A remedy for the poisoned chalice
Whichever party forms the next government is going to have its work cut out repairing our public services. A timely new book points to the crucial role of tax reform in making this possible.
Five days on from the spring budget, it’s hard to escape the feeling that many politicians are not being entirely honest with the public about the scale of cuts to public services that are coming if we stay on our current trajectory.
Paul Johnson at the Institute of Fiscal Studies summed it up in a tweet on 7 March:
Government and opposition are joining in a conspiracy of silence in not acknowledging the scale of the choices and trade-offs that will face us after the election. They, and we, could be in for a rude awakening when those choices become unavoidable.
Sam Freedman wrote about the issue in a paywalled post on his Comment is Freed substack on budget day:
Jeremy Hunt, highly constrained by his own party, chose to ignore reality, but that doesn’t mean the rest of us have to. He is continuing to pretend that it will be possible, after the election, to hold revenue spending increases to 1% a year for four years and to cut capital spending by almost 10%. This is untrue and he knows it is untrue. Not only does it assume that departments that have already taken the brunt of austerity can take yet another wave of cuts equally as large, but also that the vast array of demand pressures – an aging and more sickly population, the rising threat of Russia, climate change – don’t exist.
Sam points out that, when you take into account spending pledges that have already been made around health, education and defence, this level of revenue spending will require a cumulative reduction over four years of more than 13% to the budgets of departments that have already been “hammered by austerity” - local government, the home office and justice. The consequences for council budgets and services, border control and asylum, and the criminal justice system are unthinkable - not to mention the huge required cuts in capital expenditure that will follow a half-century of underinvestment in transport, defence, science, energy, hospitals and schools.
Labour are already looking around for new revenue-raising ideas - or spending plans to abandon - to ‘balance the books’ after the Conservatives stole two of their planned tax reforms for the spring budget (scrapping non-dom status and extending the energy windfall tax). But Labour are still sticking to their line that they will not consider taxing the wealthy more, even though doing so could save our crumbling public services from complete collapse. And there is plenty of evidence (including our own from last month) that the public would prefer tax rises to tax cuts if it means that public services will benefit as a result.
This seems like a good opportunity to look at a recent book that can help us to explore how the ideas of tax justice can make our tax system both fairer and more effective. The book, What Do We Know and What Should We Do About Tax Justice?, is by Alex Cobham, Chief Executive of the Tax Justice Network.
This short, accessible and wide-ranging book lays out what we know about the scale, history and impacts of tax abuse, avoidance and evasion, including profit-shifting by multinational corporations and the exploitation of offshore tax havens. It examines the people and organisations that enable tax abuse, and the inequalities that it creates. And it looks at the policy solutions, at three levels - global tax transparency, domestic measures, and the international institutional architecture for tax policy.
The book makes three points that are particularly relevant to the ongoing debate in the UK about tax (and spend), and which are too rarely made in public:
Tax is a “powerful tool for creating a fair and just society”, our “social superpower”. Paying tax is a social act, not a burden: “something we do for more complex reasons including to participate in our communities, rather than out of expectation for a direct return”.
As a result, people are much less self-interested in their behaviours and attitudes around tax than some economists have assumed. Fairness is critical: “we are more likely to comply when we think everyone else is participating fairly too… and think government is redistributing our contributions well”. This sense of fairness, and the acceptance of a social contract based on a strong tax system that accompanies it, is damaged when governments tax people on low or average salaries more than those whose high incomes are derived from wealth, or when those same governments introduce expensive and unnecessary loopholes for the wealthy, or fail to provide sufficient resources for tax authorities to investigate tax avoidance by large companies or wealthy individuals.
Tax isn’t just about raising revenue to support public services. It has other important roles to play as well - the other ‘R’s of taxation - redistribution (to help tackle inequalities), repricing (to help tackle social and environmental harms by increasing their costs), and representation (to help citizens hold their governments to account for the money that they spend).
At the moment, the public are justifiably concerned about the state of public services and prioritise tax rises to improve them over tax cuts that will damage them further. But this thermostatic relationship between the state of public services and public attitudes to tax-and-spend is not ideal; far preferable would be the kind of virtuous cycle, supported by an effective social contract, that exists in Denmark, where there is strong public support for high levels of taxation because public services are so good, not because they are falling apart.
What we do have in the UK at the moment, which could help us to escape from our current predicament, is a strong public consensus that the wealthy aren’t paying their fair share, alongside an expert consensus that wealth is under-taxed compared to work. There is also public and expert support for a range of tax reforms that would address this, from the obvious (equalising capital gains tax or investing more in HMRC) to the ambitious (an annual wealth tax).
Many argue that the next government faces an impossible task in raising more money from taxes while making the system fairer. But in fact there are plenty of policy proposals that would achieve both objectives and would be popular with the public. A fairer tax system in the UK is there for the taking.
This comes at the same time as global progress on taxing wealth suddenly seems possible. The Brazilian government has put a global agreement on taxing the rich on the agenda for the G20 for the first time in history. However, the UK has historically acted as a blocker on global tax reform proposals, despite / because of its own role in enabling global tax abuse via its network of tax havens and the City of London.
There is a real opportunity for the next government to take the bull by the horns and usher in a bold set of tax reforms on the domestic front, while playing a progressive role on the global stage. The public, and the public services that they depend on, will thank them for it.
Our next event
Limitarianism: The case against extreme wealth – with Ingrid Robeyns
Thursday 28 March 2024, 1pm to 2pm (UK time), Zoom
We all take notice when the poor become even poorer – when we witness more rough sleepers and longer food bank queues. However, when the rich amass greater wealth, it often goes unnoticed in public, and for most of us, our daily lives remain ostensibly unchanged. In her book Limitarianism: The Case Against Extreme Wealth, philosopher and economist Ingrid Robeyns sheds light on the alarming extent of our wealth problem, which has quietly escalated over the past 50 years. From moral and political perspectives to economic, social, environmental, and psychological dimensions, she argues that extreme wealth is not only unjustifiable but is also detrimental to society as a whole, and proposes a radical solution - placing a hard limit on the wealth that any one person can accumulate.
Join the Policy Institute and the Fairness Foundation for a discussion on 'limitarianism', Robeyns’ concept that challenges our current system by calling for a strict cap on wealth accumulation.
Speakers:
Professor Ingrid Robeyns, Chair in Ethics of Institutions, Utrecht University and author of Limitarianism: The Case Against Extreme Wealth
Luke Hildyard, Director, High Pay Centre and author of Enough: Why It's Time to Abolish the Super-Rich
Graham Hobson, technologist and member of Patriotic Millionaires UK
Will Snell, Chief Executive, the Fairness Foundation