Keir Starmer is right to take on inequality, but tax reform is essential to this task | Tax and spending

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In a stricken country in a state of suspended animation, everyone says build back better, but no one knows if we have the collective will. Standing on a burning platform with a sky-high debt mountain, public services crippled by austerity, Covid and Brexit, it’s not an obvious moment for optimism. But there’s a rumbling suggestion that this conservative country could be changing.

Keir Starmer’s speech reached for that mood, citing Beveridge’s 1942 report beckoning to a better postwar future. He might have looked to John Maynard Keynes in 1940, lifting political horizons in How to Pay for the War. He called for “courage” and “enough lucidity of mind in leaders … to explain to the public what is required” and “in a spirit of social justice to draw up a plan which uses a time of general sacrifice to move towards reducing inequalities”. And in 1945 people did find that “lucidity of mind”. In this deepest financial crisis for 300 years, with twice as many dead as those lost from the blitz and flying bombs, Starmer echoes those Kenynesian tones, warning “inequality is not only morally bankrupt, it’s economic stupidity too”.

The March budget will shed light on the sincerity of this government’s rebuilding ambition. There are harbingers of change, with the Covid shock stirring new thinking in unexpected places. Two Tory ex-chancellors have just broken their party’s tribal tax taboo. Speaking to Bloomberg, Kenneth Clarke and Norman Lamont, joined by David Gauke, a former Conservative MP who served as chief secretary to the Treasury, called for the party to break its manifesto pledge never to raise income tax, VAT or national insurance.

That manifesto, says Clarke, “was not written at a time when anybody contemplated such an extraordinary historic event”. All three called for the cancellation of that holy of holies, the pension triple lock, guaranteeing pensions rise by 2.5% despite frozen wages. Feel the tectonic plates rumble at the shifting view of these austerity axemen. Another lost decade of accelerating decrepitude beckons without breaking Britain’s tax-phobia.

Expect chancellor Rishi Sunak to extend emergency funds for furloughing, universal credit and business: although both the IMF and OECD call for more borrow-and-spend, they, like Starmer, warn tax rises too soon risk choking off recovery. But what hint will Sunak give of the future, when he calls it his “sacred” duty both to restore finances and to keep manifesto tax pledges? He can’t do both without a bloodcurdling slaughter of the remnants of public services, but polls show public tolerance of that is over.

Polls also show a softening towards higher taxes. The message that the Covid crash requires tax rises has the best chance in my lifetime of winning public support. Borrow more, yes, but voters know this disaster must be paid for to revive everything that matters in the long term.

For deep thinking on tax justice, Sunak can reach for the IFS Mirrlees report, the Resolution Foundation’s copious work, Tax JusticeUK’s ample offerings and plenty more: the Treasury has a myriad of good options lying on dusty shelves. What’s needed in this budget is a firm signal to say that taxes must rise in this low-tax country – and that they will be fairer.

Why not start with a taster to show the way? Before every April, the well-off scramble to put savings into Isas, an entirely respectable but inexplicable state invitation to shield an enormous £20,000 a year from future tax on any gains. This year, with millions jobless, in debt and even more with no savings, those who have been able to save a total of £125bn would be mad not to put £20,000 a year out of HMRC’s way. It’s of little use to ordinary earners with savings at near-zero, but two thirds of those earning more than £150,000 a year fill their annual Isa allowance: the scheme loses the state £3.3bn. Starmer’s plan for British Recovery Bonds to encourage those savings to be invested securely in local communities, jobs and businesses looks like a far better substitute. Not that he, as yet, talks of shedding abundant tax reliefs that reinforce inequality.

But he should soon. Everything about tax, its reliefs and benefits is upside down, taxing work, relieving unearned gains. Richard Titmuss called it “fiscal welfare” for the well-heeled, where the more you earn the more the state gives: 45% pension relief for top earners, only 20% for basic-raters is the reverse of means-testing on benefits. The charity TaxWatch tells me that the Department for Work and Pensions prosecutes 23 times more people for benefit fraud (usually small sums) than HMRC prosecutes tax frauds (often vast), a quiet ticking off for wealthy tax cheats, the slammer for often penniless benefit offenders.

Recent research from the LSE and Warwick University shows that a one-off wealth tax paid as 1% a year on wealth above £500,000 per individual – assessed after mortgages and other debt – would raise £260bn. It’s not impossible to be that bold, as it shows what could be harvested. And much more may be if Starmer is right that Covid has summoned at least some of that wartime solidarity and Keynesian “lucidity of mind” to live better.

Hafta Ichi
Source: The Guardian
Keyword: Keir Starmer is right to take on inequality, but tax reform is essential to this task | Tax and spending

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