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.
Waiting for Godot 
It’s also interesting to consider how the taxpayer/Government covenant of “we’ll pay if you spend it in ways we find acceptable” might be skewed as more at the lower end of the income scale become net takers and more at the higher end, payers.
At the moment with Government of all colours raiding the bank of the tax avoiders through various means, the problem has been safely kicked down the road?
Yep. It’s very much issues of that nature that concern me. I touched obliquely upon them here http://www.newstatesman.com/politics/2015/05/what-can-labour-learn-miliband-approach-tax
I suppose one logic conclusion here is to say that unless you are a net contributor to the Treasury, you can’t vote? That’s a scary thought.
The obligation to pay the Community Charge had a similar effect. People came off the electoral register in an attempt to avoid it.
Jolyon
First of all, you will of course be aware that for many on the left of British politics it is an article of faith that UK taxation is not nearly progressive enough. Indeed only today online correspondents on a particular blog were stating as a fact – A FACT – that we suffer under a horribly regressive system of taxation. So you will forgive my very slight amusement at elements of your critique of Janan Ganesh. You will also I am afraid have to forgive me noting that in previous exchanges on raising PAs, many argued that the measure benefited the wrong people, ie. higher earners. And yet here we are suggesting that progressive taxes, gives wealthier people “unhealthy sway over Government policy”, having an involuntary burden imposed on you apparently giving you some form of unfair advantage!
More seriously, with consumption taxes on alcohol, tobacco and lottery tickets as well of course as VAT the tax base does not appear to be narrowing in any way thay need cause any alarm (even if that’s how we wish to see it) I note also that National Insurance thresholds have not risen along with PAS. So the narrowing of the direct tax base is in any case a debatable assertion.
Most of all, however, I am surprised by the inference that direct taxes, Income Tax in particular provides some unique “direct stake in Government spending decisions”. Indirect taxes are no less taxes surely for not being labelled ‘direct’. (In the interest of disclosure, I personally dispute the very notion that a citizen’s stake in Government spending is dependent at all on being taxed).
Finally, the suggestion that a tax on income, being very largely.collected at source “has a materially different character to the Poll Tax”, presumably because withholding taxes are felt less than a tax requiring an active payment, sits incongruously with your post overall. Surely the stake in Government to which you allude is more profoundly taken and understood the more active and conscious the act of making the payment?
I agree that this narrowing of the tax base is unwelcome, although I’m not sure I agree that the highest earners hold sway over government policy because of this….after all if those paying high taxes hold sway, they wouldn’t be paying high taxes.
The electorate holds sway equally at election time by reason of its vote and it will always remain a popular policy to advance robbing Peter to pay Paul – at least with Paul it will be and there are more Pauls than Peters. All parties are essentially saying the same thing – someone else will have to pay more tax, not you. Whether that be by increasing taxes on the wealthy or collecting the ‘right amount of tax’; from Multi-national companies.
I can’t see it as sustainable that fewer and fewer people pay tax. Even putting to one side the problems if those ‘few people’ get fed up and leave, there’s the simple demographic pressure that will build with an aging population. With the possibility of most people looking forward to 20+ years in retirement, who is going to pick up the bill?
Huge changes in thinking are needed but it will need cross-party consensus so that all parties put forward a similar message on that point.
As someone closer to those that need to listen than I am, I wish you good luck, Jolyon, in trying to get your message across.
A good contribution, thank you.
It’s an entirely fair point you make about whether the highest paid can fairly be said to hold sway over policy in the area. I had in mind, of course, the considerable soft power that wealth brings. And one doesn’t have to look at the tax code for too long to see evidence of the exercise of that power: non-doms, carried interest, etc. But that’s not to ignore the basic tension you point out.
From what I can tell from talking to (and reading the Facebook posts of) friends*, people I know at the lower end of the income scale (students, young parents, people with disabilities) seem to be far more exercised politically by changes to benefits – bedroom tax, PIPs, JSA sanctions – than by tax.
It would not be all that much of a caricature to say that the perception is, essentially: normal people interact with the Treasury through benefits; tax is how rich people and big business do it (or fail to).
Many lowly paid people may be relieved of paying income tax (though not national insurance) but does one also need to consider if they are also receiving less of the tax take in the form of benefits?
Clearly someone who works for a low salary and neither pays income tax nor claims benefits is less involved with the administration of government than someone who does one of or both of these, but they will still pay other taxes and can still engage in society.
It seems disingenuous to say that income tax is a necessary condition of engagement – the refusal of some of the left to even countenance welfare cuts suggests that claimants are seen as being engaged on their side.
Usage taxes, whether VAT or more specific ones such as prescription charges, a (small) fee for visiting the doctor or everyone paying something towards their rent may be a better way of getting engagement as it would make people realise that everything has a cost.
The downside for the party increasing usage taxes would of course be that, come the election, those who were made to pay would engage with the opposition.