Fear and alarm reveals truth of tax

UK Policy Aug 30, 2013 2 Comments

Despite the mantra that tax cuts resolve economic concerns, writes Robin McAlpine, it’s only the rich who ever benefit – Scotsman article from today

When I was young we played on moorland close to our house. If we strayed into the wrong place, a peewit would rise into the air and circle, letting out an agitated screech. This was not because we had stumbled across its nest, it was because we were getting too close to a place where we might possibly stumble across its nest. Its hysteria was preventative.

As a peewit to its nest, so the right-wing of politics to tax. It is of the utmost importance that we are not allowed to stray into the territory of a fact-based debate because it would start to turn the orthodoxies upside down. And so, if anyone even approaches the tax debate in an open-minded way it is essential that they are warned off through a display of the most hysterical sort possible. A Daily Mail front-page shocker about “ordinary people” being “thumped” for example.

I appreciate that this may strike you as a lot of heresy for a Friday morning, but people want better pay and better public services much more than lower taxes. And a higher tax-take makes a more efficient, effective and competitive economy and a much more equal and happy society. Let me explain.

Since 1983 the British Social Attitudes survey has every year asked a very substantial sample of people whether they’d like to raise taxes and invest more in public services, keep taxes and public services the same or reduce taxes and invest less in public services. In those 30 years there has not been a single occasion in which more than 11 per cent of the British public have supported cutting tax.

The fact is that tax is good for the vast majority of us and the more tax is taken the better. If you map rates of tax to economic and social outcomes, the pattern is undeniable. While markets are efficient at allocating resources in commercial areas, when it comes to the range of “social protection” – everything from education and health to infrastructure and policing – collective provision is much more efficient.

Take the following example. In Sweden they do indeed spend about 41 per cent of their income on social protection. But in the US they spend 40 per cent of their income on social protection. It’s just that the collective, tax-funded model used in Sweden is massively more efficient than the everyone-for-themselves commercial model in the US. Swedes and Americans pay the same. The Swedes get everything they pay for, the Americans get ripped off.

Brian Monteith wrote a critique of the Jimmy Reid Foundation’s Common Weal ideas in this paper on Monday and to those of his persuasion I ask a simple question; where does all the “lost” fiscal revenue go? While in Sweden almost every penny spent on social protection goes into creating high-quality jobs, in the US the business model is to create as few jobs as possible and extract as much in corporate profits as you can.

So tax not only creates social wellbeing much more efficiently, it is way more efficient economically. Hoarded money has no impact on the economy; people in good jobs does. It makes everyone wealthier and creates a virtuous cycle with more and more money in the economy.

Doubt this? Look at the statistics again. All the countries with the highest rates of take-home pay have the highest tax rates. This is not in spite of tax, it is because of tax. The real impact of tax is to make all but the very top of society richer – think what society would look like with no tax.

Next you’ll be told that tax makes you uncompetitive internationally. Except even the most market-friendly of competitiveness indicators, such as those produced by the World Trade Organisation or the IMD international business school places high-tax nations such as Sweden, Norway, Germany or Denmark well above the UK. In fact, most of the most competitive countries economically have higher tax rates than the UK and almost all the Nordic nations are in the top ten. Once again, since higher tax favours productive and manufacturing enterprises over low-pay, low-productivity, low-margin businesses, this is exactly what you’d expect to happen.

And so to public finances, because it is here that the story of tax eventually leads. We are told relentlessly that we can no longer afford the public services that the population demands and so tough choices need to be made. And yet the reality is that we have a chronic low-pay economy which destabilises the tax base and leaves the public paying billions of pounds to subsidise in-work poverty.

Only one in five Scots earns between £25,000 and £35,000. Three out of five earn less; half less than £21,000. The Reid Foundation has modelled what would happen to Scotland’s finances if we had a labour market comparable to other economies at our state of development. If we moved even relatively modest numbers of people out of low pay into medium pay and reduced unemployment we could increase the tax take by over 30 per cent without raising tax rates at all.

The anti-tax lobby has been consistently dishonest. It has refused to accept the evidence, it refuses to look at internationally comparable data, it has refused to challenge a low-pay culture, it has refused to model the alternatives. But above all, it goes into every general election promising to protect public services in the full knowledge it is the only chance it has to get elected but with no intention of putting in place a credible tax regime or labour market policy. This lie is 40 years old. It is this lie and not public services that has made the UK the world’s second most indebted advanced economy.

