It has been striking throughout this 2015 general election campaign that the subject of taxation has been avoided by all the parties other than to pretend that there will be no tax increases afterwards. But the deficit comes up all the time, and the only policy on offer is austerity. Finally we know that Cameron has lost it completely by promising an act of parliament forbidding direct AND indirect taxation rises. The idea that an act of Parliament can be passed to prevent tax rises is exactly like Canute commanding the tide not to rise.
Has nobody told him that Parliament is sovereign and cannot limit its successors? He knows that Parliament can do anything it chooses at any time. All acts can be repealed and all promises broken and the only check is the election process itself, which we are now deep into. By abjuring tax increases he rejects the one way of balancing the budget, which could involve everyone and thus would be fair.
The real problem with direct taxation is that our politicians have become so scared of offending electors that they dare not even contemplate tax increases. Their predecessors had no such qualms and reserved the right to levy whatever taxes were necessary. You would not find Cripps, or Healy, or Barber, or Jenkins allowing such nonsense. Added to which, the truth is that the financial mess of recent years could have been solved very quickly by judicious increases in taxation.
In 2010 it would only have needed a modest increase in direct taxation and business taxes for the current deficit to be removed. Instead the reverse has been true, and taxes have been reduced. The Tories did increase VAT, but there were no increases to national insurance, which is just another tax. All this arises because of the mistaken belief that increased prices and reduced wages would further depress the economy. In fact it is lack of liquidity which does that. Another name for that is austerity.
Meanwhile, pathetic efforts were made to stimulate the economy by gimmicks and tax breaks. The effect of these has been slight and generally ineffective. Any growth which has happened has been driven by consumer spending, a particularly unreliable and dangerous trend.
Meanwhile, business taxes have been progressively reduced to try and attract capital and investment to Britain. This would largely have been unnecessary if everybody had been encouraged to save more by generous tax incentives such as those operating in many other countries. Britain has one of the lowest saving ratios in the Western world. British governments have toyed with savings exemptions but kept them entirely for tax-free interest. In other countries the totality of money put into approved savings plans remains untaxed until it is withdrawn including interest. This we do with pensions, but the Treasury has its eye on that too. The perpetual raids on our only long-term tax-free savings has actually been a disincentive to save. Tax-free saving has the effect of increasing savings and therefore increasing money available for investment and debt repayment.
Incidentally all those dire warnings about our grandchildren having to pay for today’s debts are also nonsense. Cameron’s spokesmen ignore the fact that the greater part of government debt is held in this country and interest is paid to funds and institutions here. Most of the costs of our national debt never leave our shores. When it resumes, interest will once again benefit all savers, especially the pension funds.
Meanwhile, our recent government has done very little to stem both tax avoidance and evasion. The amount of effort put into ensuring that businesses and their owners pay the full amount of tax, as well as those who own the businesses and other high earning activities, have not only been allowed to escape tax, but are progressively encouraged by reducing and exempting many business expenses from tax.
On the other hand benefit fraud is considered a great problem and is pursued with considerable vigor. But let us look at the facts. It is estimated that tax and duty evasion and fraud cost the country £47 billion EVERY YEAR. There are about 400 court cases each year, and only a dozen of any significance. It is estimated that benefit fraud costs about £1 billion per year and there are over 9,000 court cases. Theft by the poor warrants the full force of the law while evidently our revenue service indulges those who steal big time, either purposely or by omission.
There is a widely held belief among Tory politicians that leaving more income in peoples pockets somehow encourages personal thrift and probity. They say always that people should be left to spend their own money and not have that expenditure dictated by the state. This ignores the fact that a huge amount of government expenditure is directly to the benefit of the population at large. It is not only education and health that is funded by the government, but a whole array of public provision and services that we receive for our taxation.
In fact the Tories go even further in referring always to taxpayers as if they were a separate constituency. It is such a pejorative phrase, since it suggests that those who either do not or cannot pay tax because they are young, old, mothers, infirm, disabled or what have you, are somehow not to be considered by government financial policy. They are however, still citizens and have votes.
The truth is that taxation is not only necessary but also extremely healthy for any economy. Government expenditure, if kept at a sensible level, fuels the economy in many ways. Government is the single largest user of private business. Government uses and commissions goods and services from every part of the economy. So when there are the sort of cuts and restrictions which we have become familiar with in the last few years, far from helping to make the public finances prudent, it has starved the economy of cash and condemned Britain to a low rate of economic growth.
