with that most acute of disappointments: the disappointment of an unmet expectation.

Fear you not.

I take my theme tonight from Orwell’s ‘Keep the Aspidistra Flying’. “There are,” he wrote:

“so many pairs of lovers in London with ‘nowhere to go’: only the streets and the parks, where there is no privacy and it is always cold. It is not easy to make love in a cold climate when you have no money.”

That in a sense is the background against which we all speak before you today: how HMRC should collect tax in a cold fiscal climate.

Some statistics.

In 2005 HMRC had 96,000 FTE staff. By July of last year this had fallen below 60,000.

In 2005-06 the outturn sum spent on HMRC Administration was £3.7bn. In the Annual Report and Accounts for 2013-14 it was expected that £3.1bn would be spent. The cut in real terms will have been larger still. On 4 June 2015 the Chancellor announced a further £80m cut – with more in store.

As a profession we might – indeed we do – complain about this. I could join in that chorus. But the ICAEW has not invited me here to make political points. Nancy Mitford took that line ‘love in a cold climate’ as the title for a novel. In that novel she wrote:

“The worst of being a Communist is the parties you may go to are – well – awfully funny and touching but not very gay… Left-wing people are always sad because they mind dreadfully about their causes, and the causes are always going so badly.”

Let me take her message to heart. I will not ruin the esprit of the evening by minding dreadfully about the cause of better resourcing for HMRC. And let me urge you, too, to eschew that course – at least for the next five minutes. Let me invite you, instead, to consider how HMRC should exercise its powers of care and management in a cold fiscal climate.

You have heard vigorous complaint of legislative measures adopted by successive Governments to tackle avoidance DOTAS, the GAAR, APNs, FNs, POTAS and so on. Let me give you some data. Direct Tax DOTAS disclosures fell from 503 in the first financial year of DOTAS to fewer than 10 in the six months ending September 2014. VAT disclosures fell from 680 to fewer than 5 in the same period.

In a cold fiscal climate these legislative measures have helped stop (disclosable) tax avoidance. “Helped,” because the courts, too, have put their shoulders to the wheel. As I rather shyly put it elsewhere, judges hearing avoidance cases in recent times have “occasionally articulated their instinct to fairness against the grain of the legislation.”

That decline in DOTAS disclosures largely pre-dated the changes in the Finance Act 2014 that so fundamentally altered the economics of tax planning going forward. But those Finance Act measures enabled the collection of a projected £7bn of tax avoidance fruits.

If it is to be said that we might have tackled tax avoidance – and enabled the collection of these enormous sums of money – without those measures and with lower levels of resource then I’d like to hear ‘how’. Because the public, to whom politicians are accountable, have demanded action, and the Coalition Government, on avoidance at least, delivered substantial advances. How else might they have been delivered? Sensible public accountability is much of what a Government exists to provide.

I have touched on avoidance but the challenge going forward will lie in tackling evasion. If you add together in the Tax Gap figures those for criminality, evasion and the shadow economy you get north of £15bn. And the Coalition Government announced shortly before the election that it would consult on and introduce a number of measures to close that gap.

Those measures will include, in particular, a strict liability offence for offshore tax evasion. We have yet to see the detail of that offence but (subject to two provisos) it is something I think we should support. I would like to see a de minimis threshold and a defence of taking advice from an appropriately qualified advisor.

Experiences such as the failed Harry Redknapp prosecution have left HMRC scarred – and institutionally disinclined to prosecute complex tax evasion. It is clearly not in the public interest that there should be effective impunity for well-resourced defendants.

There has been a lot of debate around whether HMRC should target a more vigorous criminal prosecutions policy. HMRC’s job, it is said, is to maximise yield and not to bring prosecutions.

I regard, I have to say, that argument as wrong-headed for a number of reasons.

The argument that chasing criminal prosecutions jeopardises yield draws on the fact that the threat of criminal prosecution will dissuade today’s evaders from coming forward. There is something to that. But what it ignores is that delivering immunity from prosecution to today’s evaders sends a counter-productive signal to today’s compliant taxpayers. “Why should I pay,” they may well ask, “when my neighbour who doesn’t pay suffers no sanction.” The argument for generous amnesties seeks to solve today’s problem – at the price of creating a new one for tomorrow. It just kicks the can down the road.

