Are we taxed to death?
The answer to this hotly-debated question depends largely on who is being asked
On Saturday, I participated in a debate entitled ‘Are we taxed to death?’ at the Battle of Ideas festival in central London. My opponent in the debate was Reem Ibrahim of the Institute of Economic Affairs, a free-market think-tank.
The question on which the debate was constructed is a polarising one. And, as I told the audience, the answer to it depends largely on who is being asked.
It is undeniable that a substantial number of families are currently experiencing acute financial strain, crippled under the weight of a cost-of-living crisis in the form of, among other things, rising mortgage repayments, exorbitant energy bills and falling real wages.
These people had hardly had time to catch their breath from the years-long austerity drive imposed in the wake of the global financial crash in 2008 before being confronted by this fresh economic meltdown.
David Cameron and George Osborne, the architects of that austerity drive, frequently liked to tell us that ‘We are all in it together.’ In fact, we weren’t then, and we aren’t now.
For the truth is that our country is disfigured by hideous wealth and income inequality, with a small group at the top doing very nicely indeed while millions are forced to scrimp and save.
Did you know, for example, that the five richest families in Britain are wealthier than the poorest 20% of the population? Or that the richest 10% of households own almost half of the nation’s wealth (by contrast, the poorest 50% own only 9%)? Or that the wealth of the top 1% of households is around 230 times that of those in the poorest 10%? Or that the richest 0.1% doubled their share of the nation’s wealth between 1984 and 2013?
The unpalatable reality is that, as neoliberalism has taken hold – as the so-called ‘free market’ has come to dominate every aspect of economic life and governments (pandemic excepted) decided to largely withdraw from the field of play – we have seen wealth concentrate in fewer and fewer hands. That reality is, in fact, a feature of the system and has contributed to a state of affairs which has seen a minority of people at the top grow more and more rich off the backs of everyone else.
And what about the manner in which some of our top businesses and corporations continue to rake it in at our expense? Recent hikes in interest rates, a source of misery to millions, have helped to swell the coffers of our four biggest banks – NatWest, Lloyds, Barclays and HSBC – which recently announced collective pre-tax profits of £41m in the first nine months of 2023 – an increase of a colossal 79% on the figure for the same period last year.
Similarly, energy giants such as BP, Shell and British Gas have been posting record profits as a result of rising oil and gas prices - while British families fret about whether or not they can afford to heat their homes.
Meanwhile, City bonuses and executive pay continue to surge. Last year, the bosses of our top 100 companies enjoyed an average pay rise of £500,000 (16%), taking their median pay to £3.9m. At the same time, ordinary workers were being told not to demand ‘unrealistic’ pay rises.
We have also seen ‘greedflation’ take hold – a phenomenon which sees businesses set prices higher than they would otherwise do, and higher than is commercially necessary, simply in order to take advantage of existing inflationary pressures. In fact, research carried out last year by the Unite union found that company profits were responsible for 60% of inflation within the system.
So while there may be limited scope for increasing taxation on already-hard-pressed families, the same most certainly cannot be said for the more fortunate sections of our society.
Our schools are crumbling; the National Health Service is in crisis; our prisons are running out of capacity; our fire and rescue service is dangerously under-resourced; local authorities are on the brink of going bust (indeed, some have done so already). If money needs to be found to put these things right, then we should have no hesitation in saying the rich should pay.
There are a range of measures the government could put in place to bring in more revenue. A windfall tax on the banks, identical to that which was levied on the energy companies, could raise up to £20bn. A one-off wealth tax of 1.7% on those with assets over £3m, rising to 3.5% for those with more than £10m, would, according to the Trade Union Congress (TUC), generate £10.4bn.
The government could, of course, increase the top rate of tax. Or it could bring capital gains tax rates up to income tax levels. Or it could abolish the VAT exemption for financial services. Or it could restrict tax relief on the lucrative pensions enjoyed by the rich. Or it could implement a thousand other such measures that could raise substantial revenue and help to fund our public services and redistribute wealth from the richest to the poorest.
Not only are the grotesque inequalities that blight our society morally repugnant, but neither do they serve any economic purpose. In fact, it is widely recognised that deepening inequalities can have the effect of reducing economic performance (indeed, international data shows that the two often go together). These inequalities usually carry a significant social cost, too, such as in the way of impaired physical and mental health, and obstacles to social mobility and social cohesion.
Some may argue that this is all well and good, but why should the British taxpayer be saddled with a tax burden (calculated as total tax revenues as a percentage of GDP) higher than that in other developed economies? Well, the truth is that we aren’t. While the current tax burden (33.5%, though forecast to rise to 37% next year) is, by our own historical standards, high, it is below average in international terms. We pay less than, for example, those in France, Germany and the Scandinavian nations.
The inescapable truth – demonstrated most starkly by the legacy of the Thatcher years – is that a nation cannot enjoy high-quality public services unless it is willing to pay for them. Or, to put it baldly, you can’t have Swedish-style public services on US rates of tax.
We are frequently told by economic liberals that ‘prohibitive’ rates of tax would lead to capital flight and a ‘brain drain’. In fact, the threat of capital flight has largely proven to be a myth – owners of capital are motivated by all sorts of reasons when deciding whether to leave or remain in a country. At any rate, isn’t it odd how, unlike workers who go on strike, those who make such threats are never accused of ‘holding the country to ransom’?
No-one likes paying tax, of course, and I do not wish to see anyone hit with punitive tax bills for reasons of envy or spite. Moreover, I believe in a flourishing private sector, and I like to see those who work hard in business receive just reward for their endeavours.
But there exists a class of people within our society who enjoy financial privilege far beyond their productive worth. And our richest corporations continue to profiteer shamelessly while millions struggle to make ends meet.
In that context, it isn’t envious or spiteful to say that, in the interests of diffusing wealth more widely and making our society fairer and more equal, these individuals and corporations should be asked to bear a heavier burden than they do currently.
I appeared as a panellist in my usual Friday evening slot on GB News’s Dewbs & Co. last week. Topics under discussion included the funding crisis facing local authorities, whether or not we should ban Qatari investment in the UK, virtue-signalling by leading businesses, and why our country is rubbish at planning for resilience. The full programme can be viewed here:
By the way, you can follow me on X (formerly known as Twitter) here: @PaulEmbery
A balanced perspective. Good read.