In fact statistics show that the highest rates of growth in the last half-century have always been accompanied by high levels of government expenditure. It is quite untrue to believe that, for example, the Thatcher government was a particularly prudent user of public funds. This was not the case because the perpetual restrictions on expanding public expenditure meant that decade had one of the lowest rates of growth in per capita income in the whole century.
What politicians seem to be afraid of is the idea that taxes must always increase. Well, since Britain has among the lowest rates of personal taxation in Europe, one has to ask why other countries, such as Germany and the Netherlands, not to mention Sweden and Denmark, have average rates of personal taxation close to 50% of income. In those countries it is well understood that a properly financed and operating government can provide the citizen with a whole range of goods and services, not to mention a pleasant environment, and an efficient transport system. And this can only happen if the people pay sufficient tax to make that all possible.
The belief that somehow a more efficient state would gradually need less money from its electorate is founded on a complete misconception of how economic growth happens. The plain fact is that the engine of economic growth is technological progress, and this largely takes place in private industry, trade and commerce. Government expenditure is largely a matter of paying wages. It is also mainly services, which do not achieve great improvements in efficiency and innovation.
The economy grows from the surpluses generated by technological progress, and that tends to set the standard for increases in wages. But most government expenditure is on wages and they not only allow for inflation, when that occurs, but also must keep pace with improved productivity. Public sector wages have to increase at the same rate as the rest of the economy or they will be starved of adequate skilled staff. This means that the proportion of the national expenditure taken by government must inevitably increase year by year.
It is pure wishful thinking for governments to believe that marginal efficiencies in public services can result in permanent reductions in taxation..
Another example of the fantasy world that the Tory coalition government has lived in is the idea that publicly owned industry is inherently less efficient and therefore more expensive than private. This is completely at odds with all the data we now have. The energy companies are less efficient and more expensive than their predecessor nationalised businesses ever were. On denationalisation the electricity generating industry had plans for investment stretching 20 years into the future. Now their successors can barely guarantee capacity for the next two years. The size of profits which the water companies have taken out of that utility over the past 10 years has become notorious. Our railways are a mess and the most expensive in Europe. One could go on and on. Privatisation has been an almost perpetual disaster and has resulted in huge increases in subsidy and high costs of the output of the various utilities. It was done to provide tax cuts mainly to the benefit of wealth.
Any comparison with our neighbours in Europe will show that they have, almost without exception, been far more prudent in keeping utilities in the public sector and requiring them to provide services that the taxpayers could afford over the years.
The sad fact is that there is no escaping taxation both direct and indirect. Governments need to be able to collect sufficient money to provide all the services at the level that the community needs right across the board. This means starting with the most important which of course are health, safety, and education, and working right through transport, the utilities, energy, and so on and so on. Once the electorate trusts government to spend money wisely, and for Britain to have a level of public health, education, and transport that we can easily see across the narrow channel and throughout Europe, then high taxation would be accepted by everybody.
This Tesco election has been one of promises to put health, education, transport, and all the rest right, only to be challenged by the media, who always ask ‘how are you going to afford it?’ In former times politicians would simply have said that the means will be found to provide the services that the public need. Instead they twist and turn and pretend that the improvements they offer us can all be found without increasing taxation. This is simply not the case. All the electorate wants is to be assured that everybody pays the tax that they should, and those who abuse the system, whether they be the man in the street, or huge corporations, are made to pay the penalty.
Perhaps we need a new universal principle of taxation that states: if you earn the money, or provide the service, or sell the goods, or operate the business, or make money in any other way in the United Kingdom, then you pay taxes in the United Kingdom. This is a principle widely adhered to by European Countries and certainly America, but one that we seem to have ignored in this country, allowing all kinds of living arrangements to enable ‘Taxpayers’ to stop being taxpayers.
Our politicians need to speak to us as if we were adults and not children. We all know that government has to have sufficient money to operate and we all know that taxes have to be paid. Citizens only become angry with governments if they feel that their money is being wasted. This past government has tried to make a virtue of forcing savings and efficiency but what it has actually done is to deliberately reduce the size of the state and the degree to which it can care for its citizens. We have become a shoddy country run by an incompetent government. We do not get value for our money and a change is long overdue.