General Election 2024

Election panel: Is any party getting it right on tax?

Our group of experts on the tax and spend dilemma facing the next government

June 05, 2024
Image: Alamy
Image: Alamy

It’s election season. Prospect has invited writers and experts to an election group chat. Imagine a WhatsApp group of your most politically informed friends from across the ideological spectrum on-hand to discuss the biggest and smallest issues. Here’s their second question:

Emily Lawford: Is any party getting it right on tax?

Matthew d’Ancona: No. The £2,000 furore is symptomatic of collective denial that big public investment is going to be needed and rapidly so. I was disappointed that Rachel Reeves ruled out wealth taxes last August: in 2021, the University of Greenwich showed that progressive taxation on the wealthiest 1 per cent of households would yield £70-130bn a year. The LSE’s Wealth Tax Commission found that a one-off levy could raise £260bn. We need a fiscal shift of this sort and an end to the pretence that every chancellor should channel the spirit of Nigel Lawson. This is a different era.

Peter Hitchens: Taxation is an outcome of policy, not a policy in itself. A party’s true position on tax has to be deduced. No doubt some on Labour’s left think some people deserve to be taxed heavily for their own good, and some Tory Trussites may see tax as a moral evil. But most democratic politicians would rather keep it down, simply to safeguard their popularity, if they could. The trouble is, they can’t, and the national ruin caused by the Great Covid Panic will continue to swallow money for years to come, leaving the Tories levying taxes that ought to make them blush. Labour, long ago captured by public sector lobbies, exists to spend more, but has promised not to increase VAT or income tax. It doesn’t take much wit to see that this leaves one major option open, turning council tax into a de facto wealth tax, perhaps including a revaluation of properties. In my view they are more or less saying this (I was struck by how unvehement Keir Starmer’s denial of Rishi Sunak’s tax jibes was). I suspect it may be popular with those who have swallowed David Willetts’s mistaken idea that my generation (born 1945-55) had it easy all their lives and are now sitting selfishly on cash that should be given to the young. Or rather, to the state.

Frances Ryan: The elephant in the room of this election campaign is how this country is going to fund the recovery it desperately needs. We’re in the bizarre position of the two major parties telling voters they can save breaking public services without raising taxes (and in the case of the Conservatives, saying they’ll cut them). This is patently nonsense. For Labour, its self imposed fiscal rules and fear of being called “Marxist!” by the Daily Mail means they’re avoiding the one thing that makes economic and moral sense: a moderate tax on the super rich.

The irony of Starmer and Reeves being boxed in by fear of losing votes is that wealth taxes are a widely popular policy across the board: polling from YouGov found that 78 per cent of the electorate support an annual wealth tax on the super wealthy, including 77 per cent of Tory voters and 86 per cent of Labour ones. At risk of (slightly mis)quoting Radiohead: they do it to themselves, they do and that’s why it really hurts.

Peter Kellner: No, neither main party is getting it right; and for two reasons. First they are framing all their policies for the short term, when the big pressures on public spending, and therefore pressure on taxation, are long-term. Second the serious policy options for the long term are alarming for any party that wants to keep taxes down. Ideally, we would have a grown-up debate about the big trade-offs we face as a society over the next 20 years if we are to have the pensions, health care, schools, housing, anti-poverty measures, national infrastructure, clean energy etc that any civilised society should either enable or provide. Instead we get tiny measures, sound bites, and—last night—Sunak’s dodgy claims about Treasury sums that its permanent secretary has, thank goodness, disowned.

Tim Bale: “In this world nothing can be said to be certain, except death and taxes”—and in an election campaign telling anything like the truth about the latter is presumed to lead straight to the former. Hence the nonsense that both parties are spouting about their spending priorities and how they plan to finance them. Public services in this country, whether we’re talking about health, education, social care, or vital infrastructure are (both in the absolute sense and in comparison to other European countries) miserably underfunded. Any government serious about improving them—and let’s assume for the sake of argument that that is indeed the case—is going to have to find the money to do so from somewhere. Faster growth would boost revenues but there’s no guarantee that will arrive anytime soon. So that leaves significantly more borrowing, which, for whatever reason, seems to have been ruled out by so many of those involved, even if many economists think it makes sense. Or it means taxing, if not more overall, then at least more efficiently. Any truly grown-up conversation on the subject would involve returning to the debate about hypothecating (aka earmarking) specific taxes for specific purposes (still anathema to the Treasury, by all accounts). It would also involve doing more to tax wealth and, in particular land and property, both of which are woefully undertaxed compared to income—especially income earned through ordinary people’s day-to-work. Sadly, we don’t seem ready as a country to have that discussion before rather than after an election—something which is the fault of voters, who crave better services but aren’t keen on stumping up for them, as much as it’s the fault of politicians, who continually tell us what we want to hear rather than what we need to hear.

