Current UK tax policy fuels inequality

“From the impacts of austerity that we see in potholed roads, closed libraries, inadequate social care provision, it is clear that tax is politics today.” Green Peer Natalie Bennett updates Green World on the Finance Bill, currently being debated in the House of Lords.

Natalie Bennett 

Natalie Bennett

Yesterday in the House of Lords I had the unusual luxury of 10 minutes of speaking time in the Second Reading of a single Bill. But it wasn’t actually good news, for this was the Finance Bill, delivering the tax measures from May’s Budget, and the reason for the speaking length was the lack of speakers signing up. Only 10 backbench peers – out of some 790 members of the House – finally spoke in the debate.

There were some understandable reasons for this. Because this is a ‘bill of aids and supplies’, by convention, what’s known as ‘financial privilege’ means the Lords cannot amend such bills, only discuss them. So it was quite likely that many thought it not worth bothering. Yet, as several speakers noted in yet one more power-grab, the Government had included in the Bill powers for Her Majesty’s Revenue and Customs (HMRC) that weren’t tax matters at all, and shouldn’t fall under these rules.

But I had a broader point. Taxation, or lack of it, shapes our society. As the American historian Albert Bushnell Hart said: "Taxation is the price which civilised communities pay for the opportunity of remaining civilised.” Peers concerned about inequality, poverty, arts – the full range of issues – should be taking part in tax debates.

And on the streets of London, and far beyond, debate is running hot about how people who benefit from the investments of this and previous generations – roads, public buildings, electricity supplies and the services we all pay for, such as schools, hospitals and policing – should make a fair contribution to the maintenance and restoration of our degraded physical and social infrastructure. From the impacts of austerity that we see in potholed roads, closed libraries, inadequate social care provision, it is clear that tax is politics today.

And that point was driven home by a powerful, richly informative speech from Labour’s Lord Sikka, who illustrated how decades of policies have forced the poor and disadvantaged into higher tax payments, while the wealthy and large companies have skipped away from paying their share.

One surprising thing about the Bill, despite the doorstop-sized weight of the explanatory documents, is just how thin it is in significant content, given the state of the world, as Lib Dem Baroness Kramer, among others, noted. 

There is some tidying up to do on Northern Ireland and VAT Brexit issues: another reminder that Brexit is not ‘done’. There are some extremely modest environmental measures on red diesel, plastic packaging and cycling – scant fodder for the country that is the chair of COP26. There is an increase in stamp duty land tax for overseas purchasers of residential property in England and Ireland. I invited the House to take an imaginary scan of the boroughs around where we were sitting to consider how that might be best described as shutting the stable door after the horse has bolted.

One headline measure is a ‘super-deduction’, a boon for investment for the largest companies, many of which have done very well indeed out of the tragedy and suffering of a global pandemic. There’s a lot to be said about the measure that cost £25 billion. The Office for Budget Responsibility suggests that £5 billion of spending covered will be spent on previously planned investments and The Times reported that tax advisers specialising in capital allowances have jacuzzis listed as one ‘investment’ that could receive a 130 per cent rebate. But mostly, the chief question is what could £25 billion of spending achieve – in a real boost for the education of pupils hard-hit by the pandemic, or for horrendously over-stretched social care?

Perhaps more interesting is what’s not in the Bill.

Despite widespread debate in society, in the Commons there was no amendment put down about a wealth tax, no real discussion of it, despite it being seriously proposed by quite mainstream economists and the public. That’s despite the Wealth Tax Commission finding that a one-off 5 per cent tax on net wealth over £2 million could raise £81 billion. 

And there was scant discussion too about who’s paying and who isn’t. A useful study of those on extremely high incomes (more than £1 million) comes from the Cage Institute at the University of Warwick. One in four of these paid 45 per cent – close to the top rate – whilst another quarter paid less than 30 per cent overall. One in 10 paid just 11 per cent—the same rate as someone earning £15,000. The scale on which this plays out is evidenced by the case of global oligarchs who pay an average of 3.4 per cent.

At the heart of this is the huge difference in tax rate between that on income and that on unearned wealth – capital gains in particular. As broad a range of bodies as the Office of Tax Simplification, the Institute for Fiscal Studies, Conservative-lined think tank Bright Blue and the Institute for Public Policy Research were calling for action on that before the Budget. A recent poll found 61 per cent public approval for this measure. 

The inequalities this delivers aren’t only of income – they go to the heart of the Government’s beloved ‘levelling up’ agenda. Tax Justice UK using HMRC data found that the wealthiest 1,600 Londoners received more capital gains than the entire north of England.

There are so many ideas – also on the need to transform property tax, a hugely regressive dinosaur measure. But none of them are in the Government's Finance Act. Instead, we have, in this area as many others, a government big on slogans, but extraordinarily short on action. That’s something many different sides of politics agree we can’t afford.