Six oddities from the TPA's tax plan

All in all, a slightly strange report.

It turns out the plan of reading the TPA's tax report in full and only then writing on it, while possibly commendable in pursuit of accuracy, is probably not the best thing to do from a journalistic point of view. Many of the best pieces have already been written, particularly Nick Pearce, Tony Dolphin and Daniel Elton's. Nonetheless, there are sufficient oddities that are worth noting for a quick round-up post. In no particular order:

1. Inheritance tax isn't mentioned in the inheritance tax chapter

This one really is just a bit odd. Chapter six is titled Transaction, wealth and inheritance taxes should be abolished. But inheritance taxes are mentioned just once, in the context of an argument against a proposed measure of paying wealth taxes. Their abolition is never proposed, and no arguments are given as to why they are wrong.

But in chapter five, Taxes on capital and labour income disguised as business taxes should be abolished and replaced with a tax on distributed income (snappy titles throughout), there's a five page discussion as to why inheritance tax is so unpopular. I'm not sure what happened with the editing, but it's all very confusing.

2. The Biblical and Quranic arguments for low taxes

Apparently:

It might be argued that God endowed humans with certain inalienable rights, including personal freedom, and that taxation breaches those rights. [Page 98]

Also:

There is no morality in taking someone’s wealth and giving it to another. Such redistribution of wealth is about controlling society, not about helping others. [Page 103]

3. Pigovian taxes

Pigovian/Pigou/externality taxes are something we've covered before. The short version is that some activities affect people beyond those voluntarily partaking in them (creating an "externality"), and that economic efficiency is restored if a government imposes the cost of the externality on the person gaining the benefit from the activity.

The classic example is climate change. Burning a barrel of oil may bring me benefit, but it also causes damage to the planet. The Stern report put the damage at roughly $80 a barrel, and so anyone burning that much oil for less than $80 benefit is, netted out, destroying value. A carbon tax at that level would thus ensure that only oil which was economically beneficial was burned.

The commissioners don't like taxes, though, even economically watertight ones. In the chapter externalities rarely justify taxes as high as they are already, let alone higher, they argue that fuel duty should be cut, and tobacco and air passenger duty should be abolished. All good; although climate change is one of the biggest dangers facing the British economy in the long term, it makes sense to institute a carbon tax with a broad base, rather than focusing the costs on selected industries.

Except they don't argue for that. In fact, they don't argue for any form of carbon tax. Instead, two red herrings are put out. Firstly, that no tax on externalities can raise revenue and change behaviour at the same time (which is true, and something some supporters of the Robin Hood tax would do well to accept), and secondly that many taxes on externalities hit the poor hardest (which is true, but that's why carbon taxes are normally combined with a healthy redistributive element).

If you are ripping up the tax code and starting again, the very first thing that should be introduced is an effective, accurately priced, and properly enforced carbon tax. Doing so would render every other measure to fight climate change superfluous. The failure to take advantage of that ability implies that either the commission rejects any new tax out of hand, or embodies the worst of denialism.

4. If we assume that low taxes drive economic growth then we can see that lowering taxes will drive economic growth.

The commission uses the Centre for Economic and Business Research's dynamic model of the UK economy. We've addressed dynamic modelling before, particularly the often one-sided approach of assuming tax cuts will lead to more work and higher compliance while not making similar assumptions about spending, but the commissioners take the biscuit. They alter the model "based on [uncited] research into the impact of tax on the economy" such that it exaggerates the effect cutting tax will have on business investment, labour supply and net exports. Needless to say, if you build a model around the assumption that cutting tax drives business investment, it is not a massive achievement to then prove that cutting tax drives business investment. Tony Dolphin goes into more detail on this concern for Prospect.

This circular argument recurs many times throughout the report. Take page 76, for instance:

Peter and Mary are at school in very similar countries. At the moment, Peter’s country provides money to buy whatever teachers in state education request. The schools are well-equipped with the latest technology and buildings are refurbished frequently. In Mary’s country, there is stricter control over spending, the technology in schools is adequate, and buildings are only refurbished when they get shabby. The tax burden is therefore lower in Mary’s country, and the rate of economic growth is slightly higher.

Others may argue that the rate of growth will be higher in a country with a well-funded education system. But that doesn't get a look-in, even though, as Nick Pearce shows, the argument that low taxes lead to high growth is dubious.

5. Sexy, sexy low taxes

Political Scrapbook caught this with alarming speed, but Matt Ridley's section on the evolutionary psychology of low taxes is just bizarre:

Even in an age of working women, sexual continence and gender equality, the man with the most money still gets more sexual opportunities than the man with the least money. Ask them.

So no wonder we dislike inequality. No wonder we want tax to take that money off a Vanderbilt before he grabs all the best women. . .

[Support for taxation is] at least partly plain old sexual jealousy at the root.

Interestingly, there is no mention of the fact that, as well as being a Doctor of Zoology, Matt Ridley is also the Fifth Viscount Ridley, former chairman of Northern Rock. It doesn't take a foray into dodgy evolutionary psychology to work out why he might be in favor of lower taxes.

6. The lack of blue-sky thinking

The oddest thing about the report is how staid it is. Despite all the quirks throughout, its final conclusion – lower most taxes, scrap some – manages to be almost exactly what everyone expected when the commission was announced. Where is the genuinely innovative thinking? They missed the chance to call for a carbon tax, which would necessitate far less spending combating global warming; they missed the chance to call for legalisation and taxation of drugs; they could have taken on some of the right's darlings of spending, such as defence (5.7 per cent of expenditure) or crime and punishment (4.7 per cent) in order to justify their revenue cuts; and they decided against recommending taxation of wealth or land, focusing mainly on the fairness aspects.

