Why Labour repeatedly gets its knickers in a twist over taxation policy is entirely beyond me. I mean, correct me if I am being needlessly controversial here, but the basic principle underlying any left of centre take on this matter is simple enough; the more you earn, the more you owe the Inland Revenue.
This isn’t some kind of transitional demand; the idea that the rich should hand over a higher proportion of their income than the less well off has been a mainstay of the broadly progressive outlook since Lloyd George’s people’s budget of 1909.
Levying taxation on this basis has many advantages. Not the least of them is that, however much people grumble when they get their pay slip each month, it is widely perceived to be more or less fair.
It is only when you depart from this default position that you reach the situation where the super-rich do not pay a higher rate of tax than their domestics. In fact, by and large, they pay a lower one.
As a result, taxation has been responsible for getting New Labour getting into more than a few political scrapes over the last year or so, from the indecent haste in following up Tory calls for the abolition of inheritance tax to the cack-handed reform of CGT and the entire non-dom fiasco. All of this is effectively tantamount to one vast job creation scheme for already grossly overpaid tax avoidance lawyers.
Now the jinx has struck again. Brown’s decision to scrap the 10p in the pound income tax rate – a move that leaves up to five million of the poorest people in Britain worse off - has led to the rediscovery of ABC social democracy on the part of some backbenchers.
The move is apparently designed to fund a 2p cut in the basic rate. Yet there are plenty of other ways in which that aim could be achieved. Simply by scrapping taper relief on capital gains tax, for instance, the government could do even better and knock off 3p in the pound.
Indeed, it shouldn’t be beyond the Treasury’s specialists to devise some means of getting low earners out of the tax system altogether.
It turns out that Denis Healey never actually did utter the soundbite he is best known for today, namely a promise to ‘squeeze the rich until the pips squeak’. So why is Alistair Darling seemingly so determined to mete out just this kind of treatment to the poor?
Posted at 14:30, 18 April 2008
Comments (18)
... the idea that the rich should hand over a higher proportion of their income than the less well off has been a mainstay of the broadly progressive outlook since Lloyd George’s people’s budget of 1909.
Maybe so, and there are all sorts of practical benefits that accrue from being able to treat different groups of people differently, but I'm not sure I've ever seen a philosophical justification for progressive/increasing marginal rates of income tax across the income scale (not simply 'the richest' v. 'the poorest). If you take the highest incomes as a kind of evidence of implication in past capitalist oppression or 'profiteering', that's still fairly flimsy, and less likely to command public support today than in 1909.
I can't help thinking that Labour's inability (and, perhaps, unwillingness) to defend the principle of 'progressive' taxation (and I mean those quotes in the nicest possible way) - not to mention the difficulty we face justifying it against hostile questioning - is just as much a part of the reason for the complication, injustices, and inefficiencies of the tax system. Oh, and most of the Left's unwillingness to discuss more radical reforms like flat taxes, minimum incomes, etc...
Sorry, B4L - you mention philosophy - but have you actually read any contemporary political philosophy? Most liberal political philosophers (I mean we're not even talking about socialists here) come to egalitarian conclusions which necessitate wealth redistribution and imply all sorts of radical measures in relation to progessive taxation. Read Brian Barry for instance.
It really says a lot about the Labour Party that 'Bloggers for Labour' seems to be run by someone who seems to see the world through the narrow prism of neo-classical economic assumptions.
I think the treasury made an error in the numbers of people who would pay more with the removal of the 10p band. I read they assumed some 200,000 when in fact it is over 5m. I am one - a woman aged 60 who is not entitled entitled claim age related additional tax allowance until reaching aged 65. I am on a state retired pension (do not qualify for the full rate) and a small company pension. I will pay an additional £212 a year. Add this to a 9.5% council tax increase (police precept went up 79% - hopefully will be capped), energy and food costs and I am much poorer. It seems unfair that I am being penalised at a stage in my life when I can least afford it. I also have a young friend who earns a basic wage in a care home. She is single, able to work 28 hours a week so is not entitled to tax credits. She too will pay more tax from a paltry wage.
This has been a catastrophic tax policy from a Labour Government. It seems the PM was more interested in making the headlines by reducing the 22% band to 20%. He did this. I have also read that at the last PLP he was focussing on being able to achieve the 20% band which was something that the Tories could never do. Sorry - political headlines and outmanoevring the Tories does not mitigate the burden placed on those without children or retired women who have not reached 65 years. It is shameful and I am not enamoured with the comment the PM has since made on the subject. He is not acting in the best interests of the taxpayer. He has discriminated against a huge group in society. You cannot ignore the results of the policy on 5m people who are the bottom earners. Oh yes forgot - those one would assume generally vote for the Labour Party.
I think the party will pay dearly for this policy. Blogs are rife with the injustice and many are stating they will never vote for the Labour Party again. I hope the amendments to the finance bill in the coming week overturns the policy. Labour MPs should hang their heads in shame if they do not oppose this policy.
