The case for raising taxes
1:19 pm - May 31st 2011
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Rob Marchant, arguing that Labour should pledge to keep to Tory spending limits, made the good point that “a convincing counterargument… – that is, a case for raising taxes going into the next election – is yet to be put forward.”
Let’s have a go at doing so.
Firstly, I’m sure there are examples of the case for raising taxes which I haven’t seen. But just to consider two which have been suggested.
UK Uncut/PCS argue that clamping down on tax dodging would raise £95 billion per year, which could be used to reverse the entire cuts programme. Compass, in 2009, argued for £53 billion in tax rises, which included raising the basic rate of income tax, raising council tax, raising the top rate of tax to 61%, cracking down on tax havens, introducing a financial transactions tax.
I personally don’t think that either of these proposals would survive the scrutiny of an election campaign – there would be heavy challenges to the credibility of the estimates around the sums which could be raised through tackling tax avoidance, and although the Compass proposals would leave most people better off, it would be all too easy for the right wing media to attack the “tax bombshell” and persuade people that their taxes would go up.
Furthermore, the case for raising taxes needs to consider Labour’s overall approach. For example, any policies which involve people in the “squeezed middle” paying more tax would sit uneasily with Labour’s aim to improve the living standards of this group of people.
But even taking all of this into account, there is still a compelling case for Labour to pledge to raise taxes at the next election – just as they did when winning landslide victories in 1997 and 2001.
Lord Ashcroft carried out some focus groups earlier this year, and helpfully identified some key Tory weaknesses. On crime, people argued that “how can you be tough on crime when you’re taking money from the police?” On the NHS, people felt that “it was hard to see how the government could be improving the NHS while subjecting it to cuts”, and on education, people considering voting Tory were more likely to focus on the cuts, “They scrapped improvements at my son’s school. I’ll never forgive them for that. Typical Conservatives. As soon as they got in, it was ‘screw you’”.
Perhaps most interesting was the response to the central political project of the Right – cutting the size of the state. As Ashcroft’s report put it, “Very few participants knew what was meant by cutting the size of the state: “Lopping off Cornwall?””
Marchant argues that Labour shouldn’t be so inward looking and obsessed with what party members think, and should pay more attention to the people whose votes will determine the next election. I agree. This is what they are saying – in Lord Ashcroft’s focus groups. They are against police cuts. They are against NHS cuts. They are against school cuts. And unlike the people in the Westminster Bubble who are obsessed with anti-statist guff, they have no interest in the idea of cutting the size of the state and think it is an idea to take the piss out of. Additionally, 94% of people say that a priority for them is getting the economy growing and creating jobs.
Swing voters think that government should spend more money on the police to cut crime, more money on the NHS to improve it, creating jobs and spending more money on schools, and that “cutting the size of the state” is the daftest idea to come out of the mouths of politicians since the Alternative Vote or the Big Society. 64% of people think that “people are entitled to expect more from government”. The Tory spending plans which Marchant and others want Labour to stick to, in other words, are out of touch with the political mainstream.
But to be able to spend more on the NHS, police, schools and jobs, the money needs to come from somewhere. One source of inspiration comes from the 1997 Labour government, which taxed private utilities to tackle youth unemployment. So part of Labour’s tax plans should involve taxes on undeserving profiteers in order to invest in deserving causes. Modern day equivalents could involve higher taxes on the banks, a mansion tax and maybe even an attempt to recoup some of the billions in handouts which slum landlords receive every year through housing benefit.
A second source of inspiration comes from a more unlikely source – the 2010 Liberal Democrat manifesto. Before the debates, the Tories and Labour assumed that the Lib Dem pledges, which amounted to £17bn extra in taxes on the rich to pay for an income tax cut, were uncosted and wouldn’t stand up to scrutiny. After the first debate, the right wing press threw everything at the Lib Dems, but found it impossible to attack their tax plans effectively (hence the decision instead to attack them on immigration, Nick Clegg being a Nazi etc.)
Many of these tax changes are still available, as the Tories persuaded the Lib Dems to drop them – it wouldn’t be hard to build on the work which has already been done to come up with an IFS approved list of £20 billion in extra taxes for the rich in order to pay for modest tax cuts for the “squeezed middle” and extra money for public services.
