A few years ago, when running ippr, I had an idea. It was to create a new top rate of tax for the wealthy but to give these taxpayers the option of choosing where their tax revenues were directed. The reaction I received from my left of centre policy wonk friends is relevant to the heated debate about the imposition of a cap on tax relief; but, first, some context.
Back in 2003 the personal tax base was narrowing. The Government was able to rely on business taxes – particularly those generated by financial services – to fill the coffers. This strategy blew up disastrously with the credit crunch. Indeed, as the current ippr director Nick Pearce has argued, it was the over-reliance on taxes related to financial services and property transactions – much more than over spending – which was the biggest cause of the deterioration in public finances in the wake of the crunch. However, given political nervousness and hostility from the well-off it was difficult to see a way of making an increase in wealth taxes a realistic policy, thus my idea.
The strong opposition to the proposal from ippr colleagues (as a consequence of which it never surfaced) explains why the Guardian is defending the tax cap and why Ed Miliband is performing verbal contortions to condemn the Government without actually opposing the policy.
The first objection was that rich people’s choices would tilt spending in unfair and irrational ways. This is exactly the same charge levelled at tax relief in a recent Guardian leader:
the chancellor is right to limit the tax relief that wealthy people receive for supporting good causes. This is effectively money that pensioners and the low-paid, along with other taxpayers, are handing to the rich to indulge their philanthropic activities
The second objection is more subtle and profound. Although in proportionate terms low and medium earners actually donate more of their income than the well off, most people can’t afford to make large donations to good causes. They have to accept their contribution to society is made through the taxes they pay, and they have no individual control over how those taxes are spent. From a left of centre perspective, the problem with my idea was accepting the principle that by paying more aggregate tax rich people should have greater rights as taxpayers and citizens. This could even be seen as the first step in a slippery slope back to property qualifications on the franchise. The critique applies more directly to my idea than to the case against the tax cap, but it is still applicable.
Behind the critique of Government cock–up and the understandable but instrumental complaints of the charity sector lie deeper issues. Do we think high tax payers should, in essence, have more control than the rest of us over where their tax is spent? If the rich do have more control, isn’t that a good thing in that it means bold, controversial or decorative causes which the state might not support get independent funding? Conversely, given that the majority of big domestic donations go to either, or both, elite institutions or London-based good causes, doesn’t tax relief just add an extra dimension to the imbalance of culture and social capacity between London and the rest of England?
Given the best defence of the Coalition policy is from the left, and charities will probably fight shy from explicitly defending the principle that rich people should be uniquely free to hypothecate their taxes, I suspect the public debate about the tax relief cap may not get to the heart of the matter.
Earlier this week I suggested that progressives (yes, I do know this is a vague and flabby term, but it will have to do for now) should resist the temptation to abandon aspirations for good central government in favour of what I called lazy localism. By coincidence two stories from different sides of the world underline this point.
The first is the depressing news that, even after the event had been postponed in an attempt to drum up more interest, only four out of 54 of the continent’s heads of state turned up at yesterday’s African Union donor conference to discuss famine relief in the Horn of Africa. The background to this failure is described in a piece by Michael Holman in this month’s Prospect. Holman argues that the scale and ubiquity of aid agencies in Africa has allowed state and citizens to wash their hands of responsibility for tackling today’s crises or avoiding tomorrow’s:
‘a vicious cycle has been created. As the state surrenders many of its core responsibilities to aid agencies, its capacity to manage deteriorates. In the process, it loses some of the country’s brightest and best to the NGOs and UN agencies, who offer salaries that local employers cannot match’
The other story is the emergence of Rick Perry to become the favorite for the Republican Presidential nomination. Being right wing and outspoken, Perry is very quotable (both by his supporters and his opponents). One of his most famous offerings is his promise to make federal government as “inconsequential in your life as I can”.
So, while for NGOs in Africa, there is simply no time to wait for responsible and effective states to emerge, in America the leading right of centre politician promises the state can wither away to irrelevance.
This way of thinking is encouraged by a kind of hostile reification in which the state is seen to be something entirely separate to that which it actually comprises. In democracies the state is, in essence, the agency which carries out the popular will. Of course, there are all sorts of critiques of this assertion. From the left, the state will be seen as inevitably ending up serving the interests of global capital and social elites, from the right the state is seen as falling into the hands of producer and other interests, all of whom want the state to grow at the expense of individual freedom. The problem is that these accounts of the vulnerabilities of the state have – with the able assistance of the mass media – come to define its very nature.
But if the weakness of states in Africa was expressed as the failure of populations to agree and implement collective actions it would be apparent that no sustainable progress is possible without state building. If in America the state was seen as the vehicle by which the nation (through its beloved constitution) agreed to act together, then Perry’s idea that a good country is one in which the population abandons any attempt at nationwide collective action would be seen as the nihilistic ideology that it is – an attack not on Washington but on nationhood itself.
Indifference, resignation or hostility to effective national government is foolish and dangerous. As I said the other day, we need to disentangle the various critiques of administrative centralism, the inadequacy of representative democracy, the limited autonomy of nation states, the weakness of political parties, the character flaws of politicians, in order to start to mount a defence of what good (which doesn’t mean big) national governance could be.
There have been lots of interesting projects looking at aspects of the problem of the centre. The Power Inquiry explored the need to renew democracy. Ippr, Reform and other think tanks have suggested ways of modernising Whitehall, but in the face of an overall decline in faith in the democratic state as such, it is time for a more holistic exploration of the foundations of modern governance.
‘Principles and practices for 21st century national governance’ – sounds like a good research project. Anyone fancy funding it?
