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.

Photo: Getty
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Who will win in Stoke-on-Trent?

Labour are the favourites, but they could fall victim to a shock in the Midlands constituency.  

The resignation of Tristram Hunt as MP for Stoke-on-Central has triggered a by-election in the safe Labour seat of Stoke on Trent Central. That had Westminster speculating about the possibility of a victory for Ukip, which only intensified once Paul Nuttall, the party’s leader, was installed as the candidate.

If Nuttall’s message that the Labour Party has lost touch with its small-town and post-industrial heartlands is going to pay dividends at the ballot box, there can hardly be a better set of circumstances than this: the sitting MP has quit to take up a well-paid job in London, and although  the overwhelming majority of Labour MPs voted to block Brexit, the well-advertised divisions in that party over the vote should help Ukip.

But Labour started with a solid lead – it is always more useful to talk about percentages, not raw vote totals – of 16 points in 2015, with the two parties of the right effectively tied in second and third place. Just 33 votes separated Ukip in second from the third-placed Conservatives.

There was a possible – but narrow – path to victory for Ukip that involved swallowing up the Conservative vote, while Labour shed votes in three directions: to the Liberal Democrats, to Ukip, and to abstention.

But as I wrote at the start of the contest, Ukip were, in my view, overwritten in their chances of winning the seat. We talk a lot about Labour’s problem appealing to “aspirational” voters in Westminster, but less covered, and equally important, is Ukip’s aspiration problem.

For some people, a vote for Ukip is effectively a declaration that you live in a dump. You can have an interesting debate about whether it was particularly sympathetic of Ken Clarke to brand that party’s voters as “elderly male people who have had disappointing lives”, but that view is not just confined to pro-European Conservatives. A great number of people, in Stoke and elsewhere, who are sympathetic to Ukip’s positions on immigration, international development and the European Union also think that voting Ukip is for losers.

That always made making inroads into the Conservative vote harder than it looks. At the risk of looking very, very foolish in six days time, I found it difficult to imagine why Tory voters in Hanley would take the risk of voting Ukip. As I wrote when Nuttall announced his candidacy, the Conservatives were, in my view, a bigger threat to Labour than Ukip.

Under Theresa May, almost every move the party has made has been designed around making inroads into the Ukip vote and that part of the Labour vote that is sympathetic to Ukip. If the polls are to be believed, she’s succeeding nationally, though even on current polling, the Conservatives wouldn’t have enough to take Stoke on Trent Central.

Now Theresa May has made a visit to the constituency. Well, seeing as the government has a comfortable majority in the House of Commons, it’s not as if the Prime Minister needs to find time to visit the seat, particularly when there is another, easier battle down the road in the shape of the West Midlands mayoral election.

But one thing is certain: the Conservatives wouldn’t be sending May down if they thought that they were going to do worse than they did in 2015.

Parties can be wrong of course. The Conservatives knew that they had found a vulnerable spot in the last election as far as a Labour deal with the SNP was concerned. They thought that vulnerable spot was worth 15 to 20 seats. They gained 27 from the Liberal Democrats and a further eight from Labour.  Labour knew they would underperform public expectations and thought they’d end up with around 260 to 280 seats. They ended up with 232.

Nevertheless, Theresa May wouldn’t be coming down to Stoke if CCHQ thought that four days later, her party was going to finish fourth. And if the Conservatives don’t collapse, anyone betting on Ukip is liable to lose their shirt. 

Stephen Bush is special correspondent at the New Statesman. His daily briefing, Morning Call, provides a quick and essential guide to British politics.