If the UK government is to deliver on its promises, it must be willing to raise taxes
Tackling inequality and climate change will require higher levels of public spending. The Chancellor can't avoid tough decisions on tax forever.
On Wednesday 11 March Rishi Sunak will deliver his first budget as Chancellor of the Exchequer. But it won't be the budget he was hoping for.
Carefully laid plans to reveal the government’s economic priorities will be swept aside in favour of emergency measures to tackle the growing coronavirus outbreak. This will include support for the health service, employees who have to self-isolate and businesses suffering temporary cash shortages.
The Chancellor will also have to prepare for the medium term impact of the virus. Tanking stock markets, combined with the shock of Brexit and a dramatic reduction in global economic activity, means that a recession could be on the horizon.
The budget was initially trailed as the opening curtain for a government that wanted to “level up” forgotten parts of the country. The day after the election, Boris Johnson promised to deliver for Labour voters who had “lent him” votes, including by pumping £100 billion into infrastructure projects.
This is canny politics. The public is fed up with austerity and wants to see the spending taps turned on. Polls consistently find that voters want more government investment and are prepared to see higher taxes and more borrowing to help fund this. For example, new research by the RSA found that just 12% of respondents want less money spent on public services, while 49% back higher taxes and 40% want to see more borrowing.
However, despite promises of more money from the Prime Minister, the scale of the problem is huge. A commission led by the former head of the civil service, Bob Kerslake, estimated that the government would have to invest £1 trillion over twenty years if it was to have any chance of closing the gap between rich and poor areas. This isn’t the only challenge that the government is facing. According to the Institute for Public Policy, the UK needs to spend £33 billion a year to meet its own climate commitments.
This adds up to lots of money. A good chunk of this can come from extra borrowing. The cost of servicing UK debt is now as low as it has been at any time since the Second World War. As The Economist points out, the bond markets are extremely relaxed about lending more. On top of this, the government’s commitment to borrow only for investment is stupid economics.
Along with a number of economists, I’ve pointed out in a letter to the Guardian that spending on health, education and care should also be treated as an investment in the UK’s long term success. The Women’s Budget Group have shown that more spending on care services would create millions of jobs and increased tax revenues that would allow the government to recoup much of its investment.
However, in order to tackle some of the big challenges facing us, including an aging population, high levels of inequality and the impact of ten years of austerity, it’s likely that the government will have to raise taxes as well as borrow more. Leaks in advance of the budget suggest that the government wants to prepare the ground for tax hikes.
I believe that a more progressive tax system is in all of our interests. This means cracking down on tax dodging, increasing taxes on companies and having higher taxes on wealth.
Again, public attitudes research backs up this approach. At Tax Justice UK, we carried out a series of focus groups after the election. We went to a number of newly Conservative seats in the North and Midlands, as well as London and Reading. Voters we spoke to want to see more investment in their areas and were open to higher taxes on wealth. A recent poll by Portland Communications also found that Conservative voters want higher spending and more taxes on the rich.
The challenge for the Chancellor is that many Conservative backbenchers still support the Thatcherite approach of a small state and low taxes. In advance of the budget, a number of leaks have suggested that the government is considering higher taxes on wealth, including a mansion tax and reductions to the generous tax breaks for wealthy pensioners. Almost like clockwork, each leak is followed by uproar from Tory MPs and a quick retreat from official sources.
Not all Conservatives are so opposed to taxing wealth. A series of former senior government advisors, including Nick Timothy, Tim Pitt and Mats Persson have made the case that increasing taxes on wealth would be a good way of raising revenue and tackling inequality.
Ultimately, if this government is serious about delivering for its new voters in former Labour heartlands, it is going to have to be brave. The Chancellor may have delayed big decisions on taxation and spending to the autumn, but he cannot duck these economic questions forever.
Get our weekly email