We’ve got it all wrong about tax. We really have.

• Robin McAlpine is director of the Jimmy Reid Foundation

2 Responses to “Fear and alarm reveals truth of tax”

  1. John Scott says:

    One of the problems for those, such as Robin McAlpine, seeking to persuade Scots to support a ‘high tax for quality services’ approach is that there is a severe lack of trust in the institutions that are intended to supply high quality services. The first decade of the Scottish Parliament/Government was marked by big increases in spending on public services. Local government was ‘awash with money’ as Steven Purcell of Glasgow Council phrased it. The public did not see a step change in the services provided. Much of the cash went on improved pay, conditions and pensions for middle class, public service workers. When teachers got a 23% pay increase in 2001, it did not alter the very uneven quality of Scottish school performance. Instead of looking at Social Attitude surveys, look at elections. Scottish parties are competing to promise low taxation – in the form of a council tax freeze. When the SNP proposed ‘a penny for Scotland’ tax increase, it lost heavily.
    Pretending that people are willing to pay higher taxes than is the case is self-defeating.

    PS ‘In Sweden almost every penny spent on social protection goes into creating high quality jobs’
    What is the basis for this assertion ?

  2. johnroderickyoung says:

    Is Socialism Dead?

    History records that the Labour Party was establish over a century past as a consequence of trade unions sending representatives of the movement to Westminster to stand as Members of Parliament. The party was founded on a socialist agenda of ‘common ownership’ (nationalisation) established within its constitution of 1918. Clause Four of the constitution enshrined this commitment. Despite the introduction of nationalisation by the Labour Party gaining power, several attempts were made to remove or amend Clause Four from the Party constitution. It wasn’t until Tony Blair’s government came to be that the Clause was finally amended removing its commitment to public ownership of industry and ensuring the public sector did not necessarily remain in public ownership. This decision was a fundamental shift in the Labour Party’s founding beliefs and a move away from its traditional supporters in attracting middle England to the ranks of the Party.

    It would appear that ‘socialism’ in the true sense of the word (founding principals) is no longer the bedrock of the present Labour Party, which for many lies right of centre and increasingly distant from its working class origins leaving a principally two party system with no distinguishing differences in political ideology.

    Socialism is defined as an economic system of social ownership and cooperative management of the countries economy. Essentially socialism provides its citizens with a means to control, manage and ensure public accountability of essential services that provide for the well-being of all, including health and care services, transport, security, broadcasting and the welfare state. These services form the basic human needs for a society to ensure its ability to establish a democratic means of protecting its citizens personal freedoms without the chains of capitalist greed that seek to ensure a two class society prevails (haves and have nots). Socialism should ensure that the benefits of such a society are redistributed to those it serves equally whilst reinvesting its success in furthering the benefits of a fairer society.

    Alas such a society is increasingly less evident as all the principal parities of the country move towards a society that feeds the greed of corporate corruption of the wealthily for the benefit of a privileged few over a population who feel increasingly politically disengaged and apathetic to their ability to influence those in power.

    So, is socialism dead?; Has capitalism won? For many the war is over, as a disenfranchised working class abandon their faith in Labour Party that is increasingly dominated by career politicians less likely to come from its traditional routes.

    Clearly the future is far from certain in a society that yearns to see men and women of exceptional stature and oratory skills capture the imagination and faith of a people who have few heroes to talk of. Who inspires us today? Who is willing to stand up to political control of freedom of speech and fear of an oppressive media who pluck the strings of a capitalist agenda? With the death of Nelson Mandela and men and women of such stature, who will inspire, motivate and install confidence in us the working men and women of Scotland in reigniting the flames of socialism in Scotland today?

    The answer is simple. You do. Whether that be to speak out in support of our neighbour, defend our work colleagues, or protect your community against greed and the erosion of our natural environment we all have our part to play no matter how small that commitment is. As the old British Telecom advert said “It’s good to talk” and this is how we must begin in shaping a new society and seeks to influence men and women of good character and commitment in re-establishing socialism as a means of creating a society that sees us all as equals and strengthens our trust and belief in a society that respects all regardless of status or ability. It’s time for new, better Scotland regardless of whether or not independence prevails next year. The choice is ours.

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