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Whisper it; tax is good for us all

The horse-trading over tax at Westminster shows that as a political culture we have simply failed to understand what tax is for – or to celebrate it as we should

Can the UK produce a coherent tax policy? I have serious doubts, because I don’t think the UK knows what tax is or what its for any more. The debate (such as it is) is currently focussed on Westminster. Here the Tories want tax on the rich removed while the Lib Dems want a visible hit on the rich and Cameron is in the middle realising he can afford neither to ignore his backbench right-wingers but can’t be seen to be out of touch with public anger.

There are currently two main options, apparently. Keep the top tax rate at 50p or drop it back to 40p and re-band the Council Tax (in England and Wales) to create more bands at the top for the very wealthy (a ‘mansions tax’ in the Lib Dem parlance). But what’s it all about? The Tories just don’t want the rich to ever be responsible for anything. You can take either a spurious efficiency argument or a fallacious economic one if you want to argue against the 50p rate. The efficiency argument is that it doesn’t raise any money ‘cos the rich can avoid it. The economic argument is that it is stifling economic growth and is preventing a supply-side recovery.

The latter of these is easy to dismantle. Supply side economics are basically wrong anyway, but even if there was much credibility, the wealth of individuals is not even part of the ‘supply side’. The theory is make life as easy for businesses as possible and they will create more product, inducing growth. However, the personal wealth of the managing director isn’t an inducement to greater productivity, even in supply-side theory. The argument that ‘the best people will leave’ is all they have, but the evidence for this is non-existent (most of the mobile millionaires that fall into that category are non-doms who don’t pay income tax anyway). So this can be pretty-well discounted as a serious reason to give the rich a few billion quid.

The latter is almost as offensive to the intellect. The reason not to tax the rich is that they will just cheat anyway? OK, crack down on the cheating, don’t let them off the hook as a result. This is a direct parallel to saying that since it is very hard to catch benefit cheats we should remove the rules that define it as ‘cheating’ in the first place. ‘But it only raises £1bn’ is a pretty weak reason to give the billion back to one of the few groups in society not suffering.

The Council Tax is not properly progressive. Simply put, housing capital value becomes an increasingly small proportion of overall wealth the wealthier someone gets. Once you get to the seriously rich, there just aren’t enough bands possible to make them pay their fair share. And it is riddled with anomalies. But this is what the Lib Dems want, not a fair and progressive tax system based on income (or even wealth).

OK, all predictably ‘coalition’. But why does that leave me claiming that a coherent UK tax policy is now nearly impossible? Because no-one involved has any underlying guiding principle about what tax is for. The Tories are incapable of seeing tax as anything other than a hinderance. There is almost no point at which the true Tory would say ‘OK, actually now we don’t have enough tax’. Theirs is a demand-led policy, not a supply-led one. The demand of their people to keep it coming down indefinitely means that the only role of reality is to stop them doing what they want to do. Tory policy is to keep chopping at the base of the tree until there is no base of the tree, but without the tree falling down. This won’t work.

The Lib Dems, meanwhile, think tax is simply a means to pay for public services and to send out some popular messages. So ‘hit the rich’ and be seen to do it. That a more visible hit (mansion tax) is a less effective way to do it doesn’t matter. Its the message, not the efficacy. Again, without an underlying principle it becomes a rag-tag collection of messages measured only by how much they add up to.

The problem goes much wider though. Blair’s government really started the final demise of tax as a philosophical issue (by which I mean guided by a deeper idea) and became simply an administrative issue. Without a labour movement voice to explain that tax is what holds a modern society together, any hope of coherence falls away. In Scotland the SNP has ended up in a position that is bluntly hard to defend with its Council Tax freeze (backed by most of the other parties – an unfortunate consensus). It was entirely credible in 2007 when the freeze was a stop-gap pending reform. But without any momentum towards reform, simply freezing the tax has precisely the same implications of the Tory and Lib Dem strategies, making it a necessary fundraising tactic merged into a popularity contest.

What is simply forgotten nowadays is the ‘social cohesion’ role of tax, what used to be called redistribution. It is not simply there to ‘provide a safety net’ for the very poor – the Victorian model. Nor is it simply a levy to pay for national services – the medieval model. It is about rebalancing the ease with which some can create a separate ‘nation within the nation’ where the experiences of the many and the experiences of the fews are so different that they might as well not be in the same country. It is about some sort of social justice and equality. Making the rich less rich is not vindictive or simply ‘necessary’, it is crucial to a just society. Similarly, making the poor feel like they’re not outside of society by making up in alternative provision what the free market will not give them maintains their place in society.

This role of tax has been either forgotten or intentionally ignored by current political dogma. But without it there is no way to face up to the real social challenges of inequality, poverty and all of the social failures that result. It is also impossible to restrain greed and the abuse of power and everything that goes along with that.

We should celebrate a redistributive tax system as the crowning pinnacle of human social achievement – and I mean that with no hyperbole. To create a system to hold society together in the face of the drive to abuse power is a noble achievement. So why is everyone walking away? Or perhaps more pertinently, why is anyone surprised at the results?

Robin McAlpine