On 11 June, Rachel Reeves’ spending review will set the funding plans for public services for the next three years. We expect her to frame this within the fiscal rules which she has imposed on herself, in order to reassure financial markets and businesses of the UK’s stability, and honour the tax promises of last year’s election campaign.
So, while there will be some increases for ‘protected’ departments (NHS, schools and international aid), and for defence, the total will remain within the envelope, and there will be no new taxes. There will be cuts in most areas of public spending: local government (including social care), justice (including courts and prisons), the environment, Home Office and culture, despite them all being on their knees after a decade and a half of austerity. That will be bad for all of us; it will be unfair, and it will compound some of the long term problems the government faces.
Public v private: the political choice
The most fundamental political choice for any government is how to share the nation’s overall income and wealth between individuals and the state. How much should go to individuals to buy what they choose, and how much should be in the hands of the state to pay for things which benefit us all. The tool for doing this is the tax system, which adjusts the balance between the two.
After the second world war, people had grown accustomed to a balance weighted heavily towards the collective, rather than the individual. So, by the 1960s, Britain was a high tax country. The proportion of GDP managed by the state was comparable with Scandinavia, and higher than most of Europe, and income inequality was relatively low. But since 1980, governments have steadily shifted that balance away from the collective to the individual, under the absurd mantra of ‘keeping more of your hard-earned money’.
So, many things which used to be provided and managed by the state have been privatised. If you have money, you can buy them, and increasingly paying for collective benefits is seen as a burden, not a benefit. And the main weight of taxation has swung from taxes on income, where the rich pay more, to consumption, where we all pay the same. Since 1980, the top rate of income tax has fallen from 83% to 45%, and the basic rate from 33% to 20%.
And we can all see the results in decaying public services and growing public anger, while some of us have grown rich, as much by luck as our own efforts.
Reeves may not accelerate these trends, but there is no sign that she plans to reverse direction.
Being a boomer
Those of us born in the decade after the second world war – the real ‘baby boomers’ – had many advantages, gifted to us by the sacrifices, and collective values, of our parents’ generation. Most of us grew up without central heating, a telephone or a private car, and the range of food available would now seem laughable. But our lives were underpinned by a relatively generous welfare state which gave us free healthcare, decent education, and public transport. And most people did not see home ownership as the norm: most lived in rented accommodation, with a third in state subsidised housing. Nobody talked about ‘getting on to the housing ladder’.
I have been lucky, but not unusual. I was born into a fairly ordinary middle class family. I got most of my higher education free and, like many of my contemporaries, by my mid 20s I had a decent job, a wife, two children and a mortgage on a modest house in a new town. But money was tight, the mortgage and pension contributions consumed a large chunk of our income, and we lived frugally. We never ate out, we drank home-made wine, and holidays had to wait for better times.
I found jobs which were interesting, and where I felt I was helping make the world a better place. Some of my success was due to my effort and abilities, but quite a lot was luck and the help of others. During my 60s, I gradually moved to part time work, and as I approached 70, the occupational pension I had been paying into for 40 years gave me the space to give something back to the community through voluntary work. Through no effort of my own, my notional housing wealth ballooned, while those rising prices took home ownership beyond the reach of many.
So, as I approach 80, I have become, by most people’s standards, rich. But the frugal habits of my youth remain. I live well within my income, even after giving a chunk to various charities. And my savings, invested in ethical schemes of various kinds, continue to accumulate.
But, knowing that the state is no longer guaranteeing the kind of social care I might need in the next decade or two, I need to hang on to the wealth, just in case. But if I never need social care, or if I die tomorrow, my immediate family, none of whom are poor, would all become substantially richer. And that’s how private wealth accumulates down the generations. And in the long term, that is not politically sustainable. One day people will rebel, and rightly so.
Justice
I have been very lucky. I worked hard over 45 years, but so did most of my contemporaries. Most of them were not so lucky. And for my children’s and grandchildren’s generations, the challenges are severe and the safety nets much weaker.
I do not believe this is right or fair. Around me, I see the fabric of the state decaying. ‘Austerity’ has pushed child poverty to its highest level for 25 years. Social care is failing to provide the quality of life which poorer, older people deserve. Decent housing is unaffordable for many. I grew up in a world where I had never seen a beggar in England. But homelessness and destitution are now widespread, and thousands of people, most of them in paid work, depend on food banks.
This is shameful in one of the richest countries in the world. And it is not necessary. I have always believed that the state should distribute national wealth to guarantee a decent life for everybody. And it is failing.
Please make me pay more
Rachel Reeves believes that she must keep the promise not to touch the main taxes. But most people want better public services, and that means shifting the balance back in favour of the state: that is, taxing more. And I believe that the burden of that should fall on people like me who have done well and can afford it. I could pay 50% more in income tax, and not really notice it. And I should.
A more modest proposal would be to raise the higher rate income tax rate from 40% to 45%. Only 16% of people would be affected at all. I would pay more, but not enough to notice. And it would raise £10.8bn. That is twice the cost of restoring the winter fuel allowance and removing the two-child benefit cap.
I would willingly pay that, but I can’t do it on my own. It requires a collective decision by my government.
This government has done many good things, but the time has really come for bold action. So, Rachel, please explain to people why tax is a good thing, and tax us rich pensioners properly.