Winning the case for overall tax rises is a challenge which Labour can’t duck. Announcing that they will stick to Tory spending plans is a variant of the Scottish Labour strategy of trying to minimise differences with the governing party, and likely to lead to a similarly bad result – if they accept that the Tories are spending the right amount of money, then what’s the positive case for choosing Labour rather than the Tories?
Labour’s plans will be subject to detailed scrutiny, which will focus on the most unpopular tax rise vs the most unpopular spending pledge. But learning from the unlikely trio of Lord Ashcroft, Tony Blair and Nick Clegg shows how it would be possible to craft a set of targeted tax rises which could pay for extra spending in key areas, and even a modest reduction in taxes for the “squeezed middle”.
Lastly, this can’t be an elite project, where Labour’s plans get decided by a small clique at the top of the party and imposed on the rest of us. In order to beat the assaults from the Tories and the right wing press, Labour needs to find a way of making sure that the proposals that it develops comes directly from conversations on the doorstep. Labour’s got the capacity to use its volunteers to involve millions of people in shaping its spending priorities – if it does so, then this is an argument, and an election, which it can win.
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Don Paskini is deputy-editor of LC. He also blogs at donpaskini. He is on twitter as @donpaskini
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Reader comments
“Perhaps most interesting was the response to the central political project of the Right – cutting the size of the state. As Ashcroft’s report put it, “Very few participants knew what was meant by cutting the size of the state: “Lopping off Cornwall?””… unlike the people in the Westminster Bubble who are obsessed with anti-statist guff, they have no interest in the idea of cutting the size of the state and think it is an idea to take the piss out of… 64% of people think that “people are entitled to expect more from government”.”
Quite right. One of the reasons Cameron’s “Big Society” rhetoric has fallen so flat is that it’s supposed to be the antithesis of something people in the UK have never heard of or been concerned about – the “Big State” (or “Big Government”). All this stuff is completely off most people’s political radar; slogans like “That government is best which governs least” are not in currency in the UK.
We need to remember that this is not the US. People over here might have concerns about waste, the ‘nanny state’, excessive bureaucracy etc., but very few of them have a principled objection to the state providing services that could be provided by the private sector. (On the contrary, people are very, very defensive of “their”, state-run, public services.)
“there would be heavy challenges to the credibility of the estimates around the sums”
Well, yes.
“UK Uncut/PCS argue that clamping down on tax dodging would raise £95 billion per year,”
For the sums are based on “work” by Richard Murphy.
And BTW, not even the Murphmeister thinks that such sums can be raised by clamping down on tax dodging. Those are his estimates of the amount of tax dodging. Something which even he admits cannot be entirely eradicated in anything resembly a free country.
He reckons perhaps £20 billion extra could be raised. Not at all, in no way whatsoever, prejudiced by his being hired by the PCS to say that hiring more tax inspectors (who would be members of the PCS) would be a good idea.
No, no, no piper paying tune calling here at all.
Please, Don, argue this case again and again and again. You may bump Andrew Smith’s majority up some more. You may steal a few more Lib Dems to the cause and end up bumping Nicola Blackwood’s majority up some more too. But in the real world where they voted No to smug metropolitan AV, “the case for raising taxes” has little support, where the majorities pay the taxes and the minority claim the benefits. But do keep this intellectual gedankenexperiment up. I’d love to see it become Labour policy. Perhaps a Special Conference at Wembley Arena…?
@3 Parasite
“where the majorities pay the taxes and the minority claim the benefits. ”
How did you work that out, exactly? Everyone has NHS access. Most kids are state-schooled. Everyone uses national roads.
Swing voters think that government should spend more money on the police to cut crime, more money on the NHS to improve it, creating jobs and spending more money on schools
And preferably a pony.
The difficulty for Labour is that they are now where the Tories were under Hague, IDS and Howard. They called for taxes to fall, and Labour responded by asking where they would cut spending. Now when Labour call for spending to rise, the Tories can counter by asking which taxes should rise.
And the real problem, as you recognise, is that the only taxes that people support raising don’t actually raise any money. If you want to generate substantial additional revenue, then you need to raise the basic rate of income tax (or NI contributions – again), or VAT (which Labour opposed of course). Claiming to be able to pay for more money on the NHS (as against the £20bn of cuts that Labour promised in the election), the police and on education by taxing ‘the rich’ or ‘clamping down on tax avoidance’ would last all of three minutes once the proposals were made.
Parasite
“where the majorities pay the taxes and the minority claim the benefits.”
