We now have the manifestos for the election. We know what the parties now say about tax, even if we cannot know what they will actually do.
The differences in opinion are stark. Addressing, due to space, those parties standing in most seats, it is clear that none of the parties come close to understanding the true role of tax in the economy as yet. All are fixated on the idea that current spending must be covered by tax and only investment may be financed by borrowing. The household analogy within macroeconomics is alive and well and living in the UK, and it's wrong. The role of tax in delivering social and economic policy in its own right is still being ignored by all the parties, excepting the Greens, with their proposal for a Universal Basic Income, and that will not be happening any time soon. This misunderstanding is a massive contributor to economic mismanagement.
Within that framework there is enormous difference in tax policy on display. In particular, Labour's recognises a threefold need. One is to address poverty. The second is to end austerity. The two are, of course, related. And third, it wants to promote a Green New Deal. And it will spend to achieve all three.
The IFS have said this plan from Labour is not credible. I disagree. The plan for investment is largely in small projects that can be ratcheted up quickly as skills become available. And the social plans will achieve their goal, including of increasing incomes. This is a plan for the moment.
The tax dimension of it (and it's always an aspect) also makes sense. To the extend that tax is needed the aim is threefold. Wealth is taxed more, as it is dramatically undertaxed now. Labour is right to tax it more. The same is true of corporation tax, where Labour's proposed unitary tax base for international taxation will lead the world, whilst the increase in rates will simply bring the UK back into line with the world. No one is actually going to change their behaviour as a result of either reform. And nor, when it comes down to it, will almost any one those who are well off enough to earn more than £80,000 a year flee the country, or even work less, as a result. First, most of those people are on contracts that do not vary pay with tax rates. Second, most people have no clue how much tax they pay. And third, most people work harder when they earn less if (as is true of many of those on high pay) they have fixed and very expensive commitments. The plan does, then, make sense. Inelastic behaviour will result in the higher taxes being settled with little issue arising.
The Tories on the other hand are locked into the belief that tax sells election victory, and so are committed to maintaining the status quo. But in so doing, a very small change to national insurance apart, they also lock in the existing social infrastructure and with it the income and wealth inequality that even organisations like the OECD and IMF say is harmful. Not only are the Tories not using spending to break austerity and defeat inequality, they're refusing to do anything at the top end either, meaning that all the divisions in society that have been so destructive of our well-being will be maintained. In this sense the Tories are really being true to form conservatives.
And in the meantime the LibDems are so far out in the tax cold that they think hypothecated taxes for the NHS might work with the electorate and in practice. But that is not how tax works, and even given the terribly low level of understanding of tax that pervades the UK I suspect enough of the electorate realise that is the case to be indifferent to the promise. The LibDems do really need to try harder.
As for the Greens, carbon tax dominates their agenda. It worries me. They are almost always regressive. The Greens proposal would be, I fear. And I am not wholly convinced a universal basic income makes up for that. The Green manifesto is only of tax interest on tax because it is a place where ideas can be explored. I suggest that this one still needs a lot more exploration.
Overall? Labour has a good offering that makes economic and social sense. It has, thankfully, abandoned its fiscal rule. But like the other parties it still shackles itself unnecessarily on tax by adopting an inappropriate and discredited macroeconomic view of tax. The Tories do the same to reinforce division in society that will cost millions a great deal financially and even more in their wellbeing. And the rest took part, but without serious intent.
All of which leaves only one rational choice when it comes to tax, and that is Labour.
Thanks for reading this post.
You can share this post on social media of your choice by clicking these icons:
You can subscribe to this blog's daily email here.
And if you would like to support this blog you can, here:
This comment is ‘off message’, but I hope I can justify making it here, and now.
Sir Ivan Rogers, the United Kingdom’s former ambassador to the European Union; who knew the EU better than any UK Civil Servant, until he resigned over Theresa May’s policy fiasco, has just delivered a lecture at Glasgow University that has demolished Boris Johnson’s Brexit policy. The essence of his message is that the biggest Brexit crisis yet is still a year away. In effect, Johnson is not ‘getting Brexit done’ now. No deal is not off the table. Rogers has also criticised the Corbyn stance.
