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.