God give me strength. What “minority” do you have in mind here? The “minority” of people who attend a state school rather than a private school? The “minority” of people who rely on the NHS rather than private healthcare? The “minority” of people who receive a state pension when they retire? The “minority” of people who use public roads rather than travelling everywhere by helicopter?
Ignore the story on the front of the Daily Mail about the Polish woman with 15 kids who gets £1,000,000 a year to live in a stately home, and look at the bigger picture: the vast bulk of public money is and always has been spent on things that benefit pretty much everyone. If you believe you are one of the people who is being fleeced to pay for services and benefits you don’t rely on yourself, you are either a) rich or b) wrong.
“And unlike the people in the Westminster Bubble who are obsessed with anti-statist guff, they have no interest in the idea of cutting the size of the state and think it is an idea to take the piss out of. ”
Oh dear, it gets better and better. Labour spend 13 years trapping as many people as they can within their client state, so that damn near everyone is either drawing the dole or is an immigrant or is working in the public sector, then magic! a poll shows cutting the public take of GDP is a ludicrous idea to have the piss taken out of it, even with a fucking recession on our hands and an out of control deficit.
If cutting the bloated state is such a ludicrous idea, when debt repayments take up more than schools and police expenditure combined, then it’s a reflection on what a fraud the last Labour Government was, not on the current Government’s deficit reduction strategy.
@6. Show me where the Government are cutting schools, or indeed, as you might like to put about, making everyone send their kids to private schools or not at all. Show me where the Government are cutting the NHS, or indeed, as you might like to put about, making everyone go to private hospitals or not at all. FWIW I went to a state comp and can’t afford private healthcare.
I still don’t want my taxes raised. What I want is to stop paying six-figure per annum bills on housing benefit for single families. and to stop smug articles here about the public sector is hunky flipping dory and there’s absolutely no fat to be trimmed there. It’s bullshit.
@Parasite
I don’t think anyone has argued that there aren’t really bad cases of exploitation of the benefits system but 2 very simple facts put a spanner in the works of your rant even remotely approaching a coherent political idea.
1) The amount of exploitation of the system as a proportion of the amount spent has dropped dramatically. Why? Because we are facing high unemployment where more and more people genuinely need them. The exasperation of this fact is essentially the problem with the government’s economic strategy. Less people earning, more people claiming.
2) Even now, the cases of benefit fraud and other more bizarre cases amount to a tiny, tiny fraction of the amount we lose through tax avoidance. Like tax avoidance, it will always exist but we are a light-touch when it comes to that despite the fact the tax payer loses out more many times over from that, than they do through exploitation of the benefit system.
@ 8 Parasite
So people point out that tax money benefits the vast majority, and your response is that the government hasn’t shut down state education or the NHS? Does the phrase “non sequitur” mean anything to you?
Instead of moving the goalposts so far that they’re on a different football pitch, why not try to defend your concept that “the majorities pay the taxes and the minority claim the benefits”?
land tax land tax land tax land tax
The problem with the argumentum ad populum of focus groups is they tend to think about state spending as things that happen to other people. As soon as cuts to public spending start to impact the services that they use then ‘ shrinking the state ‘ loses its appeal. When people say raise taxes to pay for the things me and my family use they mean raise taxes on everyone else and to hell with the consequences. The problem with the ‘ squeezed middle ‘ is that nearly everyone thinks that they are part of the squeezed middle. That is how it is fundamentally difficult for any government to cut the state or raise direct taxes and remain in power in a democracy.
“…so that damn near everyone is either drawing the dole or is an immigrant or is working in the public sector, ”
Near everyone is so absurd that it defies belief. However, millions think just like Parasite. Cut stuff from people I do not like but don’t dare cut things like criminal justice, kids education if they have kids or NHS spending on the elderly if they have parents.
My theory about party activists is if a party is pleasing its activist base, they will be following bad policies and pissing off the actual people that they need to win. Piss off your activists and the electorate probably like you. However, piss off the activists and they will go in the huff and not campaign for the party. Therefore, parties indulge in rhetoric to please the activists that they have no intention of putting into practice when in government. Activists then accuse the party of being sell outs. Which leads one to conclude that the likes of Tory activists are further to the right than the elected party and Labour activists are further to the left than the elected party. Moreover, they would not be elected if they were not more centrist than activists because that is where the voters congregate.
