The Resolution Foundation issued a staggering report yesterday. Remember that think tank likes to portray itself as being left of centre. It did, however, make the most extraordinary suggestions. Central to these was the proposal that there should be a package of no less than £40bn of tax rises to pay for the coronavirus crisis. They summarised these proposals as follows:
- Taxing windfall gains from the coronavirus crisis (via a Corporation Tax surcharge);
- Taxes to aid efforts to tackle climate change;
- Freezes to personal tax thresholds and a rise the Corporation Tax rate;
- Improvements to the UK's wealth-related taxes: closing/abolishing CGT reliefs, merging a range of reliefs and allowances into a single £2,000 investment income allowance, capping the tax-free lump sum, IHT reforms including abolition of APR/BPR, and a Council Tax surcharge on properties worth £2m+;
- Our centrepiece policy: a new Health and Social Care Levy, starting at 4% on all income (above a £12.5k threshold), which would coincide with a 3p cut in basic rate NICs and abolition of Class 2 NICs for the self-employed.
To contextualise this they say:
We argue that in around 3 years' time government should begin a programme of fiscal consolidation, and that this should focus largely on reforms and rises across the tax system.
Perhaps unsurprisingly an email I have from them says:
We had a broadly positive response to the report from Philip Hammond at the launch event today. The IEA also hosted an event this afternoon with other Tufton St think-tanks responding to the report.
I am astonished by this (unless, that is, it can be explained by the Resolution Foundation now thinking it has to reach out to far-right funders). All forecasts I have seen from official sources, such as the Office for Budget Responsibility, suggest that in three years time the economy will remain fragile and that the deficit might still exceed £100 billion at that time. These estimates were prepared, of course, before the weak recoveries seen in August and September were known about and again before any awareness of the second lockdown, and associated GDP downturn, could have been predicted. It has to now be assumed that these forecasts are decidedly optimistic.
In other words, despite the likelihood that in three years time - shortly before the build-up to a general election begins - the Resolution Foundation is suggesting that a full-blown austerity programme be adopted for the sake of ‘fiscal consolidation'.
And this is an austerity programme because the tax increases referred to hit those with high marginal propensities to consume, and so will significantly reduce economic activity in the economy. With multiplier effect knock-on impacts, the likely consequence will be a consequent fall-off in demand; a drop in investment; an increase in unemployment and a fall in tax revenue quite likely to be as big for these reasons as the sum that the Resolution Foundation says it intends to raise. Critical programmes, like the Green New Deal, would likely be hit, and the demand for this programme by the likes of the Resolution Foundation will only encourage a much stronger call for austerity, with spending cuts inevitably targeted at the most vulnerable, in response from the Conservatives. Just when Labour will be struggling to win against electoral arithmetic that looks insurmountable, the Resolution Foundation will be there promoting a profoundly neoliberal narrative.
And why? It must be because they believe a government must balance its books. And why is that? I presume it is because they believe the household analogy.
It is profoundly worrying that the left still has no idea that a government is not run like a domestic budget or even a large company. It is most especially worrying that the supposed left still thinks that government is dependent on money markets for its funding when it very clearly is not, as QE has proved. And it is also worrying that the role of the Bank of England as the monopoly supplier of central bank-created money, which is now as important to our economy as it is to that of all major developed economies, is so little understood.
In reality, in three years time there will have been more, literally unwindable, QE than we have now. And we should realise that this is in effect not debt, but if we want it to be is the evidence of our ability to create national capital. And what should also be appreciated is that those still holding the debt will not only wish to hold it, but be willing to buy more. The chance that it will be otherwise is remote, especially after the threat Brexit will pose to all other savings.
This lack of understanding, and dedication to a narrative that suggests government can crowd out the private sector, whose activities must always be considered of greater virtue than those of government, must motivate the Resolution Foundation. But to describe the resulting prescription, that in impact will be another failed round of austerity targeted at inconsequential book-balancing to which all else must be sacrificed, as hopelessly inappropriate is to be overly kind to it. The agenda that the Resolution Foundation is proposing would be disastrous for the UK. I hope I am not alone in saying so.
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The need for any “fiscal consolidation” may be misconceived but there seems to be much that I would have expected you to agree with here: carbon taxes, increase in the rate of corporation tax, reform of CGT and IHT, higher council tax rates for mansions, and NICs reform which seems to narrow the gap between employment and self employment. Do you oppose all of these now, or is it just the framing that you don’t like? I don’t much care for the IEA, but if they be persuaded to accept tax reforms that are broadly progressive, that must be a good thing.
I am happy for these SO LONG AS they are matched by tax cuts to at least match them for those on average in comes (at least) and less
But this does not do that
Those on average incomes are intended to pay more
Npo net tax increases is essential for some time to come
Redistributing the tax take is fine – but not for the reasons they propose
And these changes are deeply regressive
The worst of it is it’s full of weasel words trying to hide the nasty “A” word: “unhealthy finances”, “consolidation”, “sustainable long term path” (for fiscal policy), “public sector net worth” (eh?) This is appalling.
