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We need to talk about tax

June 1, 2018 2:28 PM
By William Wallace in Liberal Democrat Voice

The developing consensus that the NHS needs more money, and that there is nowhere else for that to come from except increased taxation, shows that there are some things that voters may well be willing to pay more for in order to get better-quality service. But we need, also, to recognise how strong the anti-tax lobby in this country is, and how difficult it will be to shift popular perceptions that others should pay more, but we deserve lower taxes ourselves.

Liberal Democrats beat themselves up about their collaboration in the coalition's austerity programme. Our mistake was not to mount a stronger argument in 2010 for funding a higher proportion of the adjustment through tax increases rather than cuts.

But we ought to recognise that all three parties have collaborated in the myth that decent public services could be provided without higher and more progressive taxation.

Margaret Thatcher set the tone, financing public services partly through the windfall revenues from North Sea oil - instead of establishing a sovereign wealth fund as the Norwegians did - and partly through selling off state assets to fund current spending ('selling off the family silver', as the elderly Harold Macmillan had remarked).

The Labour Party as it approached the 1997 election was committed to increasing public spending, but deeply hesitant about admitting that it would mean higher taxes. I recall being told by a Labour contact drafting their programme, as we produced our manifesto pledge of an extra penny on income tax for education, that this was a huge and damaging mistake: 'the public will never vote for higher taxes'. Taxes did rise under Labour, little by little, but public spending rose more - leaving little room for economic adjustment when the 2008 crisis hit.

As the Institute for Fiscal Studies and the Health Foundation's joint study reports, the long-term rise in health spending has been accommodated by counterbalancing reductions in the defence and housing budgets - neither of which can easily be squeezed further.

And it's not just health that needs more. Schools, pre-school and adult education cry out for more - a more urgent priority than relieving the costs of the 50% who go to university, I would argue. Prisons are appalling, and understaffed. Police numbers have been cut by a third. Social care, both for children and for the elderly, is desperately under-financed. Local government is starved of funds for basic provision; Bradford in its latest cuts is disposing of its last three public toilets (in the tourist destinations of Haworth, Ilkley and Saltaire, where busloads of retired people and children arrive in need of them).

Yet the voices from a powerful group of right-wing think-tanks still call out for tax cuts and a smaller state.

The Taxpayers' Alliance and the Institute of Economic Affairs share libertarian assumptions about shrinking the state and the inherent wastefulness of public spending; they argue that it's not possible to raise more than 35% of GDP in taxation, and that public spending must shrink to that level. They have campaigned to limit taxes on alcohol and fuel, to hold down public sector salaries, and to suggest that 'a war on waste' will save enough money to fund the minimal services the state should provide. Their model is the United States under a Republican President and Congress; the wife of Matthew Elliott, co-founder of the Taxpayers Alliance, recently with the Legatum Institute and Brexit Central, is now chair of US Republicans in Britain. Anti-European sentiment is closely linked to libertarian opposition to taxation in a mindset that goes back to the Chicago School and Von Hayek, and receives ready support in the right-wing press.

So how do we shift popular attitudes, and counter the siren voices of the libertarian right?

We start with the evident case that the needs of our growing elderly population require higher public spending, and that cutting back on investment, education, housing and other local services in order to fund those needs is a recipe for long-term economic decline. We should point out that Britain's tax take is well below the European average: Eurostat reports that as 40%, 5% above the UK percentage. OECD figures provide an average of 34.3% for 2016, with the USA (at 26%) and Canada (at 31.7%) dragging down the overall figure; the UK in its calculations takes 33.2%. Higher public spending has not ruined the German or Dutch economies; lower public spending has not noticeably led to a promised surge of private innovation, though it has certainly left us with a skills shortage and a housing crisis.

No serious political party can duck this issue. Even Theresa May attempted to address the problem of funding the elderly in the last election, only to be driven back by claims in right-wing media that she was promoting a 'dementia tax.' We need to be far more determined than that to persuade the average British voter that an active state, and decent local government, have to be adequately financed.

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

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