Saturday, 10 April 2010

Tax still matters to ordinary people

The single most significant policy announcement in British politics over the last three years was a call to reduce tax. Overnight the opinion polls delivered a substantial Conservative lead from a position of virtual stalemate. The announcement was, of course, the proposal to increase the threshold for Inheritance Tax to £1million.

As the formal election campaign started the first dividing line between the parties concerned a tax, National Insurance. The Conservative lead in the polls, which had been falling, appears to be increasing again after they said they would increase this tax less than Labour.

Everyone I talk to tells me they think they pay too much tax. I really do mean everyone, including businessmen engaged in cash intensive fields such as small shops and restaurants who have (and, I suspect, take) the opportunity to trouser a fair few quid out of sight of their accountants. The point made to me is always the same: "I work bloody hard and don't see why the government should take so much of my money".

There are some who add that others should pay more tax so that they should pay less but I have spoken to no one who thinks they should pay more. Were I to come across such a person I would inform them that voluntarily additional tax can be paid and ask them how much they plan to give. It is one of those wonderful damned-if-you-do-and-damned-if-you-don't questions. If they plan to give more they are damned for not having done so already, if they don't plan to give more they are damned for saying one thing and doing another. The question is not just a cute trick, it goes to the root of all arguments for more tax to be levied.

Whether that argument is put forward by an ordinary individual or a politician it is entirely legitimate to ask whether they practice what they preach. After all, what reason can they have for not volunteering additional tax if they believe the current level is too low? It seems to me there can only be two reasons.

They might argue that it is not fair that only they pay more. Were they to take that approach they would have to acknowledge that tax is a burden unmatched by a concomitant benefit. Were it beneficial there would be nothing unfair about an individual volunteering to give the Treasury an extra £1,000. It would be no different from that person volunteering to pay £1,000 to charity when his co-worker on an identical salary gives nothing. Give to charity and the least you can say is that you have done something that might benefit others, indeed there can be no other justification for doing so. They would never consider tax to be akin to charitable donations.

On the other hand they might argue that one person paying additional tax will make no difference whereas everyone paying more will provide sufficient funds for good things to result. This is a sound argument, to a point. Incidentally it is exactly the reason why any step taken to reduce the UK's carbon dioxide emissions is a complete waste of time and money. Even if human CO2 emissions are potentially harmful there is absolutely no point us doing anything about ours unless all the big players do something substantial about theirs, which they won't. That is beside the point but is worth saying anyway. Back to the point, the second reason for not volunteering additional tax rests on the presumption that more people paying more tax will have beneficial consequences.

The prospect of additional Inheritance Tax being put to good use did not prevent a policy of limiting that tax causing a surge in support for the Conservatives. I believe there are three reasons for this.

First, it is entirely natural for parents to want their children to have a more comfortable life than they lived. Leaving the material profits of your life to your children is part of that instinct and has become part of the culture of this country. Inheritance Tax does not lead to the question "why should the government take so much of my money" but a slightly different question, a question of greater emotional impact: "why should the government prevent my children getting my money?"

Secondly, whether you approve of current house prices or not the fact remains that an awful lot of people have a net worth substantially above the current IT threshold of £325,000. You can't get a one-bedroomed flat in many parts of London for £325,000. The proposed increase of the threshold to £1million is not about those with assets worth £1million or more, it is about those with assets worth between £325,000 and £1million. In many parts of the country that encompasses Mr Average. What is seen and promoted as a rich man's tax is hitting the non-rich and they don't like it.

Thirdly, it provided a first dab on the brake pedal after more than a decade of the tax accelerator being pushed ever closer to the floor. The view expressed to me in private discussions was suddenly out in the open as part of mainstream politics. People think they pay too much tax and a politician said, in relation to one tax, that he agreed they should pay less. It was an important moment because it broke the consensus in a way that accorded with the view of many voters.

Of course there are now enormous additional costs for taxpayers to bear as a result of the government spending billions of pounds it doesn't have. But that does not change the fact that people resent paying additional tax when they see no additional benefit resulting. We are not yet at the position of the people saying "we will pay this much and no more, you must cut your cloth accordingly". I can't help thinking that the effect on the opinion polls of the Conservatives' IT proposal and their position taken on National Insurance in the last week might result in that view coming to the fore.


Dick Puddlecote said...

Seen your name check here? ;-)

TheFatBigot said...

Thank you Mr P. How exciting!

Man in a Shed said...

Just spotted the Indie article, thanks to your tip off.

I think they slightly miss the point, but what's new ?

Stan said...

With regards IT - the reason we buy our homes and accumulate wealth is to leave a legacy for our children. For most of us, those homes and that legacy are modest but, as you say, thanks to the threshold we end up giving large slices of that to the government - but only if we still manage to hold on to that wealth till our death.

Fewer and fewer people are managing to do that thanks to the high costs of care in our old age. Anyone who has led a sensible and frugal lifestyle and managed to acquire their own home and a little wealth is then penalised by the state for their hard work and diligence by being forced sell off their home and us their wealth to pay for this care while those who spent their lives idly frittering away their cash gets the same service for nothing - and the main political parties think this is "fair"?

I don't.

With regards tax in general. For the last thirty years at least any cuts in direct taxation have been clawed back and more by indirect taxation. I don't expect this to change under Cameron - if anything I expect it to increase what with his belief in AGW and "green" taxes.