It is also misleading to say it is HMRC’s job to maximise yield. HMRC’s job is to provide careful stewardship of the tax system. There is no legal authority for the proposition that HMRC would be acting inappropriately if it chose to prioritise criminal prosecutions to encourage future compliance. And – and here I do draw myself up to my full Silken height – there is no conceivable world in which a Judge might criticise HMRC for taking that step.

Finally, of course, there is room for guarded optimism that the world is changing to improve HMRC’s sightlines between tax evaders and their undeclared income. The Common Reporting Standard will further undermine the argument that the UK has no choice but to offer sweetheart deals to tax evaders otherwise we’d never get any of their unpaid taxes. That argument has always struck me as confused: if we really have no prospect of catching the evaders then what could an amnesty deliver? Why would they volunteer?

So I say a combination of better sightlines and meaningful sanctions – a strict liability offence – may restore dignity to civil servants given the difficult job of defending flawed policy choices made by their predecessors. That combination will provide an impetus to disclose.

A few short observations to finish.

First, advocates are inclined to focus on high legal principles. We like to deal in absolutes. But let me tell you a secret. Our sources of constitutional law are alive. Our Judges use them to help mediate between the competing demands of the contemporary body politic and that which we say we hold sacred. But Judges will always interrogate for signs of common sense an advocate’s appeals to that which she says is sacred. And when you make up your minds about what you’ve heard tonight so should you.

Second, I sound a note to judges. Collecting tax in a cold fiscal climate requires an expansion of HMRC powers – that’s been my theme for the evening. But as more executive power flows to HMRC the demands on Tax Judges to moderate that power grow too. Personally, I’d like a strong sense of that from the specialist judiciary.

Third, resources. I promised I wasn’t going to spoil the party by “minding dreadfully about my causes” but there are problems that legislation can’t solve. How will we legislate to stop tobacco smuggling, which costs £1.6bn per annum? The Conservatives promised to bring in a further £5bn from tax avoidance and evasion. Few in this room would advise any client of yours who had ambitious revenue targets to begin by cutting the sales force.

Finally, HMRC. It is critical that the Department maintain or recover something that many people in this room will think has been lost. We will all readily be able to conjure examples of HMRC taking points that it shouldn’t. This stems, in my opinion, from an incipient culture taking hold that HMRC’s job is indiscriminately to maximise revenues. That is fundamentally to misapprehend its job. Whenever HMRC issues an Extra Statutory Concession it recognises that there is some equity in tax. Reigning back that culture is a matter of departmental leadership. I do hope we will now see that leadership.

Age related biases in the tax system

The observation “No good deed goes unpunished” is usually credited to Oscar Wilde. But he took his inspiration from Aeschylus and Prometheus Unbound. Back in 2012 the Chancellor defied them both:


Budget forecasts revealed that this “simplification” of the tax system stood to raise £3.3bn. (Those few who were, sober, at the CIOT dinner last week will remember the warning to beware Chancellors bearing tax simplification gifts). But, quietly, this tax year the general personal allowance caught up with the age related personal allowance for over 65s (£10,500). Next year, assuming the Conservatives press ahead with their manifesto pledge to raise personal allowances to £12,500 over the life of the Parliament, it will catch up with that for over 75s (£10,660). And that bit of the income tax code that we call “income tax” will discriminate less against the young on the grounds of their age. Less, because we will still have the “married couple’s allowance” – worth between £322 and £835 a year – and one or two other quirks.

But that bit of the income tax code that we call National Insurance Contributions will continue to discriminate. And profoundly. Once you’re over the state pension age, your employer no longer deducts NICs from your earnings. Compare the rate of tax on earned income paid by an employee over state pension age with that paid by a worker under that age (in parentheses) in the present tax year:

0-£8,060 0 (0)

£8,060-£10,600 0% (12%)

£10,600-£42,380 20% (32%)

£42,380-£150,000 40% (42%)

£150,000+ 45% (47%) [1]

So someone above state pension age earning £50,000 per annum would take home £40,596 whereas someone below state pension age would take home £36,325 per annum.

Can this difference be justified?

