If the likes of Philip Green's family desire the rights that come with UK citizenship, they should be required to make fair tax contributions. Photo: Getty
Show Hide image

Leader: Labour should make itself the party of tax cuts and bold tax reform

If the party was radical rather than obsessed with process and presentation, it would be setting out proposals to overhaul our tax system.

Our tax system is just about the most unfair and inefficient imaginable. The Institute for Fiscal Studies has said that the UK has “an opaque jumble of different effective rates [of tax] as a result of tapered allowances and a separate National Insurance system”. The system urgently needs reform but which politician has the stamina and originality of thought to achieve it?

However, some change might be coming. It has been reported that George Osborne is considering merging National Insurance (NI) and income tax into a single tax. Such a move would, it has been suggested, have advantages for a Conservative chancellor. It would further weaken the contributory principle that was the foundation of the welfare state but that has long since been eroded; it would also raise the headline rate of taxation, and thus increase a desire for tax cuts because people would have a clearer sense of how much of their income they were paying to the state.

Yet, in spite of these objections, we would support the merging of NI and income tax in the interests of greater transparency but also because we believe low- and middle-income earners in Britain already pay too much tax, especially when fuel duty, VAT, council tax and stagnant real wages are taken into account. Ed Miliband complains about a “cost-of-living crisis”. Perhaps, in response, he should consider cutting the average earner’s tax burden.

Our income-tax system is opaque. Governments delight in obfuscation and complication. At present, the marginal income-tax rate on a single earner on the median salary of £26,500 is officially 20 per cent; in fact, when you take NI into account, it is 32 per cent. The coalition government likes to boast that, by raising the personal tax allowance to £10,000, it has taken low earners out of income tax altogether. It has done nothing of the kind.

If the Labour Party was radical rather than obsessed with process and presentation, and if it wanted to win a popular mandate rather than merely limp over the line in coalition with whatever might be left of the Liberal Democrats at Westminster after the general election in 2015, it would be setting out proposals to overhaul our tax system.

Indeed, it would aspire to become a party of tax cuts for low- and middle-income earners and seek to switch some of the burden of taxation from income and consumption to static assets such as property and land, as well as environmental bads. It would reform inheritance tax so that the rich become less able to avoid it. It would introduce land value taxes, at least for business and agricultural land but also potentially for property. The rebanding of council tax, which is based on valuations more than 20 years old, would also be an essential part of any wide-ranging programme of reform.

Such policies would ensure that those who have benefited most from the house-price inflation of the past decade or so were making a fair contribution to the national burden: property, unlike capital, cannot be hidden in offshore accounts.

Creating the political space for such a course of action, however, would require the Labour Party to make a more persuasive case for progressive taxation. For too long, paying your fair share in taxes has been framed as an unfortunate burden, rather than part of what it means to live as a responsible citizen in a free and open society.

A first, bold step towards achieving a more equitable and transparent tax system would be to change the rules concerning those ultra-rich British citizens who reside abroad for tax reasons. If those such as the family of Philip Green – the billionaire chief executive of the Arcadia retail group (and adviser on public spending to the Conservative Party) whose wife is resident in Monaco – desire the rights and security that come with British citizenship, they should be required to make a fair contribution in taxation to the British state.

If an American wishes to retain US citizenship, he is liable for federal taxes no matter where he lives in the world. It is a convention that dates back to 1861 and the American civil war. Surely it is time for all those Britons who hide their money tax-free in overseas accounts or in tax havens to pay up, as Americans are obliged to do – or renounce the right to be British. Here is one policy that, if it were adopted by the Labour Party, would have genuine popular appeal. What’s there not to like about it? 

This article first appeared in the 02 July 2014 issue of the New Statesman, After God Again

Photo: Getty
Show Hide image

The Future of the Left: A new start requires a new economy

Creating a "sharing economy" can get the left out of its post-crunch malaise, says Stewart Lansley.

Despite the opportunity created by the 2008 crisis, British social democracy is today largely directionless. Post-2010 governments have filled this political void by imposing policies – from austerity to a shrinking state - that have been as economically damaging as they have been socially divisive.

Excessive freedom for markets has brought a society ever more divided between super-affluence and impoverishment, but also an increasingly fragile economy, and too often, as in housing, complete dysfunction.   Productivity is stagnating, undermined by a model of capitalism that can make big money for its owners and managers without the wealth creation essential for future economic health. The lessons of the meltdown have too often been ignored, with the balance of power – economic and political – even more entrenched in favour of a small, unaccountable and self-serving financial elite.