If going into the next election the majority as thought likely have suffered a decline in living standards, why not do something radical like campaign to cut taxes for the majority.
Parasite
“Show me where the Government are cutting schools, or indeed, as you might like to put about, making everyone send their kids to private schools or not at all. Show me where the Government are cutting the NHS, or indeed, as you might like to put about, making everyone go to private hospitals or not at all.”
Erm… why would I want to do that? I’m the one who accepts that very large sums of public money (and a very high proportion of public money) are spent on things like schools and hospitals. You’re the one who seems to think public money is mainly spent on things most taxpayers don’t benefit from, like housing benefit. (Though I seem to recall most housing benefit goes to low-income working, taxpaying households.)
“Labour spend 13 years trapping as many people as they can within their client state”
Horrors! There was me thinking it was a good thing that my family’s income is boosted by tax credits and child benefit, my kids get to attend a state-of-the-art, newly-built school, my diseased cornea just got replaced by the NHS, my wife (a teacher) has a teaching assistant in her classroom, etc etc. Actually, though, we’re trapped in a “client state”. Oh, who will save us?
“damn near everyone is either drawing the dole or is an immigrant or is working in the public sector”
This “damn near everyone” wouldn’t be the “minority” of people who benefit from higher public spending, would they? (I’ve heard Labour accused of many things, but never of bending the laws of logic.)
@ 10. Chaise Guevara
Perhaps Parasite thinks that even a non sequitur must have something from which it doesn’t follow.
@ 11. Martin
I agree. A land value tax should be on the political agenda, as should other forms of (capital) wealth tax. And how about working out how a legally-enforceable minimum ratio between the highest- and lowest-paid workers in an organisation might operate ( for example, defining “remuneration” and who would be a comparator … along the lines of the equalpay legislation).
@ G.O.
There are many of us who think it is a bad thing that
” my family’s income is boosted by tax credits and child benefit, my kids get to attend a state-of-the-art, newly-built school, my diseased cornea just got replaced by the NHS, my wife (a teacher) has a teaching assistant in her classroom”
We believe society would be better off if there was smal;ler state involvement in the NHS & education. Just because increased taxes means more resources can be put into services doesn’t automatically mean it is a good thing!
@15 Fungus
We believe society would be better off if there was smal;ler state involvement in the NHS & education.
Thankfully in a very small minority.
Just because increased taxes means more resources can be put into services doesn’t automatically mean it is a good thing!
Som erm, standards will rise with less resources?!
No wonder no one takes the “small statists” seriously!
G.O.
Horrors! There was me thinking it was a good thing that my family’s income is boosted by tax credits and child benefit,
Would it not be better just to pay less taxes – you’d probably be even better off, because we wouldn’t have to pay the costs of collection, calculation and payment required by the better system.
my kids get to attend a state-of-the-art, newly-built school,
I assume you don’t live in Sandwell Borough Council then? But regardless of that, the school building is good, but is nothing to do with clientage, since you get it regardless of how much you give and receive from government.
my diseased cornea just got replaced by the NHS,
Hmm. Not sure how this is a client state issue either. Free healthcare is an established principal of our system.
my wife (a teacher) has a teaching assistant in her classroom, etc etc.
Does the teaching assistant do a useful job, or is she merely making up the numbers (I’ve seen both types – they can be (and often are) brilliant but they can basically add no value to lessons).
Actually, though, we’re trapped in a “client state”. Oh, who will save us?
That you accept people taking your money in taxes and giving it back to you suggests you are actually – does it not strike you as odd (assuming you work) that you earn a reasonable income with your wife (who is a teacher) but that you still pay tax and then receive benefits back? That is how a client state works – you become dependent on the state, but the state takes money from you to pay for the money it gives you.
Reactions: Twitter, blogs
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Liberal Conspiracy
The case for raising taxes http://bit.ly/mg92Pu
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Lee Griffin
The case for raising taxes http://bit.ly/mg92Pu
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neilrfoster
A *lot* of sense in this article by @donpaskini about tax policy for Labour ahead of the next general election http://bit.ly/mg92Pu
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John Ashton
Some pretty superficial Labour analysis: Lib Dems found areas to tax — lets steal them and give it all to labour voters. http://t.co/9QR7lWU
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ann morgan
The case for raising taxes | Liberal Conspiracy http://t.co/EWnSSwQ via @libcon
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