I wrote about tax a few weeks ago here. Given it now seems overwhelmingly likely we’ll be facing significant tax rises tomorrow, I thought it was worth returning to.
The context has changed even in these last few weeks; most obviously we know the timetable for leaving lockdown; but we have also had a significant softening up exercise from the Government to prepare people for tax rises.
It’s a dangerous game, relying solely on polling to judge the state of public opinion; polls never tell the full story. This is particularly true on the issue of tax.
Over the last twenty years, we’ve heard endless claims the public don’t care much about tax; after all, the polls usually put “tax” towards the bottom of people’s national and personal priorities. This, coupled with questions forcing people to choose between theoretical decisions between tax cuts and public spending – which invariably show people support higher spending – have helped justify a Conservative pivot away from being a genuinely low tax party.
But things have never been that simple over the last twenty years and, on the eve of this Budget, nor are they so simple now. While we in Westminster are having one set of conversations on tax – usually framed through the classic left-right prism that makes sense to us (and only us) and usually focused primarily on the economy – the public are having an entirely different set of conversations.
As such, decisions on tax can have entirely unintended political consequences. I set out here a few of the fundamentals of public opinion on tax.
Raise tax and expect people to question your competence.
The polls usually show the public support tax rises to pay for a specific good; so, in the late 90s and early 2000s, people said they strongly supported Tony Blair and Gordon Brown’s decisions to raise taxes to pay for higher spending on the NHS and other public services.
More recently, they supported the Conservatives’ recent implicit decision to raise taxes to pay for a big injection of cash into the NHS (implicit because they thought that extra borrowing would in the end mean higher taxes). And the polls will show the public are at least sympathetic to the idea of raising taxes to pay off the massive debt accumulated during the pandemic.
But the public open their wallets passive-aggressively and grudgingly. They expect to see rapid results and they don’t expect politicians to come back for more cash again soon because it didn’t work.
In short, when the public vote to pay more in tax, they immediately begin to question the competence of those they’ve given cash to. A very large proportion of the lower middle class started to peel off from New Labour in the early 2000s in exasperation at the lack of progress on the NHS (fair or not). The Conservatives should expect something similar to happen now.
To be fair, things are more complex here; the Government is going to be paying off debt, rather than splurging it on new services. But the public will still begin to question their spending decisions seriously now; the Government will have lost the benefit of the doubt; when they next make economic errors, having taken more cash off people, they’ll face an irritated public.
And expect them to question your values too.
Just as they’ll start to question the competence of the Government, so too will they start to question the judgement / values of the Government. It’s often said that the public don’t believe politicians who say they’ll cut “waste”. This is true, but not for the reasons people commonly imagine.
It’s not just that they think politicians are incompetent (which they do), but, more importantly, that they think they’ll spend money on a whole series of stupid things. In other words, raise taxes and expect people to question your spending priorities. The public effectively ask: “why on earth are you raising taxes when you’re spending money on x?” (People only started really paying attention to the aid budget when it went up so much).
The mid-2000s saw the massive growth in the TaxPayers’ Alliance off the back of public irritation with the Blair/Brown Governments’ spending priorities. And, just as we should expect the public to start to question the competence of this Government, so too we should expect them to start questioning their priorities – and their values.
Fairness doesn’t just mean “tax business and the rich”.
Three interesting points from focus groups down the years on taxing the better off. Firstly, and this is hardly new, the public hates inheritance tax because they don’t like the idea of double taxation. Secondly, they hate the idea of those with higher levels of savings paying more for their social care, because they don’t like the idea of careful, thrifty middle class being whacked for good behaviour. Thirdly, any conversation about higher taxes for higher earners (high five-figures) quickly descends into people saying actually they know people who earn this sum who run their own businesses, and how hard they work.
The point is this: you can’t just tax big businesses or “the rich” and expect to get away with it in every circumstance; on the contrary, it can blow up if the motives look dodgy. The English public doesn’t have a classically “left-wing” view of economic fairness; they have an English view.
The concept of “sin taxes” is evolving.
The public conversation amongst the mainstream middle class and working class is evolving quickly; collectively, they are changing their minds quickly on which “bad things” should be taxed. They are coming around to the idea that, given they think taxes are going to have to rise, that it makes sense to use taxes to bring about societal change.
Specifically, that means, in this context, that they are coming around to the idea of using fiscal carrots and sticks to help protect the environment; this has changed in the last three years. In the relatively recent past, politicians taxed tobacco for apparently altruistic reasons and the public went along with it. Times have now changed, and pretty soon we’re going to see “sin” associated with things like carbon.
When the economy is threatened, they oppose business tax rises.
When I ran a large project for the TaxPayers’ Alliance a couple of years ago, the most interesting lesson was that the working class had swung behind big businesses as their fears grew of a post-Brexit economic downturn. All of the coverage – chiefly on the BBC – about businesses leaving the country had made them nervous about driving these big employers away.
While you hear less of this concern at the moment, this is because the mass of the public have no idea about the appalling state we’re in financially and economically. Furlough morphine has made them think the economy, fundamentally, is fine and that we’re going to jump straight into the “roaring 20s”. With this in mind, it would be dangerous for the Government to read too much into the polls that show public relaxation at the prospect of significant business tax rises; the polls could very easily shift back to where they were a few years ago once Government support is withdrawn.
The Government will be reasonably confident that it can anticipate the immediate public reaction to tomorrow’s budget. In a crisis – even in its latter stages – the Government will likely get away with pretty much anything within reason. In the early stages of his Budget speech, Rishi Sunak will be able to reel off endless figures showing the shocking state of the public finances; he will be able to position his Budget as a direct response to this.
Much harder to predict is the longer-term reaction to the Government’s economic policy priorities, of which this Budget will mark the beginning. As this short blog notes, pretty much all tax rises are dangerous politically.