The People's Budget of 1909 introduced an array of unprecedented
measures to tackle poverty and inequality. Its stated ambition was to be
"a great step towards that good time, when poverty, and the
wretchedness and human degradation which always follows in its camp,
will be as remote to the people of this country as the wolves which once
infested its forests". Among the radical policy measures harnessed to
achieve this ambitious goal were a land tax and an increase to
inheritance tax. The People's Budget had its most staunch champions in
David Lloyd George and Churchill, known to their contemporaries as the
"Terrible Twins".
The Budget to be proposed this Wednesday by the
government under the leadership of David Cameron and Nick Clegg is not
going to have comparable ambitions. The series of vitriolic attacks on
the idea of a "mansion tax" is a good indicator that taxes on wealth
would not meet with much enthusiasm in Westminster in the current
climate. However, while remaining fiscally "neutral", this Budget is
likely to have far reaching ideological repercussions. The two central
proposals of the coalition partners: the Tory abolition of the 50p rate
of income tax and the Lib Dem move towards the £10,000 income tax
threshold -- if implemented -- have the potential to drive a wedge
between the rich and the poor.
First, take the Tory idea of
scrapping the 50p rate. The debate over the fiscal benefit of keeping
the 50 per cent tax rate continues; politically, the die has been cast.
This move is controversial -- as the Guardian/ICM poll
reveals -- two thirds of voters are in favour of maintaining the 50p
tax rate. Indeed, in terms of people's perceptions of fairness, it is
relatively easy to see why lowering the income tax for the richest 1 per
cent of earners who get at least 6 times the national median income,
might be seen as exacerbating social inequalities. It might not be
equally obvious why this should be the case with a policy once
considered to be "political gold": the Lib Dem proposal to raise the
level at which people start paying income tax to £10,000.
Scrutiny
reveals that not all that glitters is gold. The Institute for Fiscal
Studies recently showed that the £10,000 threshold for income tax is
likely to benefit the richest households most, while leaving intact the
plight of those who earn so very little that they don't even qualify to
pay income tax. Even more problematically, it is also feared that this
move could make a number of middle-income families lose child benefit
and exacerbate the already dire financial situation of the "squeezed
middle-class". What is particularly interesting in the context of this
argument concerned with the impact of the Budget measures on the levels
of inequality and the perception of fairness is that the proposal to
lift a group of people beyond income tax will result in the
stigmatisation of the poor as "undeserving".
There would be a big
difference, on this proposal, between anyone earning £10,000 or less,
who would pay no income tax at all, and those on middle incomes, who
would get the first £10,000 they earn tax free. As Clegg himself
observed once, the latter belong to a group of people "whose incomes are
too high to qualify for welfare benefits, but too low to provide any
real financial security". They are the "ordinary, hardworking people";
and they would be likely to hold in deep contempt those exempt from
paying income tax altogether, and yet eligible to receive benefits --
that is, ordinary, often hardworking, but, in the opinion of middle
Britain, "undeserving" people.
The reason is plain. The success of
William Beveridge's legacy rests on the ideas, first, of linking
together the notions of citizenship and welfare and, second, of using
taxation as a bridge between citizens and the state. Contribution and
entitlement are inexorably bound together, in the same way that citizens
are bound to the state through taxation. What is at stake here is the
sense of collective responsibility and identity. The proposal to exempt a
group of people from their contractual obligation with the state is
likely to have far reaching consequences for how these people are
perceived by the rest of society. Lifting them out of the income tax net
will result in a politics of us and them -- we are not all in it
together since only some of us pay, since only some of us receive
benefits. There is a better way of helping those who desperately need
it: make them less poor by enforcing the living wage regulation, and
make them more "deserving" by allowing them to exercise their
citizenship responsibilities and requiring them to pay a very low
marginal taxation rate on the first £10,000.
In the lead up to
Budget day, the government of a nation eviscerated by inequalities --
where 40 per cent of all the wealth is owned by 5 per cent of the
population and 70 per cent of approximately 60 million acres of land
owned by less than 1 per cent of the population -- should not exacerbate
the perception of unfairness. Needless to say, the most effective way
of tackling these perceptions would be to change the reality. In order
to tackle inequality in a serious way, the coalition government need a
set of policies as radical as those introduced in 1909 by the government
under Lloyd George and Winston Churchill when they put forward a
proposal for a land value tax. Of course, the Terrible Twins' Bill was
never implemented; it was opposed by the House of Lords as "a menace to
property and a Socialistic spirit". Yet, for a short time it carried the
promise of a Budget truly preoccupied with fighting inequalities.
Sadly, if all goes according to plan and the two main ideas of the
current coalition partners are implemented -- unlike the People's Budget
of 1909 -- the 2012 Budget is likely to be commemorated as the Budget
of Two Nations "between whom there is no intercourse and no sympathy
[...] as if they were dwellers in different zones, or inhabitants of
different planets: the rich and the poor."
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