You’re Doing it Wrong: Why the Next Government Should Raise Direct Taxes

Two major  concerns in the UK, despite the promulgation made by the coalition, are not being adequately addressed: Cost of living and poor public services.

Public service delivery, as a whole, in the UK has declined, steadily, in quality for a while now. The NHS and welfare budgets are haemorrhaging money, while, paradoxically, operating on a budget that is not fit for purpose. Yet both are expected to function competently and effectively. To use the NHS as an example, healthcare is subsisting on the bare minimum required simply to keep the operation running at its current capacity. There isn’t the minutest whisper of investment and increased capacity to provide care; rather, MPs are squabbling over how they can merely prevent the service from collapse. It certainly feels like we are experiencing the death throes of free, universal healthcare, especially with austerity on the menu for the next government no matter who forms it in May.

In the face of fatal hits to the public sector, people are constantly enveloped in the carefully rehearsed monologue of “strong growth”, “unemployment falling”, “wages rising”, “two million new private sector jobs”, “deficit halved” when the spectre of the ‘cost of living’ is invoked by Labour. But, while all the glass half full statistics are a powerful broadside to launch against the opposition, it falls on deaf ears for a large proportion of Britons who do not discern the benefits of the “robust recovery” – as the rating agency Standard & Poor’s described the UK economy’s performance and outlook. This reality further ossifies the perception that the Tories’ “long term economic plan”, which has brutally wrought an imbalanced economic upturn, is one that is solely serving the upper echelons of power and society.

As part of a classic manoeuvre to generate political capital before an election, and reverse the idea of the Tories as a party of the rich, for the rich, Chancellor George Osborne announced a rise in the income tax threshold to £11,000: “taking more people out of tax”. This is a remarkable example of wizardry with language that facilitates a reorientation – perhaps manipulation would be more apt – regarding how the public view taxation. The phrase “taking individuals out of tax” implies a deliverance from an unnecessary evil and suggests this policy is of significant benefit to those concerned.. We are deceived into believing that shrinking the number of people who pay into government coffers is a good thing. Taxation has suddenly become immoral.

This has occurred due to an ideological feature innate within the Conservative Party. The Tories advocate low taxation, a small public sector, little intervention and leaving the country to the mercy of ‘self-regulating’ market forces that will lead the UK to growth and prosperity. This worldview has not altered to any worthwhile degree, even in light of the crisis of 2008. It is this degenerative adherence to party politics that blinds Conservative Party MPs to manifest causal path of low taxation leading swiftly to deteriorating public services. This is why public services suffer, often irreparably, when there is a Conservative majority in power. Total war was not declared on our public services thanks, in large part, to tempering influence of the Lib Dems in the coalition Cabinet.

Here is a simple formula to help explain: High employment rate + higher reasonable taxation = Quality public service delivery

Because this Tory-led government has succeeded in further weaponising direct taxation, and expunging the basic essence of the role that taxes perform in the progression of a society, people have forgotten that to receive adequate public services, you have to pay for them. It is no coincidence that the Scandinavian countries, and Switzerland, have far higher rates of tax, and enjoy a quality of public services that is envied throughout the West. While the UK has among the lowest – it falls below the OECD average for tax rates that apply to single people with no children, on an average salary for their country – and our public services show it.

**N.B. Of course other direct taxes – such as Corporate Tax and Capital Gains Tax – are a huge source of revenue and play a massive role in funding public services, but due to the scope of this essay I am choosing to focus on Income Tax which affects us all.**

This perceived immorality of raising income tax is compounded by the false idea, propounded by the coalition, that the best way improve to people’s living standards is through keeping income tax low and raising the income tax threshold. This is not wholly true – and besides, a more sensible and beneficial pursuit would be to, instead, raise the NIC threshold, which benefits both workers and businesses and can stimulate further job growth. While income tax redistributes wealth, and reduces income inequality, those who are in low paid work or unemployed are given little incentive to work more hours or take up paid employment for what is very little net financial gain where a lower income tax and an increase in the threshold is concerned The extra income is subject to income tax anyway but more importantly, is reduced further by the iniquity of savage indirect tax rates (VAT, excise duties on petrol, tobacco, alcohol etc).

Income tax is a mildly progressive system of tax; whereas indirect taxes are regressive in that the proportion of tax paid actually declines as income level increases. they are also less transparent as taxes on commodities can be raised by stealth.  Therefore, as a rule, indirect taxes hit the poorest hardest and increase inequality, because, as a percentage, the lower socioeconomic classes spend more of their money on taxable goods. Not surprisingly, they are the taxes that the Tories traditionally raise (e.g. VAT rise to 20% in 2011) to offset their drops in income tax. If the coalition had been sincere in its efforts to alleviate the squeeze on low income households, it would have reduced the destructive rates of indirect taxes.

By doing so, in conjunction with raising income tax to 22%, and with a rises in Corporate and Capital Gains Tax, it would benefit the UK population – particularly the poorest – in two fundamental ways. First by engendering a more progressive tax regime that better redistributes wealth. And secondly, reducing the need for future cuts while allowing for prudent investment in public services. Of course there are also policy decisions which can also be implemented to assuage the hardship on millions of Britons: the most prominent of which is the ‘Bedroom Tax’. A thorough calamity of an attempt at social engineering, and pandering to right wing demagogy, that has raised – not decreased – the Housing Benefit bill as residents are forced into more expensive private accommodation, since more ‘suitable’ social housing was not available due to successive governments negligence in replenishing the housing stock. Studies show that the housing benefit bill could reach £25bn by 2017 due to this implementation of the policy. Housing benefits already account for nearly 15% of the welfare budget so this is an alarming trend.

These tax measures, mentioned above, are simple and would not adversely affect the growth forecasts from the OBR, and would likely actually increase GDP growth. This is because Britain already benefits from high business confidence, as it continues to achieve the strongest growth among the G7, and the confidence of foreign governments and multilateral institutions (OECD, World Bank Group) in Britain’s “long term economic plan” – which is why austerity is, unfortunately, a prerequisite for whichever government is in power come May. However at least with the changes delineated above Britain will be able to deliver a smoother transition, with fewer cuts and positive, but prudent, investment: a formula which is sure to produce benefits that all 65 million of us will feel.


About johnny3wishbone

University of Bristol alum Follow me on Twitter @DanielAdshead25 A few of my favourite things: International development, human rights, justice, wildlife conservation, primates, politics, literature, music, catharsis, theatre, my fiance, history, environment, current events, writing, reading, running, fundraising, campaigning, activism, travel, Prague, Bristol, Mexican food
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