I frequently give lectures, chair events and meet and greet the famous and powerful (today, for example, I welcomed Gordon Brown to the RSA where he was giving a speech to the think tank IPPR about constitutional reform). None of this stopped me being incredibly nervous today. As I told the class, my own teenage sons find it hard to listen to me for more than about two minutes, so how would I hold their attention for an hour?
To break the ice I told them about a former academic colleague of mine who spent the whole summer preparing for his first ever lecture. To avoid any mistakes he wrote out every word in advance. On the day he strode as confidently as he could across the stage, plonked his notes on the lectern and started to speak.
He was just beginning to get over the worst of his nerves when he began to hear some students giggling. Without looking up or stopping his flow he tried to work out what might be the cause – were his flies undone, did he have odd socks on? It was only then he realised: since his opening words he had gradually been lifting the lectern from the floor and it was now almost head height.
Anyway, not only did I calm my nerves, but I had a great hour. The content picked up on a recurrent theme of mine: politics is difficult because we the people have complex and often contradictory desires. Having shown the students that they agreed with both the following statements, I got half the class to develop the best argument for the proposition:
As long as we aren’t breaking the law or hurting anyone else the Government should not interfere with how we run out lives
And the other half to defend
Government has an important role to play in encouraging us to look after our health, protect the environment and other things we care about as a society
I found it fascinating that within fifteen minutes the groups had identified the three classical philosophical arguments for both the libertarian and paternalistic state.
After the lesson I met a group of students who had been involved in the school’s impressive international work. Some had been on exchange trips to Russia, others to help out with a social project in Uganda set up by the teacher whose class I was leading.
Talking to the school’s passionate Headteacher, I was reminded of one of the many dilemmas of decision making. The school is by far the most socially diverse in the largely affluent and white borough of Bromley. It does benefit from some central Government funding but the local authority does not give it any additional support despite its crumbling building, its challenging intake and its steadily improving results.
There is little question that greater devolution to councils in affluent areas will tend to lead to lower levels of redistribution within services; these councils generally don’t need the votes of poorer citizens to get re-elected. The goals of social justice and local democratic freedom pull in opposite directions.
It’s not an easy problem to crack, but if we want some sound advice we could do worse than ask some of the year 11 students at Cator Park.
A very enjoyable morning at an event convened by the Bishop of Salisbury. It’s not often one gets to speak in a Medieval Hall. In a conversation around the themes of my annual lecture and the impact of the recession, the issue of debt emerged. Someone said:
‘one of the worst things Labour has done is persuade young people that it is normal to have loads of debt’.
The reference was to student fees and loans. I was a supporter of top up fees (indeed my old think tank, IPPR, helped design the top up policy), and I will support the removal of the top up cap when it inevitably occurs after the election. Higher education, which continues to be a major national strength for the UK, needs more investment but the tax payer should not be expected to put extra subsidy into provision which still goes primarily to the middle class and from which the individual student enjoys a direct financial benefit in terms of future earnings potential.
But this morning I realised that, could we go back to the debate about top-ups, I would argue more strongly for a graduate tax. In a way this is a semantic point as student loans operate like a graduate tax; the graduate only has to pay back when his or her earnings reach a certain threshold. But the words are important.
In 2003, when top ups were being debated the idea of a ‘loan’ seemed quite benign; after all, just about everyone in society was being encouraged to take out more and more loans. On the other hand, politicians were still allergic to the idea of explicit tax rises. Could a graduate tax be portrayed as Labour reneging on its manifesto tax pledge, we wondered.
Now, things are different. Tax rises may still be unpopular but they are no longer taboo. Meanwhile, we have come to associate loans with irresponsibility, debt and danger. Surely it would be better for graduates, and for their general attitude to debt, that they see the price of getting a degree as committing to a higher rate of income tax for a defined period rather than being saddled with debt?
There are other problems with a graduate tax. It means that those who earn a lot after university pay more even if their earnings have little to do with the degree. But if top ups are to rise again, it may be worth overcoming these problems in order to avoid normalising even greater personal indebtedness at the beginning of an adult’s life.
In my posts I like only to be complimentary about other people’s writing and research. ‘If you haven’t got anything nice to say, don’t say anything at all’, my Grandma used to opine. (Although she didn’t always stick to her own injunction – blaming attacks on her lime trees on butterflies released in Hyde Park as a tribute to Brian Jones by the remaining Rolling Stones she never stopped referring to Sir Mick as ‘that hideous Jagger creature’.)
On my way to Newcastle I am reading the IPPR Commission on Public Services in the North East report.
I’m off to speak about public services to an IPPR / RSA audience in Newcastle. My core message will be that the region faces a risk spiral and an opportunity spiral.
The first is that the region comes out of recession on a low growth, low entrepreneurship, low employment trajectory. This then combines with public spending cuts which hit a large dependent population very hard, adding to poor social outcomes and social division. In addition the public spending squeeze takes money out of quality of life areas like arts and public space, leading to the area being less attractive to talented people and investors and thus exacerbating the problems of economic dynamism.
The opportunity cycle starts with a total commitment to public service innovation. Given how much of the regional economy is in the public sector any significant improvement can reap major gains in service outputs. In addition – given the inexorable increase in global investment in education, health and social care, community safety etc – the region can use an emerging reputation for service innovation to improve its image, attract investment and talent. In this context other advantages of the region – particularly the scope for a high quality of life – can come into play as the region explores not just the method of public services but the goals in the context of a growing desire for new more sustainable and humanistic models of growth.
So, two futures in prospect.
There is already public sector innovation in the North East (Newcastle Council’s in-house modernisation and South Tyneside’s work on well-being are examples). There is also a dynamic HE sector which helps provide the R&D backing for a regional innovation strategy (maybe NESTA might want to help out too).
The possibilities are great if the leadership is there. And, on this, I hope to find out more in the next few hours.