The full lecture is on a GU linked website. In the UK nobody is better informed of the realities of Brexit diplomacy than Roger . I leave it with you. The link is here:
https://policyscotland.gla.ac.uk/ghost-of-christmas-yet-to-come-brexit-lecture-full-text/
Everyone should read this.
I have scanned what he said
I agree with him
Thank you John for the Ivan Rogers speech.
Salient.
I believe part of the problem with tax and Labour’s tax proposals is the lack of perception as to how they are calculated and how they impact on individuals aided and abetted by the misinformation from the MSM.
On Question Time last week a member of the audience got rather upset about the tax rise proposed on incomes over £80,000. Say he earns £81,000, extra tax paid is £50 a year as the MARGINAL tax rise is 5 per cent!
On the radio a business woman complained explicitly about the corporation tax rise on her GROSS profits of £50,000 when the tax is due only on her net profit after the deduction of eligible allowances.
The tory history on tax has been to move away from direct to indirect taxes which in most cases are regressive completely opposite to the fairer proposals from Labour.
Labour have published an interactive online tax calculator which may help get the message across (if they can do a better job of publicisng it).
https://calculate.forlabour.com/
Yes it is unfortunate that a Green carbon tax is so regressive as energy is a major component of economic activity. The fossil fuel industry is where the billions are made so are a ready tax source. We would hope that once an effective Green carbon tax effectively bites, industry and commerce transition to energy efficiency etc. the tax “burden” is then shifted to other parts of the economy where tax becomes less regressive.
When Geoffrey Howe reduced the top rate to 60% the receipts from top-rate-taxpayers went up — a lot. When Alastair Darling hiked the top rate, tax receipts went down (partly *but not wholly* due to the timing effect of people/companies changing dividend payment dates); when Osborne reduced the top rate, receipts went up (ditto).. What you say is factually incorrect
With respect, you ignore avoidance, and you ignore other factors that influenced the issue
Being simplistic really does not work when analysing tax
And you’re playing very simplistic games, and you know it
The issue is vastly more complex that you are representing and I suggest the 163 people who signed that letter know that
“The issue is vastly more complex that you are representing and I suggest the 163 people who signed that letter know that”
What’s ridiculous response to hide behind!! You think a letter by signed by 163 economists is valuable when a letter signed by the same number of economists of a different leaning could be produced tomorrow??
What an arrogant man you are..
I thought you were a troll
Now you show that you are
James Meadway doesn’t appear to believe the Labour Party has changed its fiscal rule about removing the deficit on day-to-day spending in five years :-
https://jacobinmag.com/2019/11/labour-party-britain-uk-investment
But it has
Why do I as a taxpayer under PAYE have to pay tax for the current year that I earn that money whereas those of greater means can mitigate their liability for income tax to by changing the years in which that income was earned. Why do we apologise for this. It is a total nonsense, no apologies required, but just plain daft.
Paul –
Why do I as a taxpayer under PAYE have to pay tax for the current year that I earn that money whereas those of greater means can mitigate their liability for income tax to by changing the years in which that income was earned.
They can’t. Well, not lawfully. Timing is a matter of paramount importance in taxation. The right tax, at the right time, in the right place from the right person. That’s the goal… and HMRC will challenge any structures or arrangements they find which are designed for no real reason other than to provide a tax advantage, be that through timing or some other mechanism.
Besides, under the Self Assessment system, people with the most opportunity to delay paying tax (those outside of PAYE) must make Payments on Account each year. It’s not “As You Earn” like it is for employees, but it does bring payments forward to the current year. This should make it fairer in terms of timing. It really can’t be any other way as the profits of a trader or company can’t be known until the end of their accounting period. That’s not the same as an employee.
I’ve always found that it’s best for my own mental health to be satisfied that the tax I pay is correct and not worry too much about what anyone else is doing. HMRC get paid to deal with that. I save my outrage for other great natural injustices, such as the continued influence of Dominic Cummings, for example.
Hope this helps!
I agree – I always seek to pay my tax in the right year!
Apologies if this is a bit off-topic, but what are we not paying attention to now that the MSM has so effectively diverted everyone’s attention onto the Labour “antisemitism” problem? I’ve a horrible feeling I’m missing something very, very important …
Yes…..
Am a bit puzzled as to why Richard Werner did not sign the letter to FT. Has he died?
No idea
Maybe he did not respond in time
I am not in touch with him
And I am not really sure how many people I know are