I readily confess that like most who work in tax justice I think that Covi, which describes itself as a think tank, is rather more akin to a PR agency for the Big 4 firms of accountants' tax policy. This was very apparent in the organisations first year, when it was heavily funded by KPMG. Now PWC are in on the act. Covi has recently announced that:
The concept of hypothecation, where revenues from specific taxes would be ringfenced for a particular expenditure purpose — and publicly communicated in this way — has traditionally been unpopular with many. This is because of the notable challenges, relating to complexity, transparency, and public perceptions, with which it is associated. However, there is growing interest in how hypothecation could help engage with tax policy and increase public trust in the system.
A new workstream from the Responsible Tax Lab, sponsored and supported by PwC, will explore the practicalities and implications of hypothecation. In this article, Kevin Nicholson from PwC discusses why the time is right for this conversation.
In fairness the article by Kevin Nicholson in the HuffPost says:
[H]ypothecated taxation [has] never got a huge amount of traction, for a whole host of reasons.
For a start, by ring-fencing revenue, governments are locking down what they can spend. What if circumstances and priorities change? Moreover, once you start hypothecating particular taxes, where do you stop? Perhaps education should have its own fund, or defence. And then there's a risk of people demanding a ‘pick n' mix' approach to which taxes they pay.
And it adds:
Hypothecation would undoubtedly complicate an already complex tax system, and this in turn brings an economic cost, as well as an administrative one.
Before saying:
Then there are issues around how the actual hypothecated tax would work. In a number of countries social insurance is effectively a hypothecated tax to fund certain benefits such as healthcare and pensions, but there are lots of differences between how these taxes work in practice.
Despite which Kevin Nicholson says:
I think this time the debate has merit. Despite the drawbacks, there is an overriding reason why hypothecation needs serious consideration - it increases transparency and arguably trust.
And he continues:
Our research suggests people want to know how their tax is spent, and when they do, they mind paying it less. Sure, not everyone would be happy about paying an NHS tax, but it would quickly flush out how much of a priority the NHS is for politicians and voters - forcing them to put their money where their mouth is.
There's never been a more important time to reconnect people to the purpose of tax. Brexit demands a rethink of a number of our taxes. Combined with developments such as robotics and the rise of self employment, there's an increasingly pressing need to reboot the tax system.Given tax changes are fraught with difficulty, we only have a chance if people accept it has to be done and engage on the options. A debate on hypothecation could kickstart this wider and hugely important review.
Where does one begin to address that?
First, PWC really do need to learn that tax does not pay for any government spending: the spend comes first and the recovery comes afterwards. The six reasons for tax are:
- Reclaiming the money the government spent into the economy to control inflation;
- Ratifying the value of money;
- Reorganising the economy;
- Redistributing income and wealth;
- Repricing goods and services;
- Raising representation.
There is more on this here. Telling people that tax pays for anything when it is instead an instrument for control the macroeconomy would be a big mistake.
Second, pretending that in that case any particular tax pays for any particular service would be an outright lie. This is not the case. All tax goes into one pot. If one tax is supposedly constrained for use on one type of government activity all that actually happens is that a constraint if put on the funding of that service where none is needed. That is because an artificial limit is put on spending on it. But in practice the total tax pot is unaffected: all remaining tax is still spent in a discretionary fashion and because hypothecated sums can be changed at will even the supposed link is nothing more than a sham. The credibility of the tax system is, therefore, undermined by hypothecation.
And nor do people know any more about how their taxes are spent: they have been conned that a small part of their taxes are spent in a particular way. The con trick lasts about as long as it takes for a press release to hit the bin.
In that case it has to be asked why PWC are keen on this. The answer must be because they see benefit from doing so. The obvious benefit will be that given that inheritance tax, capital gains tax and corporation tax will not be hypothecated to the NHS their clients will pay least of any increase. Forgive my cynicism. And then there is the second benefit that a constrained NHS is ripe for privatisation, from which their clients might gain. Their reasons for involvement are all too apparent.
I am all for discussion. I would take part. But at least I would (and have) put my cards face up on the table. And unless the discussion is to be about what is really happening in tax, and to be based on how tax actually works, this whole exercise would be a con trick on the public.
The message is a simple one: if you're going to talk about tax you do have to understand how it works, and why. Right now it's not clear that either Covi or PWC do that.
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The problem with hypothecation is that those who most need the services are those with the least ability to pay. A good example would be local income tax instead of rates. Those councils with the greatest demand for services would be those with the smallest income base.
Quite so
Part of the conversation should be who will pay this tax. Maybe we should have a referendum, as that seems a good way of solving problems, but it would have to be multiple choice. For example: Do you support the idea of a hypothecated tax to fund the NHS?
1 Yes or No
Who should pay this hypothecated tax for the NHS?