Certainly not on the ground that National Insurance Contributions are the means by which you pay for your state pension so that once you’ve paid for it you can stop contributing. True it is that to receive the full basic state pension you have to pay NICs for 30 years. But NICs don’t fund the state pension; paying them for more than 30 years doesn’t increase your entitlement; and nor does paying more of them during those 30 years. Moreover, the employed can pay, retrospectively, for missed years for £14.10 a week – and the self-employed for £2.80 a week.

If logic does not dictate that you stop once you’ve qualified, why should it dictate that you stop once you hit state pension age?

It can’t be justified, either, on the grounds that it is necessary to equalise post-tax incomes between generations.

As the chart below reveals (drawn from this data), different levels of taxation merely exacerbate the income advantage enjoyed by the old over the young.


Moreover growth in pensioners’ incomes has far outstripped that of those of the rest of the population. According to the ONS:


Other potential justifications? I am fresh out, I am afraid.

Following the Chancellor’s 2012 announcement there was a little pecking at his liver. Ros Altmann, then Director General of Saga but now Baroness Altmann of Tottenham and Pensions Minister, described freezing age-related pensions announcements as an ‘outrageous assault on decent middle-class pensioners’. But, as this chart from Liam Byrne via House of Commons Library/IPSOS MORI shows, the Government escaped meaningful punishment.CaptureA further good deed the Chancellor might do on 8 July would be to abolish the NICs exemption for those above the state pension age. Or he might – as with the married couples allowance – restrict future entitlement to it to those presently entitled to it: if you don’t get it now, you won’t get it in the future.

That would be an undoubted good deed. And, like the Granny Tax, it’s early enough in the electoral cycle for it to go unpunished.

[I have edited this piece to remove a speculation as to the potential cost of such a measure].

My address to the Chartered Institute of Tax

Can I begin by sympathising with the organisers of this evening’s dinner?

They had high hopes of the after dinner speech being delivered by a senior member of the Government. Someone who could speak frankly and with authority about the pressing tax issues of the day. Shortly in advance of the first budget of a new Government. They had those hopes and – if it consoles them – I had those hopes too. I know it’s heresy to blame the electorate – but it is their votes (a mere 2 million of them) that stood between you and a much more interesting after dinner speech.

But the organisers must muddle on. And so must I.

The hysteria around tax towards the end of the election campaign will be fresh in all of our minds. In a rather poor Channel 4 story, the sins of his father were visited upon David Cameron. As, indeed, the sins of her forebears were visited on Margaret Hodge. And Ed Miliband. ‘What is to be done?’ was the question I heard asked time and again by thoughtful professionals – like you. And my answer was invariably that which Jack Nicholson gave at the end of his best film: “Forget it, Jake. It’s Chinatown.”

It was Chinatown then. But is it Chinatown now?

A number of things have changed. Margaret Hodge has gone, for one. More meaningfully, the election campaign is over. And those rather silly stories do seem… rather silly. I was asked a week or so ago to comment on a tax avoidance story by a leading Conservative politician – one of the really big names – and by a leading broadcaster too but I said I didn’t want to be involved.

So things have calmed down. But I don’t think they will return to where they once were. It’s as well to remember that “The more things change the more they remain the same.” That line is often attributed to the 19th French journalist Alphonse Karr. But modern audiences will credit the late 20th century librettist Jon Bon Jovi. But those who fritter away their one and only life rowing with strangers on Twitter – where’s Stephen Herring? Strangers and friends – will know that tax continues to form a central thread in a continuing political narrative around inequality.

That narrative isn’t going away. And so we should expect continuing media interest in our field. Not at the feverish pitch we’ve seen recently. But not absent either.

So how do we, as a profession, participate in the debate? That’s what I want to talk about this evening.

There are a lot of different debates.

There’s a debate about political involvement in our tax system. “Those bloody politicians,” you will hear said, “they’re ignorant and they make bad law. We need to help them get better.” You may hear that said. Some of you will even have said it. And there’s a debate about us as a profession – what moral component is there to our actions in offering tax advice? And should regulatory oversight of our profession increase? There’s a debate about whether there’s any place for morality in tax.

How do we participate in that debate? Let’s start by looking at the first one – about tax and politics.

