I’ve been at the TaxPayers’ Alliance a year; I’m a year into my first serious job. It seems a good time to take stock and think about what that work is for. What is the role and function of the TPA?
Of course, there is a simple answer to that question: to campaign for lower taxes and public sector reform. However, I think that such a simple answer misses the deeper problem that the TPA addresses. The case for low taxes, and for the government to do less, isn’t just one more conflicting priority that must be lobbied and advocated for. Campaigning for low taxes requires us to confront the fundamental logic of how a democracy operates.
Mancur Olson, in a landmark work of political theory, set out the Logic of Collective Action in the mid-sixties. An understanding of his thinking is vital to understanding how the modern British state functions. He explained how a minority could effectively dominate a majority.
Any individual has a powerful incentive to free-ride on the efforts of the rest of any group providing public goods. While someone may want lower taxes they have every incentive to leave the political effort required to get tax cuts to others. The results of their effort, or slacking, will be diluted across all those with an interest in low taxes. It will not be in their interests to put the socially optimum amount of effort into securing tax cuts.
Successful societies evolve ways of encouraging people to act in the common good. However, it is harder for large groups to do so. It is easy to encourage six people to act in their common interest by personally appealing to their sense of duty, tradition, loyalty or shame. It is far harder to do the same for a group of sixty million.
Beyond that, in a large group each individual person will usually
have less of a stake in a given decision than the members of a small
group will. Suppose the British government were to decide to give £3
million a year from general taxation to the 125 residents of the isle
of Iona, off the Western edge of Scotland. The islanders would each
receive £24,000 a year. That would make a pretty substantial
difference to their standard of living. People will definitely turn
out to vote in droves to be given £24,000. By contrast, each taxpaying
household would face a bill of about 12p a year. Who is going to
change their vote for the sake of 12p?
I actually think that it takes about £2.5 billion – if it is paid
for from general taxation – for a fiscal decision to become a real live
political issue. At £100 a year, £2 a week or half of one percent of
median gross income, people start to care. Anything smaller than that
and you are no longer appealing to peoples’ concern at how their money
is being used and can only really get them interested by finding some
lunacy, perversity or corruption that is important or interesting
despite the amount at issue being relatively minor. What so many
people describe as apathy in the face of significant fiscal decisions
is actually rooted in a rational decision to accord little importance
to decisions that, in each case, have such a small impact on the
well-being of each taxpayer.
£2.5 billion is a lot of money. It is more than the budget for the
Foreign and Commonwealth Office. It is a real problem if a numerically
tiny group can so easily extract, say, £1 billion as they have every
reason to invest huge effort in presenting the benefits of their
billion pound scheme and no one really cares about the cost.
Politicians are faced with hundreds of groups each claiming a vital
need for a billion here, a billion there and it all adds up to a
colossal, and increasing, tax burden far larger than the socially
optimal amount. The political logic becomes simple: Group X won’t
vote for us if we don’t give them taxpayers’ money. Taxpayers won’t
change their votes for a few pennies each a week. Give X the money.
This is repeated for group after group demanding taxpayer cash until
people have little income of their own left, the economy is crippled
and we are all less free.
Popular outrage at each overly eager use of their pocketbook is
further weakened by a lack of transparency that means it is next to
impossible to fully understand where taxpayers’ money actually goes –
Group X gets their cash and no one but the politicians, civil servants
and those directly involved ever hears about it. That’s the main
purpose of the quangos that disperse so much taxpayer money with pretty
much zero accountability.
There is no single ‘answer’ to the problem posed by Olson’s Logic of
Collective Action. Olson himself came pretty close to claiming that
only totalitarian revolution and then losing a war could clear the
cobwebs of special interests out. I wouldn’t be as fatalistic as Olson
though. It clearly is possible for political entrepreneurs to change
things. He didn’t predict Thatcher’s successful challenging of union
power, for example.
A vital, long-term, reform which would improve matters would be to
decentralise and, thereby, decrease the scale of government decisions.
If we make decisions on a smaller scale then the majority who need to
be mobilised will be smaller and each member of that majority will be
more interested in the outcome. If the difference in size between a
minority who benefits from a fiscal decision and the majority who pay
the bill falls then all of the problems discussed above become less
severe. That is why the TaxPayers’ Alliance should always have a
respect for localism in its bones.
However, localism cannot ‘solve’ the issue. Most local politics
takes place with constituencies of tens or hundreds of thousands. The
difference in size between a minority and majority can clearly still be
very significant. The disparities that create the Logic of Collective
Action can still exist in small democracies, even though they will be
less marked than in large ones. Beyond that, few localists plan on
abolishing central government and the Logic of Collective Action could
easily lead a shrunken central government to grow again.
One thing we’re told a lot by groups who feel slighted by our
research attacking their claim to public support for themselves or
their cause is “well, I’m a taxpayer”. Indeed, most people are both
taxpayers and, in some way, recipients of taxpayer funds. When I get
my pay packet or buy something I’m a taxpayer. When I enjoy a painting
at the National Gallery I’m a happy beneficiary of public generosity.
The TaxPayers’ Alliance speaks not for a clearly identifiable group of
‘taxpayers’ but for the taxpayer in all of us. We speak for the cause
of leaving as many pounds in peoples pockets as possible.
Our work is essential as we can help better mobilise the majority,
on each individual issue, that has to pay for each government scheme.
By making it easier, more rewarding and more obviously necessary for
people to look at and take account of the cost to taxpayers of spending
on each item we will make it less likely that the Logic of Collective
Action will lead to the wrong decision being made. We make wasting
each £1 billion a politically bigger deal.
It requires a thick skin. When people are told that their, often
quite reasonable, particular pet use for taxpayers’ money – whether
higher doctor’s salaries, more wind turbines, increased museum
subsidies or anything else – may not represent good value it is
understandable that they sometimes take it poorly. It also requires
willpower as trying to fight against the very logic of collective
action is quite a challenge.
However, the work is essential to our future prosperity and the
defence of the basic freedom of ordinary people to spend a good portion
of their money as they see fit. The TaxPayers’ Alliance needs to be
eternally vigilant if economic liberty is to survive.