In response, the left should be building an alliance for a new political economy, with new goals and instruments that provide an alternative to austerity, that tackle the root causes of ever-growing inequality and poverty and strengthen a weakening productive base. Central to this strategy should be the idea of a “sharing economy”, one that disperses capital ownership, power and wealth, and ensures that the fruits of growth are more equally divided. This is not just a matter of fairness, it is an economic imperative. The evidence is clear: allowing the fruits of growth to be colonised by the few has weakened growth and made the economy much more prone to crisis.

To deliver a new sharing political economy, major shifts in direction are needed. First, with measures that tackle, directly, the over-dominance of private capital. This could best be achieved by the creation of one or more social wealth funds, collectively held financial funds, created from the pooling of existing resources and fully owned by the public. Such funds are a potentially powerful new tool in the progressive policy armoury and would ensure that a higher proportion of the national wealth is held in common and used for public benefit and not for the interests of the few.

Britain’s first social wealth fund should be created by pooling all publicly owned assets,  including land and property , estimated to be worth some £1.2 trillion, into a single ring-fenced fund to form a giant pool of commonly held wealth. This move - offering a compromise between nationalisation and privatization - would bring an end to today’s politically expedient sell-off of public assets, preserve what remains of the family silver and ensure that the revenue from the better management of such assets is used to boost essential economic and social investment.

A new book, A Sharing Economy, shows how such funds could reduce inequality, tackle austerity and, by strengthening the public asset base, rebalance the public finances.

Secondly, we need a new fail safe system of social security with a guaranteed income floor in an age of deepening economic and job insecurity. A universal basic income, a guaranteed weekly, unconditional income for all as a right of citizenship, would replace much of the existing and increasingly means-tested, punitive and authoritarian model of income support. . By restoring universality as a core principle, such a scheme would offer much greater security in what is set to become an increasingly fragile labour market. A basic income, buttressed by a social wealth fund, would be key instruments for ensuring that the potential productivity gains from the gathering automation revolution, with machines displacing jobs, are shared by all.  

Thirdly, a new political economy needs a radical shift in wider economic management. The mix of monetary expansion and fiscal contraction has proved a blunderbuss strategy that has missed its target while benefitting the rich and affluent at the expense of the poor. By failing to tackle the central problem  – a gaping deficit of demand (one inflamed by the long wage squeeze and sliding investment)  - the strategy has slowed recovery.  The mass printing of money (quantitative easing) may have helped prevent a second great depression, but has also  created new and unsustainable asset bubbles, while austerity has added to the drag on the economy. Meanwhile, record low interest rates have failed to boost private investment and productivity, but by hiking house prices, have handed a great bonanza to home owners at the expense of renters.

Building economic resilience will require a more central role for the state in boosting and steering investment programmes, in part through the creation of a state investment bank (which could be partially financed from the proposed new social wealth fund) aimed at steering more resources into the wealth creating activities private capital has failed to fund.

With too much private credit used for financial speculation and property, and too little to small companies and infrastructure, government needs to play a much more direct role in creating credit, while restricting the almost total freedom currently handed to private banks.  Tackling the next downturn, widely predicted to land within the next 2-3 years, will need a very different approach, including a more active fiscal policy. To ensure a speedier recovery from recessions, future rounds of quantitative easing should, within clear constraints, boost the economy directly by financing public investment programmes and cash handouts (‘helicopter money’).  Such a police mix – on investment, credit and stimulus - would be more effective in boosting the real economic base, and would be much less pro-rich and anti-poor in its consequences.

These core changes would greatly reform the existing Anglo-Saxon model of capitalism and provide the foundations for building support for a new direction for progressive politics. They would pioneer new tools for building a fairer, more dynamic and more stable economy. They could draw on experience elsewhere such as the Alaskan annual citizen’s dividend (financed by a sovereign wealth fund) and the pilot basic income schemes launching in the Netherlands, Finland and France.  Even mainstream economists, including Adair Turner, former chairman of the Financial Services Authority, are now talking up the principle of ‘helicopter money’. For these reasons, parts of the package are likely to prove publicly popular and command support across the political divide. Together they would contribute to a more stable economy, less inequality, and a more even balance of power and opportunity.

 

Stewart Lansley is the author of A Sharing Economy, published in March by Policy Press and of Breadline Britain, The Rise of Mass Impoverishment (with Joanna Mack).