Let me take an example. Last week the IFS and CIOT ran a joint event to try and identify some tax policy priorities for the new Government. One of the issues – a perennial – that came up was about merging National Insurance Contributions and income tax. The proponent (this time) was Gavin Kelly, he’s the Chief Executive of the Resolution Foundation. If you don’t know it, the Resolution Foundation is a hugely impressive charity that examines the evidence around, in particular, in-work poverty.

Gavin Kelly joined representatives of the Taxpayers Alliance, the Institute of Fiscal Studies, the (Thatcherite) Centre for Policy Studies, PWC, the Centre Forum (a liberal think tank), Judith Freedman, UKIP – I could go on – in making that call. That’s a pretty broad church. And who here thinks it would be a good idea? They are after all both income taxes.

It would mean that (at least) five significant curiosities would be brought to light.

  • It would expose a not terribly progressive tax system: once you include primary and secondary NICs, income tax starts (for the employed) at over 40% on income above £10,600. And it rises to more than 53% – even ignoring the 100-120k anomaly.
  • It would expose the bias in favour of unearned income (which doesn’t suffer NICs).
  • It would expose differing rates of tax for the employed and self-employed: sometimes differing by more than 11%.
  • It would reveal that raising the income tax personal allowance doesn’t actually help the poorest.
  • And it would demonstrate that we pay really quite high rates of income tax.

How would Government address the fall-out from each of these curiosities? Would it live with a single income tax that evidenced them? If not, how would it alleviate them? What would the costs be? Let’s just look at those curiosities in a little more detail.

  • A not terribly progressive tax system? Would the Government reduce the basic rate of tax? (It’s difficult to see it pushing up the higher rate or the additional rate.) What would be the cost of this reduction? Might it be a spur for adopting a flat tax?
  • A bias in favour of unearned income. How would living with this bias play with an electorate that already tagged the Conservatives – unfairly or fairly – as being the party of the rich? Could the Government increase income tax on unearned income without sledge-hammering the five year tax lock? If it could, would this play in the City: how would it be received by the very wealthy who already pay a huge proportion of our aggregate income tax take? Would it drive them to leave the country?
  • What about differing rates of tax for the employed and self-employed? This is an enormously vexed question. There are those who say the difference is not justified – and that it simply leads to people gaming the system by entering into contracts of self-employment in circumstances that look more naturally like employment. And sometimes they are right to say so. There are others who say we need to reward risk taking. And there’s a very compelling school of thought that, but for the flexibility of the UK labour market, the country would not have enjoyed the huge decline in unemployment that we have seen. What would requiring all of those individuals to be treated and taxed as employees do for the labour market? This is a huge question, which Government would need to grapple with before it could contemplate merging the two income taxes.
  • What about the effects of raising the personal allowance? The Government has promised to raise the personal allowance to £12,500 by the end of this Parliament. But tax at a rate of 20% would still be paid on the employment income of those earning around £8,000. This Government wouldn’t be the first to adopt the politically attractive route of cutting the headline rate and recouping the cost of those cuts in the detail. And it won’t be the last. But raising the NICs floor so it matches the income tax floor would be another hugely expensive commitment. Will Government tackle it? It’s not impossible to imagine it might – but certainly not in order to deliver the technical win of unifying the two taxes.
  • And, finally, the very high rates of income tax that we pay. People might be shocked to hear that employment income above £10,600 bears an effective tax rate of over 40%. One can see that shock as being enormously politically helpful to a party that believes in a smaller state. So there is an argument in favour of merging the two taxes. It would absolutely be a helpful stepping stone on that path. But, gosh, this Government has some rather uncomfortable shoes to don before it takes that first step.

So. Look at the world through Government’s eyes. All things being equal, it would undoubtedly prefer to simplify the tax system. No serious doubt about that. But unless we face up to these anomalies. We’re asking it to invest rather a lot of political capital in a tidying up exercise. And that’s even before we look at what a merger would mean for pensioners.

“Ah!” you may say, “But politicians do tidy up the tax system.” But let’s look at the evidence.

Take, by way of example, the Autumn Statement changes to the slab system for SDLT. They were sold to the press as “reforms that aim to address the distortions of the old system” (that’s the Financial Times). Or a “scrapping of the much hated ‘slab’ system in which stamp duty bills rocketed as soon as the price hit a new threshold” (the Daily Mail).

