By Polly Toynbee, The Guardian.
That was a state-of-the-nation image, those thousands of farmers in Whitehall protesting about inheritance tax (IHT). Their little inheritors on toy tractors could hardly have offered a better portrait of a Britain where even modest reforms of wildly irrational tax reliefs are near-impossible. The country loves Old MacDonald and detests IHT.
This is a symbol of the great malaise those same contrary voters feel about the profound unfairness in this most unequal of countries. Few think it’s OK for the top 1% to own almost a quarter of all wealth, or the top 0.1% to take about 60 times more income than their population share, while we are living through the greatest decline in living standards since records began.
The biggest tax-raising budget in decades, designed to start rescuing moribund public services, was bound to attract a backlash. The last tax-raiser that came close was Norman Lamont’s in 1993, which caused far louder outrage by imposing VAT on domestic fuel, up from zero to 17.5% by 1995. He was forced out two months later and his successor was forced to keep the tax at a lower level of 8%. This time there must be no backtracking: the biggest slice of our public spending goes to the NHS. Public services are stretched beyond bearing; the latest deficit figures show the gap between tax collected and public spending is still rising.
Paul Johnson, sage of the Institute for Fiscal Studies (IFS), was explosive when we talked about the farmers’ protest: “Extraordinary! The amount of coverage for these extremely wealthy people is amazing!” Privileged inheritance status for farmers and businesses was on the very long list of nonsensical tax reliefs advocated for abolition by just about every tax or economic thinktank for years. Even after Rachel Reeves’s reform, farmers would pay half the standard rate, and with a higher cap before IHT kicks in. “Farmers’ land is worth so much because rich people buy it to escape IHT. It’s very hard to find a good reason to give them so much more than everyone else. No food? Someone will farm that land. Very few farmers will be affected,” Johnson fumes. The rich, he says, can always command the airwaves. He observed the farmers’ protest with a poverty expert who asked sadly why the one-third of children in the UK living below the poverty line couldn’t stage such a protest. But tractors make for good pictures.
The exemptions for farmers are emblematic of tax reliefs that create a secret welfare state for the wealthy: pension tax relief at 40% for higher earners, but only 20% for the ordinary savers is just one entry in the yellowing archives of tax excrescences. Economic rationality would see the insanely unjust council tax system reformed: the average Westminster property pays 0.06% of its value, while Hartlepool pays 1.3%. Why didn’t “levelling up” start here? Tax expert Dan Neidle describes the VAT regime with its bizarre exemptions thus: “Any sufficiently detailed VAT rule is indistinguishable from satire.” How do city lawyers and accountants in partnerships get away with paying no NI as “self-employed”? And so on.
But making rational changes to the tax system is near-impossible when any losers make such unreasonable protests, while any winners quietly pocket a gain without acknowledging it. However, economists and thinktankers aren’t the ones who have to sell these reforms: this is where politics shows itself as an art all of its own. How do you weave the way between urgent need, stubborn resistance of the rich and the unspeakable power of a largely hostile media, amid a sea of ignorance where most voters understand very little about their payslips or tax coding, nor of whether they themselves are relatively well- or badly off on a national scale?
The budget deserves praise as “the first in nearly 15 years to mark a decisive shift from the planned cuts set out by the last government, with better-funded public services and greater public investment”, as the Resolution Foundation says. It begins to gnaw away at some unjustified tax reliefs, such as subsidies for private schools, to pay for state school teachers, when there has been “a massive widening in the private/state differential in education funding”, according to the IFS. For all the furore in the Tory press, that proposal was highly popular with voters. So was raising capital gains tax. But politically, there hasn’t been one simple story to tell about the purpose of this budget and the character of this government, a jigsaw of small parts not yet revealing the full picture.
Reeves’s £70bn investment for growth will take time to yield results: until then, there is no escape from Britain’s record as a “stagnation nation” with the outlook for growth and living standards remaining weak, in the words of the Resolution Foundation. Bad news rains down daily on the Treasury – inflation up, deficit rising, growth minimal, the Bank of England likely slowing down rate cuts. Some opposition is mindless: protests from retailers that the rise in minimum wage rise and employers’ national insurance will cause job losses would carry more weight if they offered an alternative tax rise to pay for the NHS and everything else. Blaming “inflation-busting public pay deals” fails to acknowledge that public sector pay is still below 2010 real-terms levels: how else would those vacancies be filled? Naturally, Tory critics leave Brexit damage unmentioned.
Budget grudges will calm down, but every day brings a reminder of how dire was Labour’s inheritance, how hard it is to repair desperate public services, and how small but powerful lobbies resist blindingly obvious reforms. As for those little farm inheritors on toy tractors, they are perfect exemplars of this week’s report from the Resolution Foundation on the rapidly rising impact inherited wealth has in accelerating wealth differences in the next generation.
