SOMETHING has gone fundamentally wrong with the tax system, yet the response of the political establishment is a deafening silence, writes Gerry Hassan
BRITAIN has been mired in scandal this week: MPs’ proposed pay rises, BBC Executive payouts, and the controversy of G4S and Serco engaging in corporate abuse of power.
Yet through all this, people tell themselves that one of the central characteristics of being a civilised country is progressive taxation and the degree to which we successfully redistribute resources from those who have the most to those who have the least.
This week the Office for National Statistics (ONS) released figures which showed what many have intuitively known – that the UK no longer has a progressive taxation system.
Their figures showed that the top 20 per cent of households paid 35.5 per cent of their income in tax while the bottom 20 per cent paid slightly more, 36.6 per cent. The top 20 per cent paid 24.7 per cent in direct taxes and the bottom 20 per cent, 10.2 per cent; the top 20 per cent, 10.8 per cent in indirect taxes and the bottom 20 per cent, 26.5 per cent. This is a regressive tax system.
This tells us many things. It reveals the impact of the long-term switch from direct to indirect taxation; of the damage of the shift to VAT, and the coalition policy of increasing VAT from 17.5 per cent to 20 per cent. And it nails the deceit that the £10,000 income tax threshold trumpeted by the Lib Dems is helping those on the lowest incomes, when it does the exact opposite.
The wider political reaction to the ONS figures was revealing. This showed a Britain heading towards the flat tax nirvana so beloved of the right. The Taxpayers’ Alliance, despite its incessant campaigning for a flat tax, said nothing; normally it never misses an opportunity to blast what it sees as Britain’s overcomplex, stifling tax system.
Other right-wingers chose to lambast the Daily Mirror, the paper that had put the story on its front page. The right-wing Centre for Policy Studies think-tank declared that, “The Mirror splash on tax rates is just silly”, and went on to claim in a frenzy of daftness that the ONS figures were all wrong, and that if you counted benefits differently, then the lowest 20 per cent were on a tax rate of minus 191 per cent.
Fraser Nelson, editor of The Spectator could only say, “That tiny difference is enough to justify a cover story”, ignoring entirely the bigger picture.
Politicians and those on the left were not convincing.
Chris Leslie, Labour frontbencher, stated, “What more evidence could anyone need that this government is piling higher costs on lower and middle class households while cutting taxes for the wealthy?”
Frances O’Grady, general secretary of the TUC, commented that “The government’s tax policies are having a negative impact on the poorest households”.
These seem barely adequate responses to the failure of the tax system, the pressures it puts on those on low incomes, and the cumulative decisions which have produced this. This is a challenge to left and right, Labour, Tory, Lib Dems and SNP. The traditional left argument is to believe in the case for fairness and redistribution, but this has historically weakened as more people on low incomes have been dragged into tax.
Recent research by YouGov pointed to a long-term set of tensions and challenges in public spending and taxation, particularly related to the appeal of centre-left parties. Surveying across four countries – the UK, Germany, France and Sweden – YouGov found in all four that at least six out of ten people think their system of taxation is unfair, a minimum two-thirds say public spending on services and benefits is inefficient, and people feel they and their family put in more than they get back; in the UK 56 per cent thought they put in more and only 15 per cent thought they benefited more.
Support for more active government and taxes was small: in the UK and Germany it was 13 per cent and 11 per cent respectively. This doesn’t mean people are anti-state or for minimal government, but the kind of relationship between citizen and state is going to have to be completely rethought.
Part of the failure comes down to how people see conventional politics. No longer across the four countries surveyed do voters trust the appeal of the left. Asked if the main centre-left parties “used to care about people like me”, majorities or near-majorities were found in three of the four: Germany (52 per cent), UK (51 per cent), Sweden (49 per cent).
Asked whether that party “cares now about people like me”, this figure falls to 32 per cent in the UK and 24 per cent in Germany. Similar figures and a gap can be found in relation to the health of the right in each country.
There is in our present situation a mass of disinformation and distortion.
Bankers and lawyers asked a few years ago what they thought the poverty threshold was, stated £22,000, then just under median earnings. In the same survey, those earning £150,000 a year, comfortably in the top 1 per cent, compared themselves income-wise upwards with even richer people.
This shows that there are huge knowledge gaps in how we think of income and reward, and that rich businessmen should be kept as far away from advising government on taxation and redistribution as possible.
Something has gone fundamentally wrong with Britain’s taxation system. It is 17,000 pages long, aiding a culture of well-paid tax advisers and accountants for those who want to engage in systemic tax avoidance. It is a product of a broken political system and culture that has distorted our choices and attitudes, aided by the pernicious influence of the ideology of possessive, materialistic, greed-is-good individualism, which only works in the interests of a tiny few.
This state of affairs is a direct challenge to Alistair Darling and Gordon Brown. This is a world they contributed to making. They need to answer how Britain will get out of this situation, and what choices they are prepared to articulate which lift and support those who need it most, and how they are going to tackle the forces of privilege in a way they didn’t during thirteen years in office.
And to Alex Salmond and John Swinney: can you dare to talk about the difficult choices you would have to make to do things differently?
So far, across the entire political spectrum, all we hear is a deafening silence.