It's this final point that really implies that this was a report written with a conclusion already in mind from the start. Which is depressing, because a real discussion of what a tax system drawn from scratch would be like is sorely overdue.

Jesus throws out the moneylenders. Photograph: Getty Images

Alex Hern is a technology reporter for the Guardian. He was formerly staff writer at the New Statesman. You should follow Alex on Twitter.

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As long as Jeremy Corbyn's Labour opponents are divided, he will rule

The leader's foes have yet to agree on when and how a challenge should take place.

Labour MPs began plotting to remove Jeremy Corbyn as leader before he even held the position. They have not stopped since. From the outset, most regarded him as electorally and morally defective. Nothing has caused them to relinquish this view.

A week before the first major elections of this parliament, Labour found itself conducting a debate normally confined to far-right internet forums: was Hitler a Zionist? For some MPs, the distress lay in how unsurprised they were by all this. Since Corbyn’s election last September, the party has become a mainstream venue for hitherto fringe discussions.

Many MPs believe that Labour will be incapable of rebuilding its standing among the Jewish community as long as Corbyn remains leader. In the 1930s, Jewish support for the party was as high as 80 per cent. “They handed you your . . . membership just after your circumcision,” quipped the father in the 1976 television play Bar Mitzvah Boy. By the time of the last general election, a poll found that support had fallen to a mere 22 per cent. It now stands at just 8.5 per cent.

Corbyn’s critics cite his typical rejection of anti-Semitism and "all forms of racism" (as if unable to condemn the former in isolation), his defence of a tweet sent by his brother, Piers (“Zionists can’t cope with anyone supporting rights for Palestine”), and his description of Hamas and Hezbollah as “friends”. The Lab­our leader dismissed the latter remark as a diplomatic nicety but such courtesy was not displayed when he addressed Labour Friends of Israel and failed to mention the country’s name. When challenged on his record of combating anti-Semitism, Corbyn frequently invokes his parents’ presence at the Battle of Cable Street, a reference that does not provide the reassurance intended. The Jewish community does not doubt that Labour has stood with it in the past. It questions whether it is prepared to stand with it in the present.

MPs say that Labour’s inept response to anti-Semitism has strengthened the moral case for challenging Corbyn. One shadow cabinet minister spoke of how the fear of “enormous reputational damage” had pushed him to the brink of resignation. As the New Statesman went to press, Corbyn’s first electoral test was looming. Every forecast showed the party on course to become the first opposition to lose council seats in a non-general-election year since 1985. Yet Corbyn appeared to insist on 3 May that this would not happen, gifting his opponents a benchmark by which to judge him.

Sadiq Khan was projected to become the party’s first successful London mayoral candidate since 2004. But having distanced himself from Corbyn throughout the race, he intends to deny him any credit if he wins. Regardless of the results on 5 May, there will be no challenge to the Labour leader before the EU referendum on 23 June. Many of the party’s most Corbyn-phobic MPs are also among its most Europhile. No cause, they stress, should distract from the defence of the UK’s 43-year EU membership.

Whether Corbyn should be challenged in the four weeks between the referendum and the summer recess is a matter of dispute among even his most committed opponents. Some contend that MPs have nothing to lose from trying and should be prepared to “grind him down” through multiple attempts, if necessary. Others fear that he would be empowered by winning a larger mandate than he did last September and argue that he must be given “longer to fail”. Still more hope that Corbyn will instigate a midterm handover to the shadow chancellor, John McDonnell, his closest ally, whom they regard as a beatable opponent.

Those who are familiar with members’ thinking describe many as “anxious” and in need of “reassurance” but determined that Corbyn receives adequate time to “set out his stall”. One shadow cabinet minister spoke of being “caught between Scylla and Charybdis” – that is, “a Labour Party membership which is ardently Corbynista and a British electorate which is ardently anti-Corbynista”. In their most pessimistic moments, some MPs gloomily wonder which group will deselect them first. The possibility that a new Conservative leader could trigger an early general election is cited by some as cause for haste and by others as the only means by which Corbynism can be definitively discredited.

The enduring debate over whether the Labour leader would automatically make the ballot if challenged (the party’s rules are ambiguous) is dismissed by most as irrelevant. Shadow cabinet members believe that Corbyn would achieve the requisite nominations. Momentum, the Labour leader’s praetorian guard, has privately instructed its members to be prepared to lobby MPs for this purpose.

There is no agreement on who should face Corbyn if his removal is attempted. The veteran MP Margaret Hodge has been touted as a “stalking horse” to lead the charge before making way for a figure such as the former paratrooper Dan Jarvis or the shadow business secretary, Angela Eagle. But in the view of a large number of shadow cabinet members, no challenge will materialise. They cite the high bar for putative leaders – the endorsement of 20 per cent of Labour MPs and MEPs – and the likelihood of failure. Many have long regarded mass front-bench resignations and trade union support as ­essential preconditions for a successful challenge, conditions they believe will not be met less than a year after Corbyn’s victory.

When Tony Blair resigned as Labour leader in 2007, he had already agreed not to fight the next general election and faced a pre-eminent rival in Gordon Brown. Neither situation exists today. The last Labour leader to be constitutionally deposed was J R Clynes in 1922 – when MPs, not members, were sovereign. Politics past and present militate against Corbyn’s opponents. There is but one man who can remove the leader: himself.

George Eaton is political editor of the New Statesman.

This article first appeared in the 06 April 2016 issue of the New Statesman, The longest hatred