Paying up

by Martin McIvor

June 2002

"I believe it is right that when everyone - employees and employers - benefits from the insurance provided by the National Health Service, everyone who can should make a fair contribution". With these words, and the National Insurance increases they heralded, Gordon Brown and New Labour turned a corner. Economic commentator Anatole Kaletsky called it "the clearest and boldest reassertion of social democracy to be heard since the 1970s from the front bench in the House of Commons".

The public seem to agree. 59 per cent of people thought the Budget marked a change in direction for Labour (against 27 per cent who saw it as in line with the party's policies since 1997 - as official spokesmen would no doubt try to insist). And Brown was promptly rewarded with the highest approval rating of any Chancellor since - appropriately enough - Denis Healy.

The Budget's popularity only confirms what social attitude surveys have been saying for years. The Fabian Society's recent Commission on Taxation and Citizenship found that 80 per cent of the public preferred spending to rebuild the NHS over tax cuts. But it is no mean achievement to have turned this hypothetical support into reality in the face of media coverage presenting the tax hike as "bad news" all round.

There is a misleading and deeply ideological way of talking about tax which encourages everyone to identify as a homogeneous universal tax-payer. Pie-charts show "where your money goes" - but never who it is coming from. Polls show percentages of an undifferentiated public prepared to pay more tax as if we were all footing the bill.

This conceals the fact that government tax-and-spend can hardly fail to be radically redistributive. As Andrew Dilnot of the Institute of Fiscal Studies is fond of pointing out, even under today's far from adequately progressive tax regime, a well-off minority of the population contribute a far higher proportion of government revenues than most people think. 21 per cent of all income tax revenue comes from the top one per cent of taxpayers. 50 per cent comes from the top ten per cent.

Almost all of the new money raised in Brown's budget will come from people earning £30,000 a year and above. This is unfailingly described as a "middle income". But a mere £27,500 a year already puts a household in the top ten per cent of income tax payers. Sure, "it's not that much in today's world" as the Observer complained, but it is still a lot more than most voters have to live on.

Meanwhile the bottom forty per cent will be better off in sheer cash terms as a result of the Budget - and that doesn't even take into account the benefits to all of improved public services. Do these people not count? In all those acres of post- budget commentary they were all but invisible.

Nevertheless, there is a not unjustified feeling on the part of better-paid professionals in the £30-35,000 bracket that many people far richer than themselves are still getting off the hook under New Labour.

Even accepting Labour's election pledge not to touch income tax (which has more redistributive bite than National Insurance because it hits unearned incomes), there is a legitimate question to be asked about why the upper earnings limit on National Insurance contributions was only raised, and not abolished altogether. This is no small detail - in its Green Budget earlier this year the Institute of Fiscal Studies estimated that this reform could have raised an extra 5 billion a year - almost as much as was raised by the across-the- board penny increase - solely from earnings above £34,515.

Indeed, it is a widespread myth that the money to be raised from taxing very high incomes will never be very much because there are so few of them. The Fabian Commission estimated that a new top rate of income tax at 50 per cent on incomes over £100,000 a year could raise something of the order of 3 billion a year. In a post-budget paper for Catalyst, Dave Byrne of Durham University estimates that this would be doubled if the rate were 60 per cent (as it is in Denmark and as it was in Britain until only 1988); and that more then ten billion more could be raised by applying it to incomes over £50,000 a year.

Who is this small minority within even the top income decile that the Treasury dare not touch? According to Byrne they are the top five per cent who received almost a third of the total income growth of the 1980s - "the prime beneficiaries of the weakening of workers' capacities for industrial action, a macro-economic programme which benefits finance capital and producer services at the expense of
manufacturing, and massive reductions in higher rates of income taxation and taxation of wealth".

In their study of Britain's changing social structure A Class Act Andrew Adonis and Stephen Pollard christened them the "super-class" - a new elite of private sector managers and professionals produced by waves of privatisation, liberalisation, and Thatcherite restructuring, "centred on the City and its satellite professions", "mega- salaried" and increasingly divorced from the rest of society, "yet highly meritocratic and powerfully convinced of the justice of its rewards".

(Among them, presumably, are the overseas "financial specialists working on short- term contracts in the City" that the Treasury claims make up most of the 60,000 non-domiciled residents in the UK and which it cites as reason for its caution in closing the outrageous tax loopholes revealed by The Guardian last month.)

This statistically small but, it seems, economically all-powerful slither at the top of society is invisible most of the time. Neatly occluded by distribution graphs that divide the population only into fifths or tenths it is absent even from most sociological discussions of inequality. Blair has explicitly declared his lack of interest in them or their money - "the issue isn't in fact whether the very richest person ends up becoming richer" - at the same time as implicitly endorsing the sense of meritocratic self-worth that Adonis and Pollard report.

But for those of us who feel they may owe their positions more to good fortune than great virtue, justice demands that a new super-tax for the new super-class is somewhere on the agenda.

Published in Red Pepper magazine, June 2002.

Martin McIvor is Director of the Catalyst Forum.

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