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Last Updated: Sunday, 14 March, 2004, 01:36 GMT
Tax: the taboo subject

By Evan Davis
BBC Economics Editor

As Gordon Brown prepares for his eighth Budget on Wednesday, the government's growing Budget deficit has put the question of tax rises at the centre of the economic debate - but one that most politicians want to avoid.

Council tax protest
Pensioners have protested against Council Tax

Tax is back. It almost feels like the early 1990s again.

The politicians are arguing about tax; economists are warning it may have to rise; and we even have people protesting against council tax, in a way that's almost reminiscent of the poll tax demonstrations.

OK, the genteel marches of pensioners in Devon are not quite the same as the riots in Trafalgar Square - but you know what I mean.

There is a definite sense that the issue is hotting up. And the polls give some evidence of that too.

When Margaret Thatcher was elected, the public by and large told pollsters they did not feel inclined to pay more tax to get better-funded public services.

Through the Tory years, though the mood changed. And by the time Labour came to power, there was an overwhelming consensus in the polls that we should pay more tax to spend more on public services.

What the polls seem to indicate now is that the cycle may be swinging back. The higher taxes go, the weaker the consensus for higher taxes becomes.

Uncomfortable

The tax that people think has most legitimacy is income tax. The most obvious, in-yer-face tax you can think of.
Evan Davis

This may not be altogether welcome news to the Chancellor as we approach an election. At the moment he is borrowing too much to meet his self-imposed "fiscal rules" in the medium term. It looks as though we may have to get tax rises - or cuts in spending plans.

The Chancellor argues that the borrowing problem will cure itself. But not everyone agrees with him. Independent forecasters like the OECD, the IMF, the IFS.. all the acronyms you can think of in fact, suggest that something probably needs to be done. Looking at the IFS figures, and you see ten billion pounds worth of something needs to be done.

So we have a rather uncomfortable configuration of trends: taxes may need to go up, just as tolerance of tax seems to be going down. Yet, we know the public want better and better public services.

All in all, this might be the time to work out our options. Is there an easy solution to the problem of taxing and spending?

First, there's one we can all agree on. We should cut waste. It is an integral plank of the tax policies of the Liberal Democrat Party, the Labour Party, and the Conservative Party.

Stealth taxes

And we all know there's waste out there. Wouldn't it be great if we could cut that, without cutting services? Waste is undoubtedly going to be a theme of the budget season this year. But is it a solution to our dilemma? In truth, it's too early to say as the parties have not been altogether upfront about what waste they intend to cut yet.

If it's not waste, we may need to look at cutting existing spending plans. The Chancellor has already pencilled in cuts in the growth of spending.

Will he use the budget to firm up his plans - or slow things down even more? Unfortunately for Mr Brown, the spending negotiations going into the spending review in July are already tough. The higher settlement for health is being paid for by tighter settlements for other departments.

What about more stealth taxes? Did it work for the Chancellor in the first Labour government. In the short term it did - but once we had endured a petrol and council tax protests, a surge in tobacco smuggling and a crisis in our pensions industry, the attraction of stealth taxes on petrol, councils, tobacco or pensions diminished.

There's another idea doing the rounds. If people don't want to pay tax, don't make them pay tax. Simply get them to contribute directly to the cost of services, as they use them. 10 to visit a GP for example. We do it with prescriptions; university degrees and dentists.

Taboo issue

Gordon Brown
Gordon Brown has some difficult decisions

Alas, you can't raise a lot of money without the fees becoming dauntingly large. A 10 fee for a GP visit would only raise enough to keep the NHS running twelve days a year.

By the time you exempt pensioners and people on lower incomes, you'd be lucky to finance the NHS for six days a year with it. Don't expect to see the idea in the budget.

So is there any obvious solution? Well, ask the public what they would do if extra money had to be found, and you get some surprising results - the tax that people think has most legitimacy is income tax. The most obvious, in-yer-face tax you can think of.

As Sylvia Hardy - a Devon council tax rebel - pointed out to me: income tax has the advantage of being related to income. It's a feature the public finds quite attractive.

Difficult decisions

But raising the basic or higher rate, is the tax rise that dares not speak its name. It's the taboo issue - politicians are terrified of the signal it sends.

They'll go to any length and make any promise to avoid raising the most transparent tax we have.

For the budget on Wednesday, most of the difficult decisions will be postponed. Those will come after the next election.

Things may go so much better than expected, that we don't even have to make any difficult decisions. But don't count on it.

One might say, without exaggeration, that we have a dilemma on tax and spending again. Normal service has been resumed.

Panorama: The truth about Tax was broadcast on BBC One on Sunday, 14 March 2004 at 2215 GMT

SEE ALSO:
The truth about tax
01 Mar 04  |  Panorama
Your comments
12 Mar 04  |  Panorama


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