Home Articles About Chartist Subscribe Links Search
This month
Archive of past articles
Labour movement
British politics
International politics
Economy and society
Science and culture

Tax, cuts and the Left

Pete Rowlands on a taxing alternative to public spending cuts

The debate over the budget deficit has centred on two things. Firstly, the scale of the reduction, and how it is to be phased, and secondly, whether to achieve it through reducing expenditure or raising revenue, or some mixture of both.

This article is concerned with the latter. The arguments for achieving deficit reduction through raising extra revenue are that this is the best way to avoid further recession, to avoid the pain of unemployment for many public sector workers, to avoid cuts in services which will hit the poorest most, to target those responsible for the crisis (the banks), and to take the opportunity to change the tax system into something fairer. These arguments have broad support on the left, but the coalition are reducing expenditure mainly through cuts rather than taxation, as new Labour would have done.

The case

The case for tax rather than cuts was originally made in two documents produced in November 2009 prior to the December Pre-Budget report, by the TUC and Compass respectively. Both cover similar ground. The TUC submission, with estimates of revenue raised, proposed:

  • A financial transaction tax (£30 bn). The widely advocated Tobin tax.
  • A general anti-avoidance principle (£1 bn)
  • A cap on tax relief (£10 bn). Applying mainly to pension contributions for the better off.
  • An empty property tax (£5 bn). What a good idea!
  • Improving tax collection (£20 bn). Cracking down on evasion, non-payment and tax havens.
  • Abolishing the non-dom rule (£3 bn). Making rich foreigners resident here pay tax on all their earnings.

The Compass report proposed:

  • 50% Income Tax over £100k pa (£2.3 bn). Some loss already here of personal allowance.
  • Remove ceiling on NICs (£9.1 bn). All those paying tax at higher rates would pay an extra 9%.
  • Minimum tax rates for high earners (£14.9 bn). This puts a ceiling on avoidance.
  • Higher Council Tax rates for the well off (£1.7 bn), pending a major change in the system.
  • Abolition of tax havens (£10 bn). Many are British controlled.
  • A debit transaction tax (£4.2 bn). A scaled down Tobin.

They also proposed to tax most Capital Gains as income, and to raise the threshold on which tax begins to be paid to £13.5K per annum.

Both reports stress the need to avoid a further recession which cuts are more likely to produce. The Compass report seeks to change the system of taxation in a more progressive direction, as well as raising the overall take. The TUC scheme claims to save £69bn, Compass's £46bn including £15bn of cuts in Trident, two aircraft carriers and ID cards. Both would have been sufficient to cover all the coalition's cuts.

Other interesting contributions have appeared. The LRC 'LEAP' (Left Economics Advisory Panel) had some useful articles in their Red Papers. A compact article was produced by Mark Drakeford, drawing on the TUC and Compass articles. Perhaps the best summary to date is by the Green New Deal Group, written by the ubiquitous Richard Murphy, part author of all the major articles mentioned above, which lists all the major means suggested of raising revenue through the tax system, although it concentrates on recovering payments not currently made because of tax avoidance, tax evasion or simple non-payment. The group claim that vigorous effort in these areas, including taking on more staff at HMRC (there are currently redundancies), aggressively pursuing unpaid bills and cracking down on tax havens (although this is underway to an extent) could raise up to £20bn a year.

Other provisions are mainly drawn from the Compass and TUC reports referred to above, and references are given for all sources.

The proposals referred to above purport to show that it is realistic to substantially reduce the deficit through extra taxation of those paying at above the basic rate, and greater realisation of tax due. The latter cannot be precisely costed, but there is no reason to suppose that large sums could not be raised. It is however changes in the amounts paid according to income which are at the heart of the Compass proposals, in which there is a significant transfer of money from the poorest, who pay less, to all those currently paying income tax at the higher rates, all of whom would pay significantly more under the proposals. This is justified because the share of tax overall paid by the very well off is little more than that paid by most people, and, disgracefully, less than the poorest, although this is partly because of 'sin' taxes which few people would want to see lowered. (See my comment on this and related matters on the Compass website).

Two issues

There are two key issues for the left: The tax system should be progressive and that means greater emphasis on direct taxes, but secondly we need to pay more tax. This is the only way to provide decent services. But there are problems with this. The tax system overall is not progressive and taxes here are lower than elsewhere, so we are starting from a lower base. It is partly a question of changing attitudes so that there is a greater acceptance that higher taxes are beneficial.

But if we value equality and the message of 'The Spirit level', then we need to go back to the pre-1979 situation and create new tax bands rendering it effectively impossible to become really rich on the basis of income. The left has become far too accommodating in this area. We should remember that for the bulk of even Mrs T's period in office, until 1987, the top rate of tax was 60%. In 1978 the top rate of 83% was payable on income over £24k p a, the equivalent today to not much more than £100k. And top rates are lower here than in most advanced countries.

While we should of course take on board all of the proposals as described above the following need to be considered also...:

  • The merging of income tax and national insurance. There is no real justification for keeping them separate and it would be more efficient and transparent than just lifting the cap, as Compass advocate.
  • New tax bands of 60% at £200k pa rising to 80% at £500k pa. This is the only sure way to halt and reverse the rise of the super rich.
  • A substantial increase in corporation tax (which the Coalition is lowering). While it is difficult to make comparisons this tax appears currently lower than in most of the major advanced countries.
  • A change in the basis of inheritance tax so that the recipient rather than the deceased is taxed. Raising of thresholds so that the rich would pay up to 80%. Restriction of tax avoidance in this area.
  • Introduction of a wealth tax, which operates in some countries, including France. It could be levied at 0.5% on estates worth over £1m, rising to 2% on estates worth over £20m.
  • Replacement of the regressive Council Tax by a Land Value Tax, which will be much fairer and raise more, although not as much as some of its advocates claim.

The growth of interest in this area is long overdue, and while it will not prevent cuts in the immediate future it is an excellent opportunity for the left to think about not only how taxation can avoid cuts but also about the way in which taxation can help to mould and maintain the sort of society we wish to create in the future.

For those who are interested in pursuing this area in depth there is an indispensable Fabian book.


  1. TUC 'A socially just path to economic recovery', November 2009
  2. Compass ' In Place of Cuts', November 2009
  3. LEAP Red Papers December 2009, March 2010
  4. Mark Drakeford 'An alternative to cuts' June 2010
  5. Green New Deal Group 'The Great Tax Parachute', June 2010
  6. Richard Murphy numerous articles, many for the 'Tax Justice Network'.
  7. Fabian Society 'Paying for Progress', November 2000