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Campaigning for higher and fairer taxes?

December 29, 2017 4:40 PM
By Lord William Wallace in Liberal Democrat Voice

We need to talk about tax. The IMF's annual report on the UK economy recommends that taxes should be raised, in order to reduce the deficit further without cutting public investment and services. Philip Hammond, it is reported, would like to do so; but he is opposed by the ideological (and Eurosceptic) right of his own party, and by the influential group of free market think tanks who were cheerleaders for the Brexit campaign.

The Taxpayers Alliance and the Institute of Economic Affairs have repeatedly argued that it's impossible to raise more than 35% of GDP in tax, and that the government should cut public spending to within that ceiling. Tim Worstall of the Adam Smith Institute, in an attack on the 'experts' of the IMF in The Times on December 22nd, argued bluntly that 'taxes don't have to rise. There's a lot more redistribution that could be cut.' He takes Taiwan and Singapore as his models, where taxes amount to 20% or less, 'and run entirely reasonable places to live.' He seems to accept that we might wish to spend some public money on state pensions, and maybe a bit more on health, but that cutting out most welfare benefits could take the UK down below a 30% tax take.

Now reflect on how strongly such arguments flow across the right-wing media and the Conservative Party and their funders and cheer-leaders. And how close is the connection between the Brexit project and shrinking the redistributive role of the state. The Taxpayers Alliance supplied the brains behind the Leave campaign, in Matthew Elliott, now with the Legatum Institute which has privileged access to David Davis. Brexit Central is staffed partly with people from Taxpayers Alliance. Most of these groups don't declare their sources of funding, although offshore donors have been advised to give to think tanks rather than direct to the Conservatives because they can keep their names out of the press. It's likely that some are financially supported by right-wing US donors, too.

Britain has one of the lowest tax rates of any developed democracy, after the USA and Canada. It is also one of the most unequal, after the USA. Other democratic states tax wealth and income more progressively, and provide higher-quality public services from that revenue. Germany, on Eurostat figures, raised 40% of GDP in tax in 2016, against the UK's 35%, without ruining its economy or losing its business elite. The free market right would like to follow the same agenda as the US Republicans under Trump: hold down taxes on the rich, and squeeze public services for the poor - from schools to hospitals to social care. I heard a Conservative MP in a private meeting the other week suggest that we could solve the shortfall in the defence budget by using some of the money being shovelled towards the NHS - though I doubt if he would dare say that to his elderly constituents.

Martin Wolf in the Financial Times - the most consistently liberal newspaper in Britain today - has recently warned that too wide a gap between rich and poor becomes a danger to democracy. That, of course, is why the free market right are so attracted to authoritarian societies like Singapore - or Pinochet's Chile, two generations ago - or nationalist leaders like Putin and Trump. One of the fundamental distortions of the Brexit populists is that the left behind to whom they have pitched their anti-liberal nationalism will suffer most directly from the spending cuts and price rises that will follow from leaving the EU.

The IMF urges the UK to narrow the tax gap between employed and self-employed, to shift property taxation from sales to values, and to reduce tax allowances on corporate debt. Above all, it calls for higher taxes, to invest in public services while shrinking long-term debt, and to cope with the increasing proportion of elderly. Liberals and social democrats should grasp the argument that an open, democratic society rests on a sense of common citizenship, shared community and social justice, and that redistributive taxation is an essential element in building and maintaining that sense.

* Lord Wallace of Saltaire is a Liberal Democrat member of the House of Lords

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