always get worked up about high taxes, and they are right to do so.
The effect of any tax is in principle to add to the costs of the object
taxed, and so to reduce the amount of it. Tax sales, and sales will be
lower; tax income and income will be lower; tax employment, and
employment will be lower. And all the more so when taxes are high.
Then you have the moral effects of high taxation. Take away too much
of someone’s marginal income, and you penalize them for working. You
take away part of their freedom, and so the power and duty to act
responsibly. You move them a notch away from autonomy, and a notch
closer to dependence on others, or on the state.
It’s important to be clear about this, especially since those on the
political left often blur these issues by deliberately running together
taxation with the public spending which it funds. An effective and
fairly redistributive tax system is a vital part of any successful
nation state. You can in principle fund a given level of public
spending through high taxes or low taxes—the arguments above are
arguments for low taxes, not for no taxes and no public spending.
But there is another side to the story. High taxes are objectionable
because they reduce people’s disposable income, but the same is true of
high utility prices and the price of petrol. It’s illegal not to pay
tax owed; but everyone needs affordable electricity, heating, water, and
the ability to get to work, or to public services. And the issue is
not just about the least well off. It reaches right up the income
Here’s a rather telling story from my own constituency. A local
builder in Herefordshire restored two houses last summer. Each took
about six months to do up. Each had a gas supply for heating, and a new
boiler fitted at the end of the renovation.
House One was on a normal tariff. One unit of gas was consumed when
the builder tested the boiler. Cost: £1.86. House Two was on a
prepayment meter. Three units of gas were consumed when he tested the
boiler. The cost was £56.12, including 145 days at 35p/day, or £51.54
for a daily standing charge.
I raised this with the power company concerned (I won’t mention them
now, but they’re welcome to get in touch). Their response was
fascinating: to argue that this was all OK because average prices were
the same for those with prepayment meters and those without.
That response misses the point, because an appeal to the average is
scant consolation to poorer householders on prepayment meters, who are
almost certainly paying over the odds. And anyway, the whole point of
prepayment meters is to avoid accumulated arrears: it is that people
pay for usage when incurred, and when they have the money to pay for
it. You’d think the power companies would know that by now.
The wider issue would matter less if real wages were growing. But here’s the kicker: median real wages stopped rising in 2003. Indeed, average disposable incomes fell over the following five years in every English region outside London.
Yes, you read that correctly—the year was 2003, not 2008 or 2010. In
other words, real wages of 50% of the population stopped growing
halfway through the Blair-Brown years, during what was supposed to be
the longest sustained period of prosperity in Britain’s peacetime
As I pointed out in Compassionate Economics,
that apparent prosperity was a mirage, built on four unsustainable
booms: in government spending, in immigration, in house price inflation
and in personal debt. Labour came to power with the greatest recent
economic inheritance of any government, at a time of globally low
interest rates and low inflation, and they blew it. And that was before
The Conservative Party in government has done a huge amount already
to help people on lower incomes to manage the cost of living, from cuts
in fuel duty to support for OFGEM’s new Retail Market Review of energy
prices to increases in the tax threshold (yes, originally a Conservative
idea; see Maurice Saatchi’s important pamphlet of 2001. And backbenchers have played their part, notably the superb Robert Halfon’s fair fuel campaigns.
But we can do more, and we can talk about these issues more. Ideas, please!