The debate about cutting taxes misunderstands the public mood - people want investment in public services, not tax cuts
The Times reported over the weekend (paywall) on a YouGov poll that found that 62 per cent of voters think the government should prioritise spending more on public services rather than cutting taxes (findings echoed in a poll by Global Counsel earlier in the month), including a clear majority of Conservative voters.
And yet both of the main political parties are talking about cutting taxes, not spending more on public services. Jeremy Hunt is planning to cut either national insurance or income tax in the budget on 6 March, as reported in the Times article above. Meanwhile, Rachel Reeves said in an interview with the Daily Telegraph last week that she would like, if possible, to implement tax cuts for workers 'across the spectrum', including the highest earners, to ensure that ‘success is celebrated’. So what’s occurring?
Of course, one problem is that both parties, but particularly Labour, are terrified that any proposals for tax rises will be presented in the right-wing media in a way that is not entirely helpful during an election year - think ‘tax bombshell’, ‘dementia tax’ and who knows what as yet unbirthed epithets. There’s no doubt that media ownership is a real barrier to progressive tax reform in the UK.
But another problem is that most politicians misunderstand what most people really think about taxes (and most ordinary people misunderstand this too). This is what Ian Leslie calls pluralistic ignorance - where “everyone in the group is mistaken about what everyone else thinks about an issue”.
As armchair psychologists (or neoclassical economists), we assume that people are motivated mainly by what’s in it for them. And we extend this to public attitudes to tax, assuming that what the average voter wants is a cut in their tax bill, irrespective of the context or the consequences.
There are a couple of large holes in this theory.
First, people’s main concern is about the fairness of the tax system - and this often doesn’t bear much relation to whether any proposed changes will personally benefit or disadvantage them.
There’s plenty of evidence of this principle at play in a general context. An article published last week about neuroscientific research into fairness, selfishness and social norms found that “the willingness to equally share resources with others persists even at the expense of sacrificing personal benefits”.
Of course, people interpret fairness differently, and sometimes in directly opposing ways when it comes to taxes. Ben Ansell makes this point in relation to attitudes to taxing wealth: “For some people it’s not fair to ‘double-tax’ income by taxing savings. For others it’s not fair that some people have enormous fortunes. Fairness might be about individual behaviour (the former) or about the structure of society (the latter).”
When we compare different taxes, those that are most popular with the public are those that are perceived as the most fair. Lucy Barnes and Benjamin Lauderdale found that corporation tax, alcohol and tobacco duties, and higher and additional rates of personal income tax are popular with voters, arguing that “preferences over the composition of taxation are not especially driven by a ‘tax someone other than me’ dynamic. Rather, there is widespread support for the broadest shoulders to bear the heaviest loads – even among those likely to bear the brunt.”
It’s often suggested that the public are in favour of tax rises on the wealthy, but not for everyone else (including themselves). And there’s certainly plenty of evidence that people support the wealthy paying more tax. But recent research from the Patriotic Millionaires finds that 66% of people with $1 million or more in investable assets would support higher taxes on themselves if they were used to invest in public services and stronger national infrastructure. And polling of the general public consistently finds majorities in favour of increasing levels of general taxation to support public services. It’s clear, however, that increasing taxes on wealth, and more effectively plugging loopholes in the system that enable avoidance, are necessary and useful ways to build public support before trying to raise taxes across the board.
For all of these reasons, cutting inheritance tax would be politically risky. Demos found last year that most people instinctively dislike the tax, but support it when asked detailed questions about its design and implementation. Much of the opposition to inheritance tax is driven by misperceptions about who pays it - and when people realise that only 3.7% of estates are liable to it, the political risks of cutting a tax that only affects the richest seem likely to outweigh any potential upsides.
Second, people see public services and the social safety net crumbling, and recognise that to make them better (and avoid them getting even worse), we need to raise the necessary taxes to support them.
The latest British Social Attitudes survey found that support for increasing taxes and spending is increasing to levels near their highs during the 1990s, having fallen significantly during the 2000s. The researchers suggest that a ‘thermostatic’ effect is in play, whereby the public react to spending cuts and poorer public services by increasing their support for tax-and-spend policies (an effect that to date has not been reduced by recent increases in government spending during the pandemic). 55% now want taxes and spending to be increased, with a 25 percentage point gap between Labour and Conservative supporters (69% vs 44%). Fewer than 10% want taxes and spending to be cut.
We can see attitudes changing quite quickly. Ipsos found in July 2022 that 28% would be more likely to vote for a party that wanted to increase spending on public services (even if that meant higher taxes or borrowing), while 36% would prefer a party that argued that public spending was already too high and taxes and government borrowing should not be increased any more; in November 2023 they found that 43% supported increasing taxes to spend more on public services, with 41% opposed, while only 17% supported cutting spending on public services to reduce taxes, with 66% opposed.
We found in March 2023 that a large majority of voters think government should fund a wide-ranging social contract, with 75% (85% of Labour voters, 68% of Conservative voters) supporting the guaranteed provision of a range of services including social care, early years education and care, public transport and housing. We also found in May 2023 that 68% (including 64% of Conservative voters) think government should be doing more to tax people with wealth over £10m, and in November 2023 that 52% (including 44% of Conservative voters) support raising taxes to increase spending on health inequalities.
More in Common found in November 2023 that, although many people support cutting inheritance tax even when told how few estates pay it, they don’t support it enough to pay higher income tax to make up for the lost revenue, and twice as many people would prefer to raise inheritance tax and reduce income tax as the other way around. Demos reported in December 2023 that when asked how best to spend the £7 billion raised by inheritance tax, 76% would opt to keep it and use it to increase funding on public services such as the NHS or reduce borrowing, while only 14% want to abolish it.
If most people realise that taxes need to rise to support public services, it’s not obvious that the same people will automatically agree with the argument that taxes need to be cut in order to deliver economic growth, and thus support public services. Even without the wealth of evidence debunking the central claim of ‘trickle-down economics’ that tax cuts for the wealthiest will boost economic growth, the public are likely to react to politicians who try to make this argument with scepticism.
One final point, on framing. It has often been suggested that the UK aspires to Scandinavian levels of public services with American levels of taxation. This adage needs more airtime, to combat today’s increasingly unchallenged narrative that the UK’s economy is staggering under the weight of a historically high tax burden. As the OBR pointed out in March last year, tax as a proportion of GDP is low in the UK compared to other advanced economies, and other countries have steadily increased their tax levels over time, which the UK has not. And the framing of tax as a burden more broadly is also problematic - and is not in line with public views. Most people think taxes are necessary for a fair and civilised society. Research by the Fabian Society in 2015 found that people “feel a strong sense of solidarity, citizenship and obligation with respect to the payment of taxes”, and are “proud of the UK’s public services, and proud to contribute to them”.
Upcoming events this week
Our partners at the Structural Inequalities Alliance and the Good Business Charter are running a webinar tomorrow at 1pm on Tackling inequality through responsible business practice
We and the Policy Institute are co-hosting the launch of the new book by Liam Byrne MP, ‘The Inequality of Wealth: Why it Matters and How to Fix it’, with Professor Bobby Duffy, Carys Roberts of IPPR, and Anoush Chakelian of the New Statesman, on Wednesday at 6.30pm online (in-person tickets have sold out)
I’ll be speaking at an event run by the Advice Services Alliance and Legal Action Group on Friday entitled Scarcity and Fairness in 2024 UK: What does it mean for Access to Justice?