1 Everybody, at a flat rate like VAT?
2 Only those who use the service – like prescriptions?
3 Baby Boomers?
4 The very rich who hide their wealth in secrecy jurisdictions?
5 Only those who have promoted this absurd idea?
6 Only those who vote “Yes”?
7 The government by providing more money and then reclaiming through general taxation?
8 None of the above: I want it starved of funds and privatised? Oh, wait…..
G Hewitt says:
“Part of the conversation should be who will pay this tax.” and goes on to suggest:
” Maybe we should have a referendum, as that seems a good way of solving problems,”
LOL as they say on the social media sites.
or Possibly ROFL
Or even LMFHO
Love it, G. 🙂
YSVW Where did I get that? GI[M]F.
G Hewitt,
🙂
Hypothecation is very attractive snake oil.
The public will lap it up.
It’s very worrying. It plays on ignorance and there’s so much of it out there it’s hard to see how it can fail.
Yes, indeed, seems like its time has come. On the COVI website under “Methodology” they state: “These insights will be used towards a summary report which would aim to provide a “policy toolkit” for the design of hypothecated taxes.”
Sounds like they’ve already decided it’s a good idea, when I thought it was going to be a discussion, eschewing “self-selected” experts.
When you accept PWC’s money….you sing PWC’s tune
(I am deeply impressed you found anything on their website which is over-designed to the point of being irrelevant)
This seems to be purely a novel way to show the public the NHS must be privatised. The guff about transparency is just that, what they’re hoping is that by arguing it needs its own tax ‘pot’ people will come around to the idea that we can’t afford it/it costs too much and that they’d rather pay less tax and have private health insurance.
My guess is they do know how it works. They just don’t want the public to know. It’s all about control via the continuing message of allocating limited resources & scarcity. If they don’t know then they should be fired … but by whom?
This makes me so angry. It seems clear that there is a concerted effort going on to smooth the way for a significant increase in employee’s NI.
If we accept the narrative that tax pays for public services (which it doesn’t) and taxes should be labelled (which they shouldn’t) then let’s at least give this its proper name – “the raid on low and middle income workers to make good the ravages inflicted on public services by corporation tax cuts for multinationals and income tax cuts for people coining in six figures annually”.
Not a very catchy name I agree but it does what it says on the tin.
Where is Her Majesty’s Opposition on This? When can we expect them to start educating the public on Spend and Tax rather than Tax and Spend. There is so much data out there and according to Richard’s earlier postings we’ve been doing it since 1694. That is more than a few yesterdays.
I wish I could answer that question
There are very few members of the Labour Party I know who understand this. The first step would be to educate them and then hope the knowledge and understanding would spread. But it isn’t easy and it’s going to take a long time, unfortunately!
Richard, do you know of any countries in the world where MMT is generally accepted by the populace, and/or governments who use it to benefit their citizens?
There are no such countries as yet I am afraid
But there will come a tipping point
Chris W asks:
“… any countries in the world where MMT is generally accepted by the populace, and/or governments who use it to benefit their citizens?”
Plenty of governments using it, but the benefits are strictly for the elite.
In response to the FT editorial re the NHS on Tuesday I emailed the editor asking the question why does the FT which claims to be a global leader in financial journalism continue to perpetuate this tax and spend myth . Yesterday I received an email from them saying my letter was on the short list to be published . As it hasn’t appeared this morning I wonder if they got cold feet. This post shows why. They , they being the extreme centre want to expand the tax and spend mantra and hypothecation is a good way of doing that if they can get it to take hold as’ common sense ‘ in the public mind. It’ s all part of the neoliberal divide and rule strategy , to put one person against another in the workplace and in society generally . The vilification of Corbyn is all part of this strategy . I don’t want to sound melodramatic , but I worry this is going to get rather nasty any time soon .
Thanks for these thoughts Richard, which the CoVi team will feed into the Responsible Tax Lab’s research and consultation work. The debate on hypothecation to date shows that tax is too important an issue to be restricted to debates between people who self-define as “experts” (whether in a professional, academic or campaigning capacity) or think they have all the solutions – having the conversation is just as important. I founded Common Vision based on the belief that open doors and inclusive conversations are a more effective way of engaging than assuming the worst of vast groupings of people. We will and do work with people and organisations who share that goal. I hope your readers will also join the conversation and follow our work as it progresses: http://www.covi.org.uk/responsible-tax-lab/
Caroline Macfarland, Director, Common Vision (CoVi)
Please count my blog as a contribution to the debate
The Government doesn’t need hypothecation to inform the electorate of how services are funded. It simply needs to tell them what they will fund and how much. As everyone here knows tax is largely irrelevant in the first instance. Hypothecated tax via National Insurance is a means of redistributing income from the poor to the rich because wealthy people hate to think they are paying for something they don’t use, the majority getting free private health care as part of their salary packages. Hypothecation is simply a poorly disguised attempt to ensure that less well paid people are subjected to a similar process and are forced into paying for health care as part of a government sponsored insurance scheme which can be privatised at a later date. Of course the Government could also enforce businesses to provide health insurance as they did with pensions replicating the inefficient system operating in the US but such action would decimate their support.