By Robert Palmer
Britain needs a fair and effective tax system that benefits everyone in the UK. But this was not on the top of Philip Hammond’s agenda as he updated us on the state of the economy. His spring statement was mostly a non-event as promised. The economy is ticking along better than predicted and borrowing is down.
The Chancellor did point to a number of consultations, including more attempts to go after big digital companies and a potential tax on plastics .
This shows some progress, but really Hammond is tinkering around the edges. For example, the proposed tax on digital companies revenues is a stop gap measure and appears to be fiendishly complicated.
The truth is that we need a fundamental rethink of our tax system. Taxes are one of the most powerful levers that governments have to influence the economy. But currently the tax system is not programmed to handle some of the biggest questions of our time.
Can we tackle the gap in wealth between baby boomers and millennials? Who will pay for climate change adaptation? How do we support people as they live increasingly long lives?
Since the 1980s there has been a shift away from the post-war consensus towards a smaller state with lower taxes. Tax is also increasingly paid by workers and not shareholders .
A clear example of this is corporation tax. In the 1970s it was 50% , but by 1997 the rate had fallen to 31%. The current government has dropped it to 19% and plans to cut it even further to 17%.
But, change is in the air.
For the first time since the financial crisis more people want higher taxes to cover increased spending than want taxes to stay the same. This is combined with the anger around tax dodging by some companies and rich individuals.
The Labour party has put the issue of tax on the agenda by proposing higher taxes on companies and the wealthy.
The Conservatives have made some helpful noises as well. In 2013 David Cameron argued that big companies had to wake up and smell the coffee and start paying their fair share. Last week the Conservative peer David Willetts said that “the age of tax cuts is over”.
Tax Justice UK is a new organisation that wants to ensure that everyone in Britain benefits from a fair and effective tax system.
So what should Philip Hammond be doing?
On multinational companies we need to find a way of taxing the value created here in the UK. Companies like Facebook and Google hoover up huge amounts of our data which they turn into valuable advertising sales. One approach would be to tax a proportion of their global profits based on UK economic activity.
But we also need to have a broader conversation about who’s paying what and how.
Currently the tax system is skewed in favour of shareholders over workers. The way we tax multinational companies was designed in the pre-digital age and can penalise bricks and mortar companies over the internet giants. There’s growing appetite to look at tackling intergenerational inequality through some form of wealth tax.
We need to reframe the issue so that tax is something that people are proud to pay, and that it’s fairly levied. We have to make sure that people feel that they get good value for money through excellent public services.
This is something that more and more people support. Ultimately we need to reprogramme the tax system to help us achieve the world we want to live in.