But, of course, if they were really about removing the slab system, why were they structured in such a way that they cost £800m per annum? There’s no reason why reform of the the slab system could not have been accomplished in a revenue neutral manner. £800m is a pretty chunky sum – 2/3rds of what Labour claimed the Mansion Tax would raise. So there were obviously some other policy objectives that were being met at the same time. Policy objectives that it might have been expedient to hide behind a story about merely rationalising a bonkers tax.

When we look at the pure tidying up exercises have been done over the last few years – we have the Tax Law Rewrite project; we have the work of the OTS; but (with great respect to the extremely talented people engaged in each of those projects) they are real tidying up exercises which haven’t really faced these huge political challenges.

So the more interesting question then becomes, how do we as a profession work to achieve that change? If we want this change, how do we de-risk it for Government? Because that’s what has to happen to achieve the technical change that we (as a purely politically neutral profession, of course) want.

And that is where we can come in. Because, so long as the public doesn’t know of these anomalies a merger of the two income taxes carries political risk. So I see a role for us in pointing out these consequences – explaining them to the public through the media. Working to improve transparency.  I should also add that any discussion about what tax changes Government should make that doesn’t condescend to look at the political consequences of making that change runs the risk of being a wasted discussion.

Let me turn to a further debate in the media. About the moral content of our actions as a profession.

Now, we’ve all seen advice about the prospects of some piece of tax planning working. With the benefit of hind-sight, some of the advice we’ve seen might look a little optimistic. Indeed, with the benefit of hindsight, some of the advice we’ve given might seem a little optimistic. But it’s a small group of advisers only who haven’t been interested in the quality of that advice – and who have given unjustifiably positive advice for money. Vanishingly small if you look at the tax profession as a whole. So let’s leave them aside.

What about the work that the rest of us do? Do we have a role to act as moral overseer to our clients? I find that a rather difficult proposition. Here’s some things I can readily accept – and let me make explicit this is my personal view. You may well have – and you are clearly entitled to have – a different view.

We have a duty to help our clients transact at the point on the risk spectrum that works for them. So if an idea works by delivering a result that the draftsman can’t have intended I think we have to tell our client that the transaction is counter-purposive. If a transaction achieves a result that we think the draftsman intended but it achieves this through taking steps that serve no commercial purpose, I think we have to tell our clients that the transaction is artificial.

There are a number of reasons why I think we have to do this. One is that these features will have an impact on the propensity of a court or tribunal to accept that the planning delivers the desired outcome. In my experience, if a transaction has these features it is less likely to work. Another is that I think we have to help our clients make an informed decision: informed with regard to its reputational risk for them, with regard to its relationship with HMRC, its impact on their senior staff, its potential to impact on their pre-tax profitability. And so on.

But I don’t find myself able to go further and say it’s morally wrong of our profession to advise a client who wants to engage in an anti-purposive or artificial transaction, a client who’s properly informed. Just like it’s not morally wrong for a journalist to write a silly story about tax avoidance because that’s what his or her editor has asked for. The moral agent is the client or the editor – it’s his or her moral call.

Nevertheless, it is the profession that gets tarred. So here’s what we do:

  • we don’t deny there’s tax avoidance. If we do then we are taking on the moral taint of our clients. It’s commercially tempting – but it brings the profession into disrepute.
  • we make sure our professional conduct rules are fit for purpose. This is what we’re being encouraged to do by the Government – reasonably so, I think – and I think there’s more to be done here. I’ll come on to talk about what this looks like. If we don’t, we risk having them imposed on us from above.
  • we listen and engage with public concern rather than just badging the public as ignorant. I’ve never been persuaded of anything by being told I’m ignorant. Even if I am. Perhaps especially if I am.

A couple of asides: first, I do understand that some (possibly many) of you won’t accept there’s any morality in tax. In other words that there’s a perfect alignment between tax law and morality: the fact that something is legal makes it moral. You will appreciate I don’t agree. But perhaps more importantly, I don’t think it’s a winnable argument with the public. It’s the equivalent of shouting at the telly – it may make you feel better but you should proceed from the premise you will accomplish no more than short term relief.

Second, I accept that between the plainly anti-purposive (or artificial) and the plainly pro-purposive there is a huge spectrum. That raises an additional layer of complexity that I haven’t addressed.

I just want to finish with some remarks about professional regulatory regimes.

