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


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


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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The Tories are the zombie party: with an ageing, falling membership, still they stagger on to victory

One Labour MP in Brighton spotted a baby in a red Babygro and said to me: “There’s our next [Labour] prime minister.”

All football clubs have “ultras” – and, increasingly, political parties do, too: although, in the case of political parties, their loudest and angriest supporters are mostly found on the internet. The SNP got there first: in the early days of email, journalists at the Scotsman used to receive bilious missives complaining about its coverage – or, on occasion, lack of coverage – of what the Scottish National Party was up to. The rest soon followed, with Ukip, the Labour Party and even the crushed Liberal Democrats now boasting a furious electronic horde.

The exception is the Conservative Party. Britain’s table-topping team might have its first majority in 18 years and is widely expected in Westminster to remain in power for another decade. But it doesn’t have any fans. The party’s conference in Manchester, like Labour’s in Brighton, will be full to bursting. But where the Labour shindig is chock-full of members, trade unionists and hangers-on from the charitable sector, the Conservative gathering is a more corporate affair: at the fringes I attended last year, lobbyists outnumbered members by four to one. At one, the journalist Peter Oborne demanded to know how many people in the room were party members. It was standing room only – but just four people put their hands up.

During Grant Shapps’s stint at Conservative headquarters, serious attempts were made to revive membership. Shapps, a figure who is underrated because of his online blunders, and his co-chair Andrew Feldman were able to reverse some of the decline, but they were running just to stand still. Some of the biggest increases in membership came in urban centres where the Tories are not in contention to win a seat.

All this made the 2015 election win the triumph of a husk. A party with a membership in long-term and perhaps irreversible decline, which in many seats had no activists at all, delivered crushing defeats to its opponents across England and Wales.

Like José Mourinho’s sides, which, he once boasted, won “without the ball”, the Conservatives won without members. In Cumbria the party had no ground campaign and two paper candidates. But letters written by the Defence Secretary, Michael Fallon, were posted to every household where someone was employed making Trident submarines, warning that their jobs would be under threat under a Labour government. This helped the Tories come close to taking out both Labour MPs, John Woodcock in Barrow and Furness and Jamie Reed in Copeland. It was no small feat: Labour has held Barrow since 1992 and has won Copeland at every election it has fought.

The Tories have become the zombies of British politics: still moving though dead from the neck down. And not only moving, but thriving. One Labour MP in Brighton spotted a baby in a red Babygro and said to me: “There’s our next [Labour] prime minister.” His Conservative counterparts also believe that their rivals are out of power for at least a decade.

Yet there are more threats to the zombie Tories than commonly believed. The European referendum will cause endless trouble for their whips over the coming years. And for all there’s a spring in the Conservative step at the moment, the party has a majority of only 12 in the Commons. Parliamentary defeats could easily become commonplace. But now that Labour has elected Jeremy Corbyn – either a more consensual or a more chaotic leader than his predecessors, depending on your perspective – division within parties will become a feature, rather than a quirk, at Westminster. There will be “splits” aplenty on both sides of the House.

The bigger threat to Tory hegemony is the spending cuts to come, and the still vulnerable state of the British economy. In the last parliament, George Osborne’s cuts fell predominantly on the poorest and those working in the public sector. They were accompanied by an extravagant outlay to affluent retirees. As my colleague Helen Lewis wrote last week, over the next five years, cuts will fall on the sharp-elbowed middle classes, not just the vulnerable. Reductions in tax credits, so popular among voters in the abstract, may prove just as toxic as the poll tax and the abolition of the 10p bottom income-tax rate – both of which were popular until they were actually implemented.

Added to that, the British economy has what the economist Stephen King calls “the Titanic problem”: a surplus of icebergs, a deficit of lifeboats. Many of the levers used by Gordon Brown and Mervyn King in the last recession are not available to David Cameron and the chief of the Bank of England, Mark Carney: debt-funded fiscal stimulus is off the table because the public finances are already in the red. Interest rates are already at rock bottom.

Yet against that grim backdrop, the Conservatives retain the two trump cards that allowed them to win in May: questions about Labour’s economic competence, and the personal allure of David Cameron. The public is still convinced that the cuts are the result of “the mess” left by Labour, however unfair that charge may be. If a second crisis strikes, it could still be the Tories who feel the benefit, if they can convince voters that the poor state of the finances is still the result of New Labour excess rather than Cameroon failure.

As for Cameron, in 2015 it was his lead over Ed Miliband as Britons’ preferred prime minister that helped the Conservatives over the line. This time, it is his withdrawal from politics which could hand the Tories a victory even if the economy tanks or cuts become widely unpopular. He could absorb the hatred for the failures and the U-turns, and then hand over to a fresher face. Nicky Morgan or a Sajid Javid, say, could yet repeat John Major’s trick in 1992, breathing life into a seemingly doomed Conservative project. For Labour, the Tory zombie remains frustratingly lively. 

Stephen Bush is editor of the Staggers, the New Statesman’s political blog.

This article first appeared in the 01 October 2015 issue of the New Statesman, The Tory tide