Cutting taxes would erode the foundations of fairness
Cutting taxes would erode the foundations of fairness

Cutting taxes would erode the foundations of fairness

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Taxes are the price we pay for civilisation. And we won’t build a fairer society without a fair and effective tax system. This week we look at how potential future tax cuts could harm any such ambitions. We also preview our upcoming Fairness Index, and cast an eye over our new website resources section for partner organisations.

Will Snell

Chief Executive Fairness Foundation

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Tax cuts would make society even less fair

Last week the Adam Smith Institute called for the government to reduce the tax ‘burden’ (leading to much uncritical reporting of this negative framing of tax). Increasing numbers of Conservative MPs, including many frontbenchers, want the government to reduce taxes. The main two taxes in the firing line are personal income taxes and corporate income taxes, although VAT has also been mentioned.

A range of arguments are deployed for cutting these taxes. Some are economic. Here’s Damian Green: “One of the best ways to help people in a cost of living crisis is to cut the taxes they pay, whether personal taxes or the tax on goods and services”. Many are political. Kevin Hollinrake, calling for a planned cut in income tax in 2024 to be brought forward, told the BBC: “Clearly the Prime Minister wants to get on the front foot and our party has always believed in lower taxes.”

If the aim is to help people struggling with the increasing cost of living, a 1% cut in the rate of personal income tax is not a good way to achieve it. Listen to Torsten Bell, chief executive of the Resolution Foundation: “A great solution for backbench MPs, but a terrible solution for a cost-of-living crisis hitting low-and-middle-income households hardest. Cutting income tax would put money into the pockets of those least affected by the cost-of-living crisis.”

Why is this? 41% of adult Britons (over 22 million people) don’t earn enough to pay income tax. So what at first appears to be an across-the-board cut in income tax rates actually only benefits the most comfortable 60% of the country. No one is suggesting that this group is unaffected by the rising cost of living. But they are not the people who are unable to make ends meet.

A 1p cut in the basic rate of income tax would cost about £6 billion a year (and would risk fuelling further inflation). This money could be much better spent providing targeted support through the benefits system to the millions of people on low incomes who are unable to cover the rising cost of living.

Meanwhile, some MPs are talking about reversing next year’s planned increase in the headline rate of corporation tax from 19% to 25%. They tend to deploy two key arguments against corporation tax. Both are misleading.

The first is that the ‘burden’ of this tax falls mainly on workers. This is false; the evidence, as Nick Shaxson argued in 2016, shows that corporation tax mostly affects shareholders, and the shareholders most affected are the wealthiest in society, rather than ‘ordinary pensioners’.

The second is that taxes on business hurt the economy because they deter investment. We saw BP’s CEO flatly deny that a windfall tax on oil and gas companies would have this effect. And HMRC analysis dissected by the Institute for Fiscal Studies in 2017 suggests that only 45%–60% of lost corporation tax receipts would be recouped in future years through higher receipts resulting from increased economic activity.

Oliver Wendell Holmes Junior, the US Supreme Court Justice, famously said that “taxes are what we pay for a civilised society”. Cutting them would be the mother of all false economies.

Poll of the week

How can we have a more grown-up conversation about tax?

Very few people understand enough about how the tax system works - who pays what, through which taxes, and what we spend the money on. This is reflected in a low quality of political and public debate. What can we do about it?

Last week we asked what other benefits of a fair society you could think of, in addition to the nine benefits encapsulated in the mnemonic HOPE RISES. Here are your suggestions:

Electoral reform / Fair dividends / Fair income / Fair investment return / Fair taxation / Happiness / Higher taxes / Justice / Less disposable income / Less individualism / More abundance / Peace / Proportional representation / Respect / Safety / Young people have more say

Reads of the week

“We want to move away from the notion that social mobility should just be about the ‘long’ upward mobility from the bottom to the top - the person who is born into a family in social housing and becomes a banker or CEO.” Katharine Birbalsingh, Chair of the Social Mobility Commission, used her inaugural speech to warn that there is too much focus on a small minority getting to the top.

“About 40% of properties sold through right-to-buy in the past have ended up in the hands of private landlords who tend to charge much more than housing association rents.” Alexander Tziamalis of Sheffield Hallam University argues that the new right-to-buy scheme could trap people in poverty, and outlines what could really make houses affordable.

Fairness Foundation updates

One of our objectives is to inspire and equip social change organisations to achieve their goals by reaching and influencing new audiences through the language of fairness. As well as this weekly email and a free ‘bespoke support’ service, we’re supporting partner organisations by defining fairness, measuring it, polling the public about it, and talking about how to achieve it. You can find out more on our new website resources page. Please do share this with anyone who you think might be interested.

We have recently firmed up our plans for a UK fairness index, which will be published this autumn. Read more about how we intend to measure how fair society is in the UK.

Last week I took part in a debate about democracy hosted by Tortoise. You can watch the event recording on their website, or jump straight to my contribution on YouTube.

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