POLITICS
Reflections on the revolution in taxes
NOEL MALCOLM
If you are going to do unpopular things, said Machiavelli, you might as well do them all at once rather than by degrees, and sooner rather than later. That is the common-sense principle — the philosophy of tooth-pulling — with which some Con- servatives have been consoling themselves since Mr Lawson unpacked his Budget last week and revealed his plans to cut the top rate of income tax from 60 to 40 per cent.
It is not clear, admittedly, quite how many Tory MPs have felt strongly in need of consolation. According to Mr John Smith, the shadow Chancellor, 'A signifi- cant number did not cheer the Chancellor on. Quite a number looked askance or troubled, and a few even looked con- cerned.' Sir Ian Gilmour has described the change in higher tax rates as 'more than a little insensitive'; but few have followed his lead. Even Mr Heath, who responded to the Budget with his now customary brand of sparkling churlishness, agreed with the principle of reducing tax levels and merely suggested that 45 per cent would have done just as well.
In private, some Tory back-benchers will admit that the sudden cut in higher rates is bad for public relations. And they can point to last week-end's opinion polls, in which roughly two thirds of those ques- tioned disapproved of this particular mea- sure. But opinion polls, on this sort of subject, make notoriously weak founda- tion stones for arguments. As the Guar- dian ruefully pointed out this week, its own pre-Budget poll showed that only six per cent wanted a cut of two pence in the standard rate of tax. The post-Budget polls, on the other hand, suggested that well over 60 per cent approved of the twopenny reduction once it had actually happened.
If 68 per cent now disapprove of the cut in higher tax rates, what conclusions can be drawn about what the Chancellor should have done instead? Nobody knows. Had he cut the highest rates by ten pence instead of 20 the disapprovers might now number 34 per cent instead of 68; or you might find that the same people were still going to disapprove anyway. If the rates were cut by only five pence, the disapprov- ers might number only 17 per cent, and if such a cut were made every year for four years the end result would be the same. But as things now stand, it is quite likely that in three or four years' time the rate of higher-band income tax will simply not be an issue. The only sensible thing for Tory tacticians to do, in other words, is to throw away opinion polls and pocket calculators and trust, as the Chancellor has trusted, to instinct and Machiavelli.
The real importance of Mr Lawson's 20 pence tax cut is not tactical but strategic. A major reduction in tax rates can do some- thing that cannot be achieved by a succes- sion of minor reductions. It can force people to ask themselves a fundamental question: what are taxes for? The revolu- tionary answer which this Government has come up with is that taxes are raised in order to pay for government spending. Now, government spending does of course include paying for a benefits system which is meant to provide a safety net for the poorest members of society. And funding such a system through taxation will of course have the effect of 'redistributing' some money from the rich to the poor. But what is revolutionary about this Govern- ment's approach is that it is jettisoning the idea that the 'redistribution of wealth' is, in itself, a proper aim of governments.
Those writers who have commented on this in the wake of the Budget have, for the most part, been hostile critics. They have been keen to point out that Thatcherism is now at last revealing its true, heartless (and conscience-less) nature. And the Govern- ment's defence on this point has been not so much heartless as half-hearted. Mr Lawson's apologists — Messrs Major, Lamont and Lilley, the Treasury technoc- rats — are eager to shift the argument, whenever possible, out of the area of political principles and into the area of economic and fiscal consequences. If the economy benefits, they say, and tax yields actually rise, how can anyone complain? These are good arguments so far as they go; but to concentrate on them is to risk losing the argument of political principle by default.
Perhaps the Government judges that the public has a very limited appetite for arguments of principle. Or, to put it less politely, that it has a limited ability to understand them — though whether the general population is more apt to under- stand Laffer curves and supply-side econo- mics is at least open to question. The distinction between giving money to the poor to alleviate their poverty, and giving money to the poor in order to reduce the disparity between the poor and the rich, may seem like a distinction without a difference; but the point of principle here is vital. Put it this way. If our society consisted entirely of millionaires and bil- lionaires, would we require the Govern- ment to 'redistribute' wealth from the richer citizens to the poorer ones The inverted commas which I place round the word 'redistribution' are in- tended not as a sneer but as a query, a raising of typographical eyebrows. To talk of the distribution of wealth in a society is to borrow a word from statisticians: you might equally talk of the distribution of car-crashes or Cabbage Whites. Nobody has in fact gone round distributing them. The distribution of wealth is like the distribution of daughters and grand- mothers — a mixture of things created and things inherited. On this analogy, childless orphans may indeed deserve extra com- panionship; but that does not mean that the distribution of parents or offspring has been unjust or unfair.
`Fairness' is a vague term at the best of times. When cakes are being distributed, it means that some principle or equal treat- ment should be observed by, the person who is cutting up the cake. But an eco- nomy is not a thing like a cake. It is a sum of individual activities, and the simplest form of fairness which can meaningfully be applied to it consists not of 'giving' people equal amounts of something, but of treat- ing their activities equally — just as in a legal system the basic principle of fairness is equal treatment under the law.
What this argument leads to, in the abstract, is a single tax rate for everybody. That way, the citizen who earns twice as much will pay twice as much in tax. It is hard to see what is unfair about that. Last week-end Mr Steel complained bitterly about the new tax regime: 'in Thatcher's Britain', he said, everyone apparently needs an incentive to work, but the rich seem to need much bigger incentives than the poor.' This may pass muster as a comment on the transitional 'gains' which people will make as tax rates are lowered; but as a general observation on the new tax system it is the exact opposite of the truth. The rich will still pay a higher rate of tax and suffer a lower rate of incentive — on every new pound they earn. There are limits, after all, even to this Government's revolutionary fervour.
Previous page