Shortly before the election the Government said this:

HMRC “is asking the regulatory bodies who police professional standards to take on a greater lead and responsibility in setting and enforcing clear professional standards around the facilitation and promotion of avoidance.”

The response from the profession has been mixed.

The ICAEW responded:

“ICAEW already has a Professional Code of Conduct in relation to tax advice, which is revisited and updated on a regular basis. We are keen to work with Government to ensure that the code continues to be fit for purpose and retains public and political confidence.”

And reading between the lines that means: we’re not quite sure what more you want of us. And it might well be that, reading between the lines of the Government statement, they’re not quite sure either.

The CIOT and ATT issued a joint statement saying much the same – but over slightly more paragraphs. I haven’t been able to find any response from the ACCA, the BSB or the SRA.

Roll back the clock a little. With the help of the profession I drafted some Badges of Tax Risk: a series of questions I envisaged clients might ask of their advisers to satisfy themselves that they understood the advice they were getting. It is a very common complaint of individual taxpayers who engage in transactions that don’t work that they didn’t understand the advice they were getting. And sometimes that complaint is justified.

What then happened was that an influential member of one of the professional bodies suggested that it might become a regulatory requirement for members to go through those badges – or a variant on them – with clients before offering tax advice. That was all in the Autumn of last year. I’m not sure what then happened – but it might be an idea worth revisiting.

The reason – a reason – I bring that up in this context is that it then creates a narrative of what our profession does that we can take to the public. Skeletally, the narrative looks like this:

  • the tax system is complex. That complexity sometimes creates opportunities for taxpayers to transact in different ways which involve them paying larger or smaller amounts of tax;
  • it is for taxpayers to choose – and not for us to tell them – how much they want to pursue lower tax bills;
  • it is our job to give our clients clear advice about the risks of pursuing lower tax transactions – and we are professionally obliged to do so;
  • but ultimately it is for them to decide how they want to transact bearing in mind those risks.

Thank you.

Should the tax burden fall exclusively on the wealthy?

In today’s Financial Times, Janan Ganesh contends that for a political party to argue that a broad range of people should pay a little more tax is “tantamount to self-immolation”. More provocatively still, he asserts that “this argument was what it meant to be on the left” and that by “conceding that taxes are a menace that should only sting a few, Labour has become a giant intellectual compliment to the Conservative party.”

He’s wrong to give exclusive credit to the left for the notion that everyone should make a contribution to the common good. Here’s Michael Heseltine in 1990:


Heseltine was talking, of course, about the Community Charge: aka the Poll Tax.

The logical underpinning for the Thatcher Government’s position was identified in a statement made to both Houses of Parliament:


The parallel between Local Government accountability then and Central Government accountability now is not perfect. But it does have in common the attractive notion that voters should have a direct stake, through the tax system, in the spending decisions Government makes.

This notion is now (modern) history. The rise in the personal allowance to date has reduced to 56% the number of adults who pay income tax. And that percentage will decline further as the personal allowance continues to rise over the life of this Parliament.

Abstract notions of accountability aside, this narrowing of the tax base carries a raft of undesirable consequences. It creates an environment in which the highest earners, paying as they do the piper, hold unhealthy sway over Government policy. It makes tax revenues highly contingent on the performance of the sectors in which those earners work. It removes from non-tax payers any direct stake in Government’s spending decisions. And, skewed as the tax burden is to productive strivers rather than the wealthy, it fosters discontent amongst many high earners.

These consequences are not antithetical to the values of the Labour Party: they are antithetical to sensible Government.

But what about Janan’s first proposition. Is this damage politically irreversible?

It is tempting to reach, again, for the lessons of the Community Charge. It was said, after all, to be a rigid adherence to the idea that those who use local services should make a contribution to their cost that led to Thatcher’s downfall. As David Mellor is reported to have put the matter: “How could a leader who was wise make 13 million people pay a tax they had never paid before? It just showed that she was no longer thinking in a rational way.”

There are obvious political challenges in the way of any party that would seek to reverse the narrowing of the income tax base. But lessons are not only to be found in history books: a tax on income which is (largely) collected at source has a materially different character to the poll tax. And what is certainly true is that, alongside the risks, there are potential rewards, economic and political, for a party prepared to wrestle with this conundrum.