Reduce inequalities in taxes by Adrian Sinfield

Reduce inequalities in taxes

Adrian Sinfield

 

Now is the time to significantly reduce the inequalities created and reinforced by taxes. We cannot continue to let spending policies run through the tax system relatively neglected, while the costs of public spending are subject to ever greater scrutiny. Nobody asks ‘where’s the money coming from?’ when tax allowances are raised above inflation.

 

Tax reliefs and subsidies of all types which contribute to reinforcing and even enlarging social and economic inequalities must now be tackled vigorously (Bradshaw, 2019, chapter 9). Today many, particularly the better-off, are advantaged by a variety of tax reliefs hidden and virtually ignored in contrast to the ever greater scrutiny of public spending. Only the costs of some are released, buried away obscurely by HMRC. Their distributional impact is very rarely published. This is not the tax avoidance of the tax gap but legal use of a tax policy gap that governments have deliberately created for specific purposes. The Office for Budget Responsibility recognises these as ‘policy motivated tax expenditures’. The cost of just those ‘that HMRC has identified is large in absolute terms – approaching 8 per cent of GDP – and also by international standards’ (OBR, 2019, p 95) – more than the NHS costs.

 

The largest personal income tax relief is to help build a private pension, currently £19 billion net (after deducting tax collected on pensions in payment). Half goes to the top tenth of income tax payers but only one tenth to the bottom half, despite significant restrictions on relief at higher incomes (Treasury Committee, 2018b: 33, chart 5.1).  Even that does not include all pension tax relief and totally ignores the £16.5 billion National Insurance contribution reliefs omitted from NI Accounts (HMRC, 2019). At least 6 times as big a subsidy supports private pensions as does pension credit for the poorest pensioners.  No wonder that less than 8% of all households own 47% of private pension wealth (ONS, 2015, chapter 6).

 

Wealth must also be taxed more fairly and effectively. In proportion to GDP total private wealth more than doubled over the last 45 years while its taxes ‘remained at around only 2 per cent of GDP’ (Summers in Bradshaw, 2019, p 115). Instead of saying ‘make the rich pay more’, ask ‘who among the rich is not paying their fair share?’  The reason is not so much complex tax avoidance schemes or simple bad behaviour as the political choices stamped into the tax system: taxing similar forms of remuneration differently, and providing many uncapped tax reliefs without checking effectiveness and value for money (Advani and Summers, 2020).

 

Finally, local taxation must be made progressively redistributive and, at the very least, council tax valuation must be brought up to date.

 

Even very small increases in reduction of reliefs and taxation of wealth will provide significant resources to prevent poverty and secure the futures of all children and families across our society (Sinfield, 2020).

 

 

Adrian Sinfield, Professor Emeritus of Social Policy, University of Edinburgh       adrian.sinfield@ed.ac.uk

 

Advani, A. and Summers, A. (2020), How much tax do the rich really pay? New evidence from tax microdata in the UK, CAGE Policy Briefing no. 27, June.

https://warwick.ac.uk/fac/soc/economics/research/centres/cage/manage/publications/bn27.2020.pdf

Bradshaw, J. ed. (2019) Let’s Talk about Tax, London: CPAG.

HMRC (2019) PEN 6 Cost of Pension Tax and NICs Relief https://assets.publishing.service.gov.uk/government/uploads/system/uploads/attachment_data/file/833859/Table_6_Cost_of_Pension_Tax_and_NICs_Relief__2012-13_to_2017-18_.pdf

OBR – Office for Budget Responsibility (2019) Fiscal Risks Report, CP 131, London: TSO.

ONS – Office of National Statistics (2015) Wealth in Great Britain Wave 4: 2012 to 2014, London: ONS.

Sinfield, A. (2020) Prevent poverty better, Submission to the Commission on Work, Pensions and Equality, Labour Party Forum, June.