Escaping the UK’s Tax Trap

Public Services Europe

Andrew Percy

6 April 2022

During Covid the importance of a network of integrated and supporting public services took on greater meaning for many, as communities responded to the food needs of isolating families, and the digital connectivity needs of children after schools closed. Suddenly the notion that digital connectivity should be universally accessible seemed like an obviously good idea!

Now the government’s Levelling Up agenda highlights once again the importance of local Prosperity, of what the people living in a place decide is the best way to improve their lives, as they see it. This shines a light on the intersectionality of the IGP’s parallel work on Prosperity Indexes with our work on Universal Basic Services.

The IGP has always been keenly aware that while a Prosperity Index tells you what to spend money on, and Universal Basic Services tell you how best to spend the money, there is still the question of where the money comes from. That’s what National Contributions report does.

The great danger is that instead of investing to protect ourselves in the future, governments will be forced to respond to the cost of living crisis, and possibly increase spending on defence, with an out-of-date, 20th century tax and welfare system than cannot adapt to the challenges.

As one example: even the meagre response of the UK government to try and address energy costs — costs that pre-date Russia’s attack on Ukraine — is going to cost about the same as the Climate Change Committee’s estimate of average annual expenditure needed for investment to reach the UK’s legally binding Net Zero by 2050 commitment. We are spending money to compensate, without a single penny going into investment!

Or we can look at the National Insurance rise that started this month. That is supposed to fix the UK’s social care crisis, but there is little evidence that it will do that, and has been roundly criticised as taxing ordinary working people at just the moment when the cost of living is going through the roof.

It seems clear that, without reform of how we raise revenues, it is almost impossible for governments to use the current tax systems to address the challenges we face.

Addressing the climate emergency is going to require behaviour change from all of us. That behaviour change is only going to materialise if we are able to protect people, especially those with the least resources, from the inevitable costs of making the transition. Nigel Farage says he wants to start a campaign for a referendum on Net Zero! Apart from the King Canute-like insanity of trying to vote against the weather, this highlights exactly the danger we face. If we are unable to provide a way through the transition without throwing vast swathes of the population into eat-or-heat destitution we will not get the behaviour changes we need.

Building on the context described in the Universal Basic Prosperity paper, the National Contributions report is a detailed proposal for how the UK could reform its tax system to fund the kind of levelling up program that would support the climate transition, protecting people by reducing their cost of living with enhanced public services.

If you haven’t read it yet, the National Contributions report is available here.

Last month the IGP brought together Georgia Gould, leader of Campden Council, with Ann Pettifor, Green New Deal economist, to discuss tax reform. To watch the webinar go to https://www.youtube.com/watch?v=5xHQNFd5Hz0