As the right-wing media go apoplectic about what they describe as the biggest tax rise in history its worth getting a sense of perspective on last week’s budget. Increasing the proportion of a country’s wealth spent in the public realm is always a good thing. It’s a measure of just how civilised a society is.
But by their own admission less than half of Labour’s proposed £40Bn uplift in government revenues is a real increase. The real increase is more like £18Bn. That’s a big number. But it is only about one and a half percent of total public spending. Indeed, it is less than one percent of the annual turnover in the economy. Maybe best not to get too carried away.
The problem is not how much is being raised by the exchequer, but how they are raising it, and who from. The new Labour government tied its own hands in a ridiculous manner before the election by making promises not to increase income tax, NI or VAT – the things that raise most of the money.
So, it had few targets to pick when looking to increase revenues. Some changes are welcome but small beer – VAT on private school fees, scrapping non-dom status, and changes to capital gains tax.
Predictably those in the firing line are squealing unfairness and victimisation. Scotland’s millionaire landowners are joining the fightback against inheritance tax now being applied to farmland. Its hard to feel sympathy. A better question than why is inheritance tax being applied to farms might be why farmers get a tax-free allowance three times that of anyone else.
The blunt instrument of raising employer’s national insurance contributions and extending it to many more part time workers is more of a problem. Some of the reaction is hyperbole with owners of pubs claiming it’ll put 70p on the price of a pint. How could a 1.2% increase in payroll costs mean a 15% hike in prices?
It is true that hospitality and retails sectors which rely on a greater number of part timers will be disproportionately affected. An odd target given they have already borne the brunt of the Covid and cost-of-living squeezes. Harsh too to bring the changes in all at once without any phasing or with no regard to the ability of small businesses to pay.
Any reforming government ought to try to rebalance the split between profits and wages. I’ve heard some Labour spokespeople suggest this is what the employer NI hike is intended to achieve. But it won’t. Business will simply pass the charge on in the form of higher prices to consumers or reduced wage increases to their workers. Either way profits will be protected.
The way to ensure that profits serve a social purpose is to tax them. Yet that is exactly what Labour has ruled out.
Labour’s Britain is the most unequal country in northern Europe. You might have thought that in their first budget Labour might want to do something about that. Not a bit of it. The two groups of people least affected by this budget are the poorest and the richest.
People living on the breadline have seen their subsistence incomes fall sharply during the Tory years. Rachel Reeves has dashed any hopes they might have had of restitution from Labour. Not only are benefit cuts not restored, but she also talks the same talk of benefit fraud and the need to get people back to work as if they were workshy wastrels.
And Britain’s three and a half million millionaires can rest easy with this budget. Money may be tight, public services in crisis, but there’ll be no additional obligations on the rich. The absurd ruling out of income tax increases even for the likes of Chris O’Shea, the CEO of British Gas who made £8.2m last year, means others will have to pay.
Moreover, new Labour’s refusal to countenance any levy on accumulated wealth leaves the structural inequality of the UK intact and unchallenged.
There is nothing inherently bad about tax. It is the membership fee we pay to be part of civil society. But tax policy must be seen to be fair to command widespread support. One that protects extreme wealth whilst increasing pressure on the majority will ultimately fail.
Clearly, Scottish ministers will be preoccupied by the effect of this budget on public funds in Scotland. We shall have to see what is left once consequentials are given with one hand and extra costs levied by the other.
But those of us who believe that Scotland should become a new independent country need to do more than simply rail against the decisions and the indecision of Westminster. We want all of these choices about tax and spending to be made here. To win support for that we need to show how we would do it differently.
We need to make the case for an economy regulated in the public interest with a fair system of reward and obligation. For progressive taxes on income with top rate of 50% for the super wealthy and improved allowances at the bottom end. For new taxes on wealth and assets which allow the country’s capital to be deployed in the interests of us all. And for a progressive approach to business taxation too, with bands that protect small businesses with low profits and raise more from the largest corporations.