Tax – and Spend Better

“Taxes are what we pay for civilized society.”
Oliver Wendell Holmes

What defines a community? Among other things, it requires trust. It requires it because it calls for a lowering of the barriers that separate the private from the public. At whatever level, it’s about sharing. Time. Money. Identity.

One reason for believing that corporate capitalism is NOT compatible with democracy is that a permanent state of competition requires permanent distancing from others, and a pervasive culture of secrecy. What the Government does can be prised open, at least at the margins, under the Freedom of Information Act. In contrast, whatever the private sector does, even if it has huge consequences for the community, is ‘commercially confidential’. That is not a distinction compatible with any genuine democracy. Among other things it implies is that whenever there is a conflict between public interest and private interest, the latter is given a substantial advantage in access to the relevant information.

Nevertheless, we are witnessing a long-term trend towards a more open society (despite strenuous efforts to curtail it, especially in the realm of judicial process). In the age of the memory stick, even the best kept secrets can be all round the world at the click of a mouse. It makes resistance to openness all the more bizarre. For nearly 130 years, the Land Registry was a government department that guaranteed title to privately owned land but whose records were not publicly accessible. Now they are, and no-one can see what harm it ever did to release them. We are having a great debate in Britain about whether politicians’ tax returns should be made public for all to view online. Why just politicians? In Sweden, the law is that everyone’s tax returns are public documents. There is nowhere to hide. Taxation is a transaction with the State, so not to publish tax returns is to protect private interests at the expense of full accountability for the exercise of the public interest. HMRC have come in for justifiable criticism of the deals they have done over corporate taxation. Transparency is the way to end that. If it drives a few top bankers to a less scrupulous tax domain, then great. We’ve tolerated them, even venerated them, long enough.

Transparency sounds like a good idea. But can it be abused? That’s partly what’s under discussion at the Leveson Inquiry, where the right to invade privacy is defending itself from attack by the right to avoid harassment. Politicians are increasingly resorting to moralising – whether over press freedom or over tax avoidance – to condemn practices that are legal but which they see a need to question. That’s a bad road to go down, because it’s an admission that the legislation needed to eliminate these practices is too complicated to draft. (Though actually it isn’t, if the nettle is grasped.) And so applying social pressure is said to be the only way to get things changed. It’s a bad road because members of society should know, in black and white, what the limits are on both sides, both what the State demands, and what they are free to do beyond that. Grey areas are where persecution flourishes.

We’re a party that believes in the community and so we’re necessarily a party that believes in high taxation, while still enabling all individuals to have the means to support a comfortable level of discretionary spending. Community cannot thrive under the fashionable feudal arrangement whereby it exists at the whim of super-rich philanthropists (those with more money than friends). It has to have the financial security that comes from common wealth.

Does that mean that avoiding paying tax is wrong? No. If it’s that wrong then it needs to be made illegal, and if it’s not illegal then either it can’t be that wrong, or somebody has leant on the politicians and we need to straighten them out. Resistance to taxation has many motivations. Greed is one. But so is morality. Is it more immoral to avoid paying taxes, or to pay them, knowing that they will be used to fund terror bombing in Asia? Much of the money raised in taxes is wasted. It’s wasted because there is no real, detailed accountability for how it’s spent. There aren’t enough elected representatives with real, detailed control over budgets to be able to carry out the necessary scrutiny. Councillors and MPs have been marginalised by the managers. That’s why we need regional devolution, to break Whitehall down into manageable chunks, and why parishes need real power, including the ability to veto local spending they consider of no benefit to themselves. The political pyramid needs to be turned the right way up, so that instead of communities going cap in hand to Whitehall to plead for their money back, Whitehall has to justify every penny it spends to them.

Talk of plugging loopholes suggests that the tax system requires nothing more than a little fine-tuning. In fact, it could do with a major overhaul. A Land Value Tax to deter speculation and prevent derelict land lying idle, for the first time integrating planning policy, land ownership policy and revenue-raising across the board. Or taxation of the increase in value of housing on re-sale (at 100%, allowing for inflation and improvements), to stabilise house prices and divert speculative funds into more productive activity. High taxation of empty and second homes, to finance the repurchase of privatised council houses, avoiding the need for new housebuilding. The current Inheritance Tax threshold lowered to capture the huge wealth built up in the London suburbs by families who have done nothing more active than enjoy rising house prices brought about by the over-heated economy of the capital. And is not David Cameron’s refusal, against the wishes of most other EU countries, to impose a financial transaction tax, which would ‘hurt’ his friends and supporters in the mainly London-based financial sector, also ‘tax avoidance’ of a sort? Finally, we learned last week that, over the past two years, HMRC has written off £10 billion in unpaid tax. Is it really that difficult to extract or does HMRC just need a good shaking?

Property taxes are among the easiest to collect and the hardest to avoid. HM Treasury allows billions in potential revenue to slip through its hands every year because of ideological obsession, and desperate fear of the Daily Mail. Not only that, but property taxes can be used as policy tools in their own right to steer events in a beneficial direction. Sometimes, they can be regressive in their impact. But that means that they need to be carefully designed, and integrated with the welfare system, not that they should be shunned.

We’ve had 30 years of ‘no tax please, we’re British’ and know too well the signs of public squalor for all that are the flip side of private affluence for the few. Higher taxes, well-targeted, can transform that situation. They won’t happen without radical decentralisation because folk rightly suspect that their hard-earned money will otherwise be squandered by murderous scoundrels. Allowing communities the power to decide their own priorities is not just the only way to reconcile taxpayers to tax. It’s also through local debate about what those priorities should be that we might start to rebuild a sense of community and the fabric of a functioning civil society. The first priority for any ‘Big Society’ then, locally, is to demand a refund of the taxes so wrongly paid to London.