Ed, not to mention Rawls. Or 'strong' democratic theorists such Benjamin Barber. And that's to be US-UK centric. I could begin elsewhere by citing a host of French Green/radical economicsts (Lipietz onwards) and the defenders of progressive taxation in recent issues of Le Monde Diplomatique. Not that one has to be radical to back this. In fact the principle of progressive taxation was established by Kant, who pointed out, in a variety of texts, that since the wealthy benefit more than other people from the infastructure of society (that is, to make their wealth), they should pay more than anyone else. he also says something about them eneding security so that those not well-off don't come and nick their silver. (I think it's in his Principles of Morals and Politics, but am not sure).
But then you wouldn't expect a contemporary enthusiast for Labour to care very much about social democratic thinking. Or thinking generally. After all we've got Holy Willie Brown to throw all that out of the window while he bows and scrapes to the free-market/workhouse principles of his American friends.
I do know, however, that amongst the low-paid workers, including a shop-steward who is active in my branch and who is affected by this, that the measure is yet another kick in the teeth from Brown and his side-kick Darling. To answer Dave's point: Darling is not poor so why should be give a toss?
I imagine that the object of the exercise was to go for the autumn election (remember that?) buoyed up by the 2% tax cut, with the intention that by the time the abolition of the 10% band kicked in the newly elected Brown administration would be safely ensconced in Number Ten. Alas, one loss of nerve later and Brown ends up being outflanked on the left by David Cameron.
I'm not sure what Plan B is. Abolish the Quinquennial Act, presumably.
It's alright. Mr Brown says he's still committed to an anti-poverty stratergy (Ha,ha). Remind me again Dave, why I should vote Labour in the local elections?
``Ed, not to mention Rawls.''
The chief problem with A Theory of Justice is that it can be soporific, Rawls not being the most graceful writer around. But perhaps, tho' it is less philosophically rigorous, B4L should start with a Labour classic, viz., In Place of Fear (or re-read it, as the case may be).
Something that no one seems to be distinguishing her3: does "progressive" taxation have to mean higher marginal rates on the rich, or can it mean simply higher average rates?
If the latter then a flat tax (in my preferred universe combined with a high personal allowance or even a negative income tax) is indeed progressive.
Feeder
Oh absolutely. I have a copy of 'A Theory of Justice' on my bookshelf - let's just say it's not particularly well thumbed.
Of course the thing about egalitarian liberal normative principles of justice is that they are inherently incompatible with capitalist relations of production. It's just that liberal political philosophers tend not to want to notice this.
> a flat tax (in my preferred universe combined with a high personal allowance
I used to like that idea - a system with two bands (0% and high%). The problem is that, when you factor in regressive taxes (eg VAT), the poor are still hit harder. It'd maybe work if other taxes were abolished, or at least lowered (or if the increased revenue was used to fund, say, free public transport).
Never mind Income Tax, shouldn't the left be campaigning for inheritances, "capital gains", share dividends and interest on savings to be taxed at the same rate (at least) as wages? Surely better to tax unearned than earned income?
Dave, you're a financial journalist I believe. Can you explain why it is possible not to reverse the abolition of the 10p tax rate but it is possible to give the banks billions of taxpayers money? Remind me again, why I should vote Labour?
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Ed sayeth:
``Of course the thing about egalitarian liberal normative principles of justice is that they are inherently incompatible with capitalist relations of production. It's just that liberal political philosophers tend not to want to notice this.''
Rawls noticed it, he just was not keen on it, preferring his concept of a ``property-owning democracy''. See Justice as Fairness: a Restatement (Harvard, 2001), in particular section 52.
Of course, then there are the views of Marx and Engels, who, following Adam Smith observed that the burden of taxation can't fall on the waged/salaried classes - any increase in real tax (i.e. a decrease in real as opposed to nominal wages) will be passed on to employers through wage inflation - either through reduction in output, walking off the job or through trade union pressure.
This whole business is about ensuring that only those workers with children gain the cost of rearing them, and the rest of us only get the cost of maintaining ourselves.
Any suggestion from a Labour minister that there is not enough money to fund tax cuts is ridiculous. Just look at the £175 billion bill for quangos each year and then start chopping and slicing out the money needed to help the poorest in society.
"..the indecent haste in following up Tory calls for the abolition of inheritance tax ."
I wonder why?
Could somebody kindly explain to me what the 10p in the pound income tax rate actually is? I literally don't have a clue. The opponents of it being scrapped say it will leave the poor poorer, the government argue that the wider tax reforms this is part of will benefit the poor over all. Not understanding anything about it I haven't the foggiest either way.
Somebody please - help a brother out.
OK, try this. Everyone has an allowance, and amount of money they can earn that will not be taxed. After that, taxation begins. Until this year this would have begun on a band of 10%, until you hit another threshold which would be taxed at 22%.
So, say the allowance were £10, and you earn £100. The 10% range goes up to £30 and thereafter it is 20%.
So, the first £10 is tax free, the next £20 are taxed at 10% (i.e. £2 worth of tax). The remaining £70 is taxed at 20% (i.e. £14 worth of tax). So your take home pay would be £10 + (£20-£2)+(£70-£14) = £84 overall.
If you abolish the 10% band, but keep that section of pay as taxable, the figure becomes £10+(£90-£18) = £82 overall, so tax has gone up by £2.
Hope that helps.