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Fear and alarm reveals truth of tax

Despite the mantra that tax cuts resolve economic concerns, writes Robin McAlpine, it’s only the rich who ever benefit – Scotsman article from today

When I was young we played on moorland close to our house. If we strayed into the wrong place, a peewit would rise into the air and circle, letting out an agitated screech. This was not because we had stumbled across its nest, it was because we were getting too close to a place where we might possibly stumble across its nest. Its hysteria was preventative.

As a peewit to its nest, so the right-wing of politics to tax. It is of the utmost importance that we are not allowed to stray into the territory of a fact-based debate because it would start to turn the orthodoxies upside down. And so, if anyone even approaches the tax debate in an open-minded way it is essential that they are warned off through a display of the most hysterical sort possible. A Daily Mail front-page shocker about “ordinary people” being “thumped” for example.

I appreciate that this may strike you as a lot of heresy for a Friday morning, but people want better pay and better public services much more than lower taxes. And a higher tax-take makes a more efficient, effective and competitive economy and a much more equal and happy society. Let me explain.

Since 1983 the British Social Attitudes survey has every year asked a very substantial sample of people whether they’d like to raise taxes and invest more in public services, keep taxes and public services the same or reduce taxes and invest less in public services. In those 30 years there has not been a single occasion in which more than 11 per cent of the British public have supported cutting tax.

The fact is that tax is good for the vast majority of us and the more tax is taken the better. If you map rates of tax to economic and social outcomes, the pattern is undeniable. While markets are efficient at allocating resources in commercial areas, when it comes to the range of “social protection” – everything from education and health to infrastructure and policing – collective provision is much more efficient.

Take the following example. In Sweden they do indeed spend about 41 per cent of their income on social protection. But in the US they spend 40 per cent of their income on social protection. It’s just that the collective, tax-funded model used in Sweden is massively more efficient than the everyone-for-themselves commercial model in the US. Swedes and Americans pay the same. The Swedes get everything they pay for, the Americans get ripped off.

Brian Monteith wrote a critique of the Jimmy Reid Foundation’s Common Weal ideas in this paper on Monday and to those of his persuasion I ask a simple question; where does all the “lost” fiscal revenue go? While in Sweden almost every penny spent on social protection goes into creating high-quality jobs, in the US the business model is to create as few jobs as possible and extract as much in corporate profits as you can.

So tax not only creates social wellbeing much more efficiently, it is way more efficient economically. Hoarded money has no impact on the economy; people in good jobs does. It makes everyone wealthier and creates a virtuous cycle with more and more money in the economy.

Doubt this? Look at the statistics again. All the countries with the highest rates of take-home pay have the highest tax rates. This is not in spite of tax, it is because of tax. The real impact of tax is to make all but the very top of society richer – think what society would look like with no tax.

Next you’ll be told that tax makes you uncompetitive internationally. Except even the most market-friendly of competitiveness indicators, such as those produced by the World Trade Organisation or the IMD international business school places high-tax nations such as Sweden, Norway, Germany or Denmark well above the UK. In fact, most of the most competitive countries economically have higher tax rates than the UK and almost all the Nordic nations are in the top ten. Once again, since higher tax favours productive and manufacturing enterprises over low-pay, low-productivity, low-margin businesses, this is exactly what you’d expect to happen.

And so to public finances, because it is here that the story of tax eventually leads. We are told relentlessly that we can no longer afford the public services that the population demands and so tough choices need to be made. And yet the reality is that we have a chronic low-pay economy which destabilises the tax base and leaves the public paying billions of pounds to subsidise in-work poverty.

Only one in five Scots earns between £25,000 and £35,000. Three out of five earn less; half less than £21,000. The Reid Foundation has modelled what would happen to Scotland’s finances if we had a labour market comparable to other economies at our state of development. If we moved even relatively modest numbers of people out of low pay into medium pay and reduced unemployment we could increase the tax take by over 30 per cent without raising tax rates at all.

The anti-tax lobby has been consistently dishonest. It has refused to accept the evidence, it refuses to look at internationally comparable data, it has refused to challenge a low-pay culture, it has refused to model the alternatives. But above all, it goes into every general election promising to protect public services in the full knowledge it is the only chance it has to get elected but with no intention of putting in place a credible tax regime or labour market policy. This lie is 40 years old. It is this lie and not public services that has made the UK the world’s second most indebted advanced economy.

We’ve got it all wrong about tax. We really have.

• Robin McAlpine is director of the Jimmy Reid Foundation