POLITICS
Has Mr Lawson joined the tinkering tendency?
NOEL MALCOLM
Afree market, as the new Conservat- ism never tires of telling us, possesses a sort of collective wisdom of its own. No individual or committee could ever orga- nise the allocation of goods to people so effectively. The taxation system of this country, on the other hand, exhibits a sort of collective stupidity — or rather a collec- tive foolishness, since it is far too full of ingenious tricks and devices to be de- scribed as stupid. No individual, given the task of inventing from scratch a national system of taxation, would come up with anything so crammed with complexities and anomalies.
Each March or April, one individual is at least allowed to do a bit of uninventing and re-inventing. It is a frustrating job: the whole system, riddled with anomalies though it may be, is yet so finely balanced that it is difficult to remove any single element while leaving the rest of it undis- turbed. You may decide, for example, that capital gains tax is an inefficient and excessively complicated tax which ought to be abolished altogether. But if you abo- lished it, you would have to introduce new rules to stop people from converting all their income-yielding investments into capital gains-yielding ones; these rules would turn out to be a sort of shadow of the tax you had removed, reproducing in outline all its tiresome complexity.
Amateur Budget-builders (and it is a popular pastime) know that is easy to draw up some radical scheme of reform which will exhibit all the approved virtues of simplicity, transparency, fairness and neut- rality. (Neutrality is achieved when it is no longer rational to make any economic decision purely for tax reasons.) But the next step is to match the effects of such a system on a range of typical taxpayers against their present tax bills. When you have worked out that there will be some big losers and gainers, you then sketch in a series of compensatory arrangements to soften the blow for the losers. (If you lift the National Insurance ceiling for higher taxpayers, for example, you must bring down their income tax rates by a similar percentage. If you abolish the extra tax allowances for married couples, you must increase family-directed benefits, and so on.) This is a reasonable thing to want to do, not only for craven electioneering purposes, but also because it is unfair suddenly to overturn the financial strategies which people have entered into in good faith. And by the time you have ensured that the losers will only be margi- nally worse off, your new tax system may be only marginally better than the old one.
Anyone who sets out to produce a radically more rational system, if only on paper, is likely to end up as a member of the tinkering tendency. And for the Chan- cellor there are further temptations to tinker: the Budget is, after all, a large part of the machinery of economic control. Taxes may thus be altered or left un- changed, not in response to the timeless demands of fairness and rationality, but as a touch on the tiller to correct some short-term drift in the economy. The Bank of England has been hinting heavily that tax policy should be used, in addition to interest rates, to control consumer de- mand; and the Institute for Fiscal Studies has called for a 'demand-light, supply- friendly' Budget.
Mr Lawson may be contemptuous of the old-fashioned techniques of demand man- agement, but with inflation and balance of payments problems looming ahead he can- not afford to be too choosy about his methods. Anyway, though his beliefs may be monetarist and free-marketeer, his in- stincts — and his skills — are thoroughly dirigiste. Never forget that the trick cyclist who can say 'look, no hands' is the one who is most fully in control of his machine.
In the Chancellor's eyes, it seems, the ultimate reason for wanting a simple, neutral tax system (a 'level playing field', instead of the adventure playground we have at present) is that it will benefit the economy. The lowering of tax rates is also justified as a stimulus to effort, and hence to greater economic activity. Indeed, so keen is Mr Lawson on stimulating worthy activities such as earning and saving that he is quite happy to clutter the tax system with yet more anomalies: Profit-Related Pay, Business Expansion Schemes and Personal Equity Plans. Neutrality, which is after all a species of fairness, is for Mr Lawson simply a means to an end; if the same end can be furthered by non-neutral means he will be just as happy.
At some time in the last nine years, the Thatcherite message about taxation has turned from an argument of moral and political principle into an argument of economic expediency. This is unfortunate, because taxation is not just an instrument of economic policy, it is the most important point of contact between a government and its adult law-abiding citizens, and should be thought about first of all in terms of the rights and duties of the people and the state. When Mrs Thatcher first came to power, she preached against the 'pocket- money' state and in favour of giving people the freedom and responsibility to spend their own money. On this argument, the reduction of taxation would be a good thing, whether it made people work harder or less hard or (as is obviously true of most salary-earners) whether they were unable to raise or lower their salaries in any case. During the last six months, talk about the principles of national taxation has been drowned out by clamour over local taxes. The poll tax is probably a badly calculated gamble; but at best it could be called a triumph of Thatcherism over expediency, showing that it is possible to bring in major changes, with major losers, provided you are sure that the principle is corect. One cannot help wishing that national taxation could be approached with the same degree of reckless bloody-mindedness. In some ways, the principles of the poll tax are oddly in conflict with the Thatcher- ite line on taxes in general. It is one of the Prime Minister's proudest boasts that she has removed hundreds of thousands of people altogether from the income tax net; yet for local taxation she has woven a net so fine that none shall escape her trawling. Similarly, the argument about local `accountability' is not repeated at the national level. But the most interesting feature of the poll tax is the explicit abandonment of the notion that taxes should be 'redistributive'. The redistribu- tion of wealth — a dubious term, since nobody ever distributed the wealth in the first place — has been the aim of some governments in the past, but it is not, pace the Institute for Fiscal Studies, a necessary aim of all tax systems. Having higher taxes on the rich is essentially an administrative convenience, given that you have to make up your total revenue somehow or other. `Progressive' taxation is aggressive taxa- tion; and I hope that if (as seems in- creasingly unlikely) we are treated to a `giveaway' Budget this month, there will be a few common-sense Thatcherites willing to point out that a giveaway is a take-less- away.
Previous page
