Tomorrow sees the launch of the Mirrlees Review on reforming the tax system. This review is sponsored by the Institute for Fiscal Studies and is closely linked to the Oxford University Centre for Business Taxation.
And the day after, Channel 4 will broadcast a programme by film maker Martin Durkin entitled ‘Britain’s trillion pound horror story’ that, according to the official blurb, will explain ‘the full extent of the financial mess we are in: an estimated £4.8 trillion of national debt and counting.’
Apparently Durkin will argue that we need to radically rethink the role of the state, stop politicians spending money in our name and introduce, among other measures, flat taxes to make Britain's economy boom again.
In fact, the national debt is not £4.8 trillion. To construct any number near that amount ignores the fact that state pension liabilities might be paid over the next sixty years. Few are due now: all those that are can be afforded.
Durkin is – as Channel 4 admits – presenting a polemic not so much based on fact but instead on a desire to radically transform the structure of our society. Let’s not pretend otherwise. In the context of the UK, the remedies he is advocating would be little short of revolution - and which consistent election of democratic governments with a mandate to tax shows we do not seem to want.
Coming back to the Mirrlees review, it has published thirteen papers so far, which show a similar theme to Durkin in supporting radical reform that assists accumulation of wealth through the tax system, even if they don’t go so far as to promote a flat tax.
For instance, they have argued that: ‘Given that the justification for double taxation is arguable and that inheritance tax currently raises less than £4 billion a year, consideration could be given to abolishing it altogether.’ And that: ‘An alternative [to corporation tax] which we put forward for consideration is a destination based tax, levied where a sale to a final consumer is made. ... The result is ... essentially a destination-based VAT, but with labour costs deductible.’
Such a tax would, of course, hit those who have to consume all their income (the poorest) hardest and be much less of a burden on those who could save (the most well off). Like Durkin’s flat tax, this would be a seriously regressive shift in the UK tax agenda. And as I showed in 2008, to replace corporation tax in this way would require a VAT increase of at least 7.5%, and by now probably somewhat more.
The same theme can be found throughout much of the Mirrlees Review and that is unsurprising. This is a review begun before the crash and based on neoliberal economics that takes as its premise the idea that free markets are efficient, government is bad and inefficient and that the reduction of state activity is to be encouraged on all occasions. The only difference with Durkin is one of degree.
Both represent a challenge to the state we have enjoyed, the lifestyle we have appreciated, the society in which we live and the social cohesion that (by and large) underpins it. Both would diminish government. Both would make life rougher, tougher, cruder and more extreme.
Is that what we want? I know where I stand. And we have to realise that this is not some peripheral, academic or philosophical issue. This is becoming the mainstream of politics in a way that could not have been anticipated before the crash.
Tax systems reflect the societies that give rise to them. Do we want a compassionate society, or something else altogether? Those are the choices being offered this week.
Richard Murphy is the director of tax analysts Tax Research www.taxresearch.org.uk
