Utterly predictably in the first televised Sunak vs Starmer head-to-head, the prime minister raised (12 times) the issue of taxation. He asserted that Labour’s programme for government would cost each working family £2,000 in increased taxation. This was an attempt to frame the public finance debate as ‘public bad: private good’. Money, according to Sunak, is to be left in the hands of private individuals – all part of the Conservative appeal to their base: ‘We will give you tax cuts.’
And yet we know that public services in the UK are on their knees due to lack of finance. Wherever you look, be it NHS waiting lists and crumbling hospitals or local councils going bust due to funding cuts, the situation is dire. We can add in a justice system where a shortage of money has caused a long backlog of cases going to court. Our prisons are a national disgrace. Meanwhile the school building maintenance backlog has risen to £14bn. I could go on.
The case for increased public spending is incontrovertible. The government may legitimately borrow to finance investment projects, but to cover increased revenue spending will require an increased flow of tax receipts into HM Treasury.
Bringing in more money
Richard Murphy is professor of accounting practice at Sheffield University and author of the ‘Taxing Wealth Report 2024’. In that report he shows that:
“By making up to 30 relatively simple changes to existing UK taxes, and to the way our tax system is managed, up to £90bn of new tax revenue could be raised a year. These sums would come almost entirely from those in the top 10% of income and wealth holders in the UK, or from those who live off unearned income such as dividends, rents, interest and capital gains.”
Much of what Murphy suggests is not radical innovation, but adjustments to the existing system. These have the attraction of being changes that any Labour government could institute in its first year of office, thereby reaping early increases in tax flows. Let me give just three of the examples supplied by Murphy in his Guardian article.
- Charging capital gains tax to the same rate as income tax should raise £12bn of extra tax a year. If this policy had been in operation in 2022-23, Sunak would have paid £808,200 on the £1.8m of investment income he made that year because his tax rate on those gains would have increased from 20% to 45%.
- Charging VAT on the supply of financial services, which are inevitably consumed by the best off, could raise £8.7bn of extra tax a year. These charges would mainly apply to the fees of banks, financial advisers, pension consultants, and mortgage advisers – most of whose charges do not carry VAT at present.
- Investing £1bn in HMRC so that it might collect all tax owing by the UK’s five million or so companies, when 30% of that sum goes unpaid at present. That might raise £12bn a year. Reopening local tax offices who would build up a store of local knowledge. Murphy argues that local tax inspectors ‘feeling the collars’ of those local firms underpaying their tax gives a 12:1 rate of return.
The need for a wealth tax
In a previous article for Yorkshire Bylines I drew attention to the work of three academics (Advani, Summers and Chamberlain) who had come up with a plan for a one-off tax on wealth, levied over a five year period. As with Murphy’s suggestions, the impact of the tax would be on the richest in society – those with the broadest shoulders.
Setting the threshold at a modest level should bring in an extra £30bn in revenue per year. In short, this one-off wealth tax is capable of providing, for example, the funding both for Labour’s Green Investment Plan from year 1 together with the removal of the two-child cap on child benefit.
In the longer run the new government should consider introducing Land Value Taxation (LVT) Wikipedia tells us that LVT has many advantages. For a start, it is, in economists’ terms an ‘efficient’ tax – in that it has minimal disincentive effects. (By contrast: employer national insurance contributions are a disincentive to employ labour, and high marginal rates of income tax can be a disincentive to work and the taking of entrepreneurial risks).
Just as important, LVT is progressive in that it falls to landowners to pay it, and at the same time encourages the most efficient use of land. However, here we are concerning ourselves with increasing the government’s tax take from the economy, and LVT has significant pluses as a new source, and virtually no downsides. Independently, four Nobel Laureates in Economics have given LVT the thumbs up.
Taxation is the price we pay for civilization
Richard Murphy began his Guardian piece with the words:
“‘How are you going to pay for it?’ Over the past 14 years, it would seem that no other question has been so destructive for British society. That is because the vast majority of the country’s leading politicians still seem to believe that additional public spending or investment is impossible to finance. The result is a belief, explicitly stated or not, in the need for continued austerity, which is the policy that has seriously undermined UK economic performance since 2010.”
Above, I have outlined various examples of how more tax can be levied in ways that are universally progressive. Inequality in our society would be reduced as the impact of higher taxes fell solely on the broadest shoulders. The new government elected after 4 July would have the funding to set about restoring our public services and public realm.
The ultra-selfish Tory attitude to taxation needs to be thoroughly challenged. It would be handy if more of the UK electorate were familiar with and took to heart the words of the report back of a committee appointed by the governor of Vermont in 1852 to identify the best tax system. The committee wrote:
“Taxation is the price which we pay for civilization, for our social, civil and political institutions, for the security of life and property, and without which, we must resort to the law of force.”
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