I wonder what influence the former Cabinet Minister David Willetts had on this and how it helps meet their aim of improving the standard of living of those on low to middle incomes? Austerity has always hit them hardest.
The Resolution Foundation can no longer be considered of the left.
I agree
Totally agree.
If they wanted a business analogy, a company that operates in an increasingly shrinking market (fossil fuels) should reinvent itself to branch out into new opportunities (green tech). Only that way can it thrive.
The corollary is that HMG desperately needs to invest in Green measures to have any useful economy for the mid to long term. Expansion like this takes significant investment to achieve any useful outcome. The old US carmakers knew that if they paid their workers well, those workers would be able to buy new cars and improve company profits.
I dipped into that IEA event which involved the Taxpayers’ Alliance, Centre for Policy Studies and the Adam Smith Institute. I was going to summarise their pronouncements, but you know them already – I really do despair.
The only point worth noting is the one you made – the Resolution Foundation mentioned the event.
On Twitter, the Resolution Foundation said that Helen Miller of the IFS “welcomes its broad-base across all incomes and NICs offsets. But she raises two issues – hypothecation and devolution. Important issues – let the debate commence!” So I dipped into the Resolution Foundation event, and find she’s concerned that the hypothecation of the NHS levy might not be maintained – colour me surprised.
On devolution, she thinks the obvious links between the proposed tax changes and the effects on the devolved nations should be made explicit. So it’s clear she’s thinking about the NHS levy and how that change would be implemented in (say) the semi-detached Scottish tax system. If she’s concerned about how that will play out, then I think I should be terrified!
Finally, I noted that Philip Hammond was concerned about any move away from our “2 tier tax” system, by which he means income tax and NICs, and was worried that this would somehow deter talent from moving to the UK – because it would be different to the system employed by many of our “competitors”. He listed various European countries and the US, where he said the second tier pays for social security. Including the US in that list is serious cause for concern. Although Hammond may not be in power, it surely signals something the Tory party is always keen to deny!
Oh Dear.
Torsten ‘Bell-end’ is at it again.
What do you reckon Richard – is young master Torsten after some New Year honours?
As for the rest of ’em, I’ve never heard of them! And there’s lots of them.
It might be the David Willetts connection?
Look everyone, the traditional Left as we know it is finished OK and it’s stuff like this that is clearest indicator. This is as bad as BREXIT worshippers and the sunny uplands of post EU Britain.
The Tories have been bleeding this country since 2010; the Left now want to stop the bleeding by removing the heart.
Stupid. Stupid. Stupid.
Next please.
Never undersood why they put Willetts in charge.
Its self defeating- to say left ideas are finished – ideas are there to be fought for, We should be reviewing the report and showing whats wrong. not just talking to ourselves.
I’d go as far as to say both left and right know the household analogy is wrong but play it anyway because, for the general populous, it “makes sense” as they can relate to it. The BBC and mainstream media don’t help.
It is difficult to keep politics out of such issues.
The main problem is the failure to get ofF the rails of manufactured dogma.
There is no such thing as ‘Tax Payers Money’ or ‘Public Debt’ Etc.
Well there is also no such thing as ‘Left and Right’ .
Both are illusions created by these Above to keep all us Below fighting between ourselves rather than ‘Punching Up‘ at them.
It has ever been thus the from the days when they claimed divine rights as ‘Gods Chosen Representatives’
First making Us believe in Sky Fairies and then Kowtowing to THEM.
It is ancient – from the village witch doctors to the Pharoahs, It straddles all history the Olympians , the Caesars , the Celestial Court of the Mandarins etc. – All lies to keep us living as slaves and serfs for the benefit of the very very few.
So the Foundation’s – they are created to set the parameters of the rails and be the buffers between which we are to be bounced – at all times bouncing into each other and urged to move left, move right – whatever as long as we don’t look UP and move that way.
So the controlled full spectrum media.
To supposedly independently reinforce the narratives
So the controlled Political Oppositions.
To give us the illusion of choice and change.
What breaks the spell? A mass grass roots movements which throw up local leadership and combines with the line minded oppressed without needing to be organised.
A storming of the Bastille.
A chopping off the head of the ‘god kings’ to did prove their lie of being godlike.
We should have a new Jarrow March & General Strike as was necessary a century ago to finally make some gains against the ancient Masters. They deployed thugs, soldiers and canons against that – Churchill infact was at the head of the ‘crushing’ of such demands for equality , freedom and security.
I think only such mass action from all corners of the country marching on Whitehall In our millions will do.
A final upheaval of the ancient ruling classes (their fig leaf of Monarchy) and The Financial Pathocracy which hides behind the curtains pulling the strings ALWAYS reinforcing daily the biggest lies.
I see no other way.
It is indeed an important point that the leading light of the Resolution Foundation is David Willetts. So much for ‘left leaning’?