From the TUC

A glimpse of a fairer tax system

11 Dec 2009, by Guest in Economics, Politics

This is a post I made yesterday on Comment is Free:

The pre-budget report was an uneasy compromise between a radical post-crash new direction in economic policy and a cautious orthodoxy that avoided frightening the horses. You can glimpse an exciting new approach, but just as appetites are whetted, it retreats.

The chancellor, Alistair Darling, deserves praise for getting the big decision about a fragile economy absolutely right. Slashing spending now in a premature attempt to close the deficit would have been disastrous. Nor has he forgotten the young unemployed – even if the media have mostly moved on.

But he has not yet done enough to fill in a big picture for the future. The crash exploded the cosy assumption that the economy could be left to itself, with social progress secured through the proceeds of finance-driven growth. Now it can only be secured by reducing inequality and asking those who did so well from the boom to pay a fair share.

We must rebalance the economy after 30 years in which the share of national wealth going to wages has fallen from a peak of 75% to just 53%. We need to put money into ordinary people’s pockets, rather than fuelling rising debt for the many and speculative bubbles for the few.

The tax on bankers’ bonuses and new crackdowns on tax avoidance provided tantalising glimpses of a fairer tax system, especially when added to the 50p rate. But although nearly half the workforce was excluded, a national insurance (NI) hike is not the best, or fairest, way to raise tax. Nor do we yet understand where planned spending cuts will bite. Every time something electorally popular is ring-fenced, the news gets worse for equally vital, if less sexy, areas.

A central cap on public sector pay, implemented at a time when inflation will be rising, is a crude and blunt instrument that will hit not just low-paid staff, but also the squeezed middle – many of whom will also face higher NI contributions. The rich and powerful see cutting the public services they do not use as the alternative to fair tax. They will not be bought off by this, but millions of hard-pressed public sector workers are angry. We need clarity too on public sector pensions. What looked like a firm dividing line between Labour and the other parties now looks somewhat vague.

On the credit side, free school meals for primary school children of low-income parents is a smart way of tackling child poverty and make the move from unemployment to work more rewarding for parents. Better pensions and child benefits are welcome too, although there is still a long way to go to meet the child poverty target.

There is a welcome green tinge. The boiler scrappage scheme is imaginative. Investment in rail and help for electric cars are welcome. Lord Mandelson’s Department for Business has rediscovered industrial intervention and grasps the low-carbon imperative. But this did not add up to the kind of green new deal that we need both to meet the threat of climate chaos and to rebalance the economy away from its over-dominance by finance.

The prime minister, however, still has cards up his sleeve. Gordon Brown is spearheading a campaign for a financial transaction tax that can not only help tame finance but also raise funds for both domestic and development purposes. That is exactly the kind of bold measure that fills in the details of what a post-crash world should look like, and starts to realise what we could only glimpse on Tuesday.

One Response to A glimpse of a fairer tax system

  1. Tweets that mention A glimpse of a fairer tax system | ToUChstone blog: A public policy blog from the TUC —
    Dec 11th 2009, 12:39 pm

    […] This post was mentioned on Twitter by ToUChstone blog, TIGMOO. TIGMOO said: ToUChstone blog: A glimpse of a fairer tax system […]