Socialist Worker

The tax debate

Issue No. 1716

The tax debate

Who should pay?

THE TORIES have pledged to cut fuel tax. New Labour's first response was to say that this could mean less money for schools and hospitals. The reality is that both New Labour and the Tories have the same basic policy on tax-one which benefits the rich and business at the expense of the rest of us. Socialist Worker explains why.

TAXES ARE the way governments raise money for public spending. In Britain this year the government will raise some 375 billion in taxes. That will pay for things society needs, from schools and hospitals to pensions and art.

But it will also be used to give handouts to disasters like the Dome, and to the police. Business gets subsidies, as do arms dealers selling to dictators across the globe.

The Tories and New Labour agree on these broad outlines of what tax revenues are used for, though they squabble over the exact distribution. Socialists, by contrast, say that tax revenues should not be used to subsidise business, the military and arms sales.

They should be used for health and education, to lift pensioners out of poverty, for an emergency public transport programme and other social needs. All governments also make choices about what kind of taxes people should pay.

This is not just a technical matter. It is a political choice about whether the burden falls on the rich or ordinary people, on bosses or workers. There are two basic types of taxation.

  • Direct tax

This is paid directly by people and businesses to the government. There are three main direct taxes in Britain-income tax, national insurance and corporation tax.

They take money from the rich and business to pay for the things ordinary people need. Income tax is straightforward. The more you get paid the more tax you pay. The rich could also be made to pay a higher rate of tax and pay proportionately more towards funding public services.

National insurance taxes also depend on how much someone gets paid. Bosses have to pay towards the national insurance contributions of the workers they employ.

But the rich in Britain do not pay enough national insurance. They are let off paying the tax on any income over 575 a week. Corporation tax is a very good tax because it takes money directly from bosses' profits.

  • Indirect or consumption taxes

This is a quite different kind of taxation which is used by all governments. There are two main consumption taxes in Britain. One is the VAT which people pay on things they buy. The second is the duty on tobacco, alcohol and fuel.

We look at the arguments about fuel taxes on the column on page 9. In general, consumption taxes are bad for workers and good for the rich. This is because everyone pays the same rate of VAT, or fuel or alcohol duty. So a millionaire oil mogul and a poverty-stricken pensioner both pay 17.5 percent VAT on consumer goods like shoes and winter coats.

Socialists argue for a shift towards higher direct taxes on the rich and business, and away from consumption taxes which hit workers. But both Tory and New Labour favour cutting direct taxes on the rich and business, and piling up consumption taxes on workers.

Robbing poor to give to rich

THERE HAS been a fundamental shift in tax in Britain over the last 20 years. The last Tory government increased indirect taxes that hit the poor the hardest. When Margaret Thatcher's Tory government was elected in 1979 one of its first acts was to slash income tax on the rich and jack up VAT on consumer goods. It cut the top rate of tax on the rich from 83p to 60p in the pound.

At the same time it doubled VAT from 8 percent to 15 percent, forcing up the price of many basic goods. In 1988 the Tories again slashed the top rate of income tax-from 60p to 40p in the pound.

When the Tories were forced to abandon the poll tax in 1991 they hit back at working people by jacking up VAT to 17.5 percent. The Tories also introduced the nastiest fuel tax of all. They imposed a special 8 percent VAT tax on domestic fuel in 1994, and planned to increase it further.

The tax added 8 percent to people's gas and electric bills and hit pensioners struggling to keep warm in the winter especially hard. New Labour reduced this tax to 5 percent but refuses to scrap it. Since New Labour was elected in 1997 it has done nothing to change the Tory shift from direct to consumption taxes.

New Labour refuses to increase the top rate of income tax. And it has cut taxes on business profits even more than the Tories did.

Bosses pay less

THE TORIES and New Labour have slashed taxes on profits.

  • In 1984 Margaret Thatcher cut the rate of corporation tax on profits from 52 percent to 35 percent.
  • By 1992 the Tories had reduced the rate to 33 percent.
  • New Labour has now cut it to just 30 percent.
  • Putting corporation tax back up to its 1979 level could raise an extra 25 billion a year.

This money could be used to fund decent pensions, public transport and other services for ordinary people.

It's happening across globe

THE SHIFT from direct tax on the rich and business to consumption taxes which hit workers and the poor is not unique to Britain.

It is part of a trend of what have been dubbed "neo-liberal" economic policies around the world. It is also a central plank of the "neo-liberal" economic policies pushed by the International Monetary Fund and World Bank.

Their Structural Adjustment Programmes, which have devastated countries and the poor across the world, demand massive cuts in business tax and income tax on the rich, and increases in consumption taxes on basic goods.

Business taxes have also been slashed across the world. The US has slashed corporate tax rates from 46 percent in 1979 to 35 percent now.

In Germany corporation tax has been cut from 56 percent to 40 percent and in France from 50 to 33 percent.

Local wealth tax

MARGARET THATCHER'S poll tax, which she tried to introduce in 1990, was one of the most unfair taxes imaginable.

Mass opposition broke the poll tax and got rid of Thatcher. The Tories retreated by bringing in the council tax. This is less unfair than the poll tax. But the way it is structured means it still lets the rich off and shifts the burden to workers.

Socialists are in favour of a local wealth tax instead, which makes the rich pay properly towards local services. Socialist Member of the Scottish Parliament Tommy Sheridan is suggesting a "service tax" along these lines.

Raise billions

  • 18.5 BILLION extra revenue a year, every year, could be raised if the richest 20 percent in Britain were taxed so they had same share of total wealth they had in 1979.
  • 25 BILLION a year could be raised by putting the corporation tax on business profits back to its 1979 level.
  • 5 BILLION a year could be raised by scrapping the upper limit on national insurance contributions.

Socialist solutions

THERE IS a real need for a fight against the pro-rich, pro-business agenda of both Tories and New Labour. We need a socialist tax policy.

It should be based not on higher consumption taxes, but on a major increase in income tax on the rich. There should also be a massive increase in tax on corporate profits.

And that should be coupled with price controls on basic goods to stop business protecting their profits by forcing up prices paid by ordinary people.

Click here to subscribe to our daily morning email newsletter 'Breakfast in red'

Article information

Sat 30 Sep 2000, 00:00 BST
Issue No. 1716
Share this article

Mobile users! Don't forget to add Socialist Worker to your home screen.