Matthew Lesh: Taxation has reached a 70-year high, yet the state is widely acknowledged to be failing to deliver. The system is poorly designed, including the likes of “stamp duty” and arbitrary income tax thresholds that discourage transactions, investment and work. The challenge for anyone who wants lower taxes is to explain how spending can be better directed, the role of the state modified, and services reformed to deliver better value for money. Reform cannot just be about more spending. It is striking that the NHS has more money, doctors, and nurses than before the pandemic, yet the number of patients being treated has not increased anywhere near the same amount. There’s also clearly a need to simplify and reform the tax system. The UK’s tax code is 10m words, which creates lots of work for lawyers and accountants but imposes significant costs on businesses and individuals. Sadly, neither party seems particularly interested because reform requires trade-offs and difficult policy work.

Philip Collins: We see through the looking glass on tax. Everyone is in thrall to the faded conventional wisdom that taxes can only move in one direction or else political punishment will follow. I would go back to the 1909 People’s Budget and the distinction between earned and unearned income. Taxation should not be conducted with relish—and Peter is right that there are people on the left who regard taxation as a sort of moral duty—but an advanced state needs to raise a lot of money and it would be nice to do that with respect to a principle. Tax unearned bounty such as land and property receipts. Tax bads over goods. We have travelled a long way already from this empty election campaign.

Frances Ryan: I think few people on the left would argue taxation generally is a moral duty. But many would argue that everyone paying their fair share (see changes to non-dom status and VAT on private schools) and those with the broadest shoulders taking the biggest load (see workers being over-taxed but investments and land being under-taxed) has an element of right and wrong to it. Or perhaps, an element of fairness. That really isn’t a hard left idea. It’s the basis for the common understanding of tax and society.

Matthew Lesh: From first principles it would be possible to design a much better tax system that maximises economic growth and revenues, and is also fairer. Firstly, Pigovian taxes on “bad” things, like carbon emissions and pollution. Secondly, broad-based, minimally disruptive taxes on land and consumption, like a land value tax (LVT) and VAT with no exceptions. Finally, income taxes on individuals and companies should be kept low to encourage work, and be carefully designed, so that they don’t discourage saving and investment.

Tim Bale: LVT seems to me an obvious runner: quite a faff to set up, no doubt, but once running... And I don’t think it’s one Labour have ruled out (yet).

Matthew Lesh: The ideal would be combining business rates, council rates and stamp duty into an LVT… though technically complex and politically fraught due to inevitable winners and losers.

Philip Collins: George Monbiot did a report on land taxation for Jeremy Corbyn which was wrongly not taken seriously.

Peter Kellner: A radically reformed tax system is clearly what we need. It should be a top priority for a popular government with a large majority immediately after it has been elected for a second term. An opposition party proposing it in the middle of an election campaign deserves five stars for moral integrity, none for political judgement.

Nadine Batchelor-Hunt: I think what’s lost in the tax debate is the public don’t necessarily mind paying taxes as long as it’s well spent on important things like the NHS—for which support remains high. Taxes aren’t seen as this evil great monster by everyone, despite the rhetoric. But at the moment there’s a sense that taxes are high, nothing works and money is being wasted—and neither leader is really talking about that. And the public know that tax cuts right now likely mean worse public services than we’ve already got (which are crumbling)—and therefore don’t think promised tax cuts are realistic as a result. I think that’s why polling shows the public still think taxes will go up under both Labour or the Tories. There’s also a reason why tax cuts aren’t high on the list of voter priorities at the moment in polling—many don’t think it’s practical or sensible.

Zoë Grünewald: Seems we’re all broadly in agreement that no party is being honest about the relationship between tax and public service investment in this country. Labour is scarred by its past and the Tories are ideologically opposed to tax rises, but neither have noticed that voters are crying out for a radical rethink of the tax system and for those with the broadest shoulders to pay far more. Poverty is increasing, inequalities widen and public services are decaying. There is the ticking time bomb of pensions and social care as the wealthy, asset-rich population ages and the younger generations shoulder the burden. No party is brave enough to face up to the stark inevitability of tax rises, but it would be wise to act sooner rather than later. As Peter says—perhaps a job for a popular government with a large majority to break the news. But it’s no wonder no one’s talking about it right now.

This conversation has been lightly edited for clarity. 

Tomorrow, our panel will be back to answer yet more burning questions about the general election. Got a question for the panel? Email