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.
