Rebecca Lowe is Director of FREER — a new initiative promoting economic and social liberalism. She is also an Assistant Editor of ConservativeHome.
There have been many complaints about the NHS’s bumper birthday present. These mostly fall into two camps: complaints that £20 billion is not enough, and complaints about uncertainty over where the money will come from. It seems likely that the boost won’t simply come from a ‘Brexit dividend’ – although I remain positive about the long-term economic benefits of leaving the EU – but if that’s so, then the key point here, to my mind, isn’t to do with deception.
Rather, it’s to do with tax. Why have so few politicians made the somewhat obvious point that the UK tax burden is already extremely high, and that raising taxes further, therefore, must come with serious costs? Sure, there may be decent arguments for increased spending, here or there—alongside better ones for greater efficiency and necessary reform—but it must be recognised that pretty much all public spending comes from tax revenue. Effectively, all of it is money from the taxpayer, whether now directly, or later, as in the case of state borrowing.
When thinking about these things, I’m always reminded of a woman I met while campaigning, back in 2015. As per the canvassing script, I asked which of the prerequisite 20 or so options were ‘most important’ to her (the bureaucratic approach to this makes me ever-thankful for having realised I’d be much happier focusing on ideas than being actively party political). She answered some combination of education, healthcare, transport, and the like. So I then asked her which of them she cared about sufficiently to entertain a substantial tax hike. (I’m not sure if that was one of the scripted questions.) And she replied, ‘Oh no, these things are far more important than that: they should be paid for by the Government’.
Taxation in this country is immensely complicated. And some people clearly don’t even get the basic bond between it and public spending – never mind being able to see exactly where each bit of their hard-earned money goes. I don’t particularly enjoy filling in my self-employed tax return, and the last thing I want is more bureaucracy, but if new technology could enable a simple, cheap, and speedy solution, then surely there are strong arguments for everyone filing a return…
UK tax isn’t just complicated, however. It’s also seriously high: at almost 35 per cent of national income, the tax burden is en route to being the highest for 50 years. Sure, we can talk all day about the best way to measure rates, and the exact ideal levels at which taxes and public spending should be set. In Taxation, Government Spending, and Economic Growth, David B. Smith claims, for instance, that the ‘growth-maximising share’ of government spending is somewhere around 18.5-23.5 per cent of GDP, that the ‘welfare-maximising share’ is around 26.5-32.5 per cent, and that the maximum sustainable limit is around 37-38 per cent. But let’s think about why these things matter in the first place. Why should politicians worry about raising tax?
As Smith (and his more famous namesake) points out, high rates of tax have a serious effect on economic growth, and there’s much more to be discussed there – and about the over-regulation currently accompanying those high rates. But, for now, let’s think about the direct impact that high taxes have on people in terms of the immediate cost of living. ‘Cost of living’ may sound like a lefty phrase, but it really shouldn’t. And we’re not just talking about income tax, here. Even just by adding in NICs, which are clearly tax too, the basic rate comes to around 40 per cent. We mustn’t forget indirect tax, as well, which is not only high, it’s particularly regressive. And we also need to remember that businesses are people, so high rates of business-specific taxes also add to people’s cost of living, in ways beyond the disincentives they provide to economic activity. All of this tax, and more, eats into people’s earnings. It eats into their savings. It even eats into their future.
Sure, you may think this justifiable because of what people – including those who don’t earn enough to pay tax on their income – get in return, now or whenever. But the opposing argument still needs to be made, and I just don’t see that happening very much at the moment. So this is not really an article about why we should pay less tax, although I certainly think we should. Rather, I want to point out that the real effects of high taxation must be recognised and emphasised every time someone suggests upping rates further.
The other main point I want to make is less about costs and more about morals – although, of course, it’s impossible to separate choices about contribution, provision, distribution, and so on, from questions of right and wrong. But let’s step back a second, and think about why we are taxed.
Let’s begin by recognising that calling for lower taxation isn’t the same as calling for no taxation. Unless you’re an anarchist, you probably believe there are some worthwhile benefits to living together in organised society, and you also probably recognise that some of those things need paying for, and that it makes sense for you to contribute to some of that via taxation.
But, similarly, accepting some level of taxation doesn’t mean accepting any level. Big questions, among others, arise relating to how much you think you should pay to compensate for others who are less capable: to what extent tax should be distributive over and above the baseline proportion you might ‘fairly’ be asked to pay for the services you need, based on your ability to pay. There are many important questions about our obligations to other citizens, about the funding of public goods, about social insurance, about welfare, and so on. There are also strong arguments that more tax should be raised and spent locally: more on this another time, but the fact that some 95 per cent of tax is raised centrally in the UK makes us, at best, a serious outlier.
But at the heart of all this is a simple point about freedom and responsibility. It’s an obvious point that we’ve all heard before: we’re not only better than others at making choices about how we should, and would like to spend our own lives and money – it’s also extremely important for us to be able to do so. Human beings are responsible creatures, capable of complex decision-making, as well as great compassion and charity. Of course, I accept that some people believe that ever-increasing state provision enables ever-greater personal autonomy, but the obvious counters to that urgently need to be made, too. Anyone calling for tax hikes – or even simply accepting the current situation – without asking serious questions, is ignoring the importance of this, at society’s peril.