Two years ago, as we ramped up to the last general election, David Cameron was making political hay by promising to cut taxes. Announcing a five-year freeze on VAT, income tax and national insurance – which would later cause problems for Philip Hammond – he urged voters to remember the “first law of politics”: Labour will put up taxes while the Tories are dedicated to cutting them.
As they announced 45 per cent taxes for annual earnings over £80,000 and 50 per cent tax for those making over £123,000, Labour certainly seemed to be playing to form last week. This came on the heels of Theresa May’s reluctance to discount tax rises in the next parliament. And the Liberal Democrats’ pledge to add an extra penny in the pound to everyone’s income tax for the NHS and social care, a policy also mooted by Plaid Cymru. It looked increasingly likely the SNP would again propose raising the top rate of tax from 45p to 50p. All of a sudden, 2015’s certainties look like ancient history.
So what has changed? After years of hostility to profligate government, are we ready to return to higher taxes and spending?
“This election does feel different so far,” confirms Adam Corlett, economic analyst for centre-left think tank the Resolution Foundation. “There’s been less emphasis on tax cuts as a way to win votes and maybe a bit more honesty about the need to raise taxes.”
“For people like us, it’s a pretty depressing election,” admits TaxPayers’ Alliance research director Alex Wild, as he watches the national conversation sail away from their goal of cutting taxes.
Spending cuts have had an effect. There is less fat that can be cut out of public services
There’s increasing evidence that the manifestos are pushing at an open door. “We have seen in recent years there is more of an appetite for the government to tax more and spend more,” says Roger Harding, head of public attitudes at NatCen, the institute behind the in-depth British Social Attitudes (BSA) survey, which has tracked attitudes to taxation since 1983. “That’s changed quite significantly. This is the most fertile moment for that argument in 10 years.”
Since 1983, NatCen has asked thousands of people across the UK whether they wanted the government to increase taxes and spend more on health, education and social benefits. Support hit a low of 31 per cent in 2010, following the worldwide economic crash, but has now rebounded to 45 per cent against an almost equal number (47 per cent) who want to see levels of tax and spend remain the same. Perhaps surprisingly, for a supposedly vote-winning policy, backing for reduced spending has never been higher than nine per cent (it currently sits at just four per cent). But this figure, too, reflects the new political reality. “A large proportion of the public think there is a funding crisis within the NHS and believe that more funding should be going to the NHS,” Harding adds. “We have also seen a slight increase in those who would like to see an increase in spending on benefits – 39 per cent believe we should be spending more on welfare benefits and 31 per cent think we should be spending less. That is a softening of attitudes to welfare over the last couple of years.”
Corlett points to several possible reasons why these changes are happening now. “I think the spending cuts over the last seven years or so have had an effect. There is less fat that can be cut out of public services and a bit more strain visible in certain areas,” he argues. “It’s the same with social security, where there have been years of cuts to the point where more people have started to notice it and opinions have changed a bit.”
As our population gets older, he adds, there’s an increasing recognition that pressures on the NHS and social care will continue to increase. “Public opinion probably reflects that – we all know that those services are going to get more squeezed and we are starting to feel the effects of that.”
Many economic models imagine us as rational and self-interested – we pay taxes because we know that we will one day get older, or fear that we may need the safety net due to illness or unemployment. Still, it’s notable that this change in outlook comes after outcries over unpopular measures like the bedroom tax, changes to the Disability Living Allowance and benefits sanctions. Could an increase in empathy be playing a role?
It took less than a week for the outcry from older voters to force May to back-pedal from her ‘dementia tax’
It’s possible, says Professor James Alm, chair of economics at Tulane University in New Orleans. In 2013 he conducted a study that revealed if you prime someone to be more empathetic, they are more likely to pay their tax. Whilst cautioning that multiple factors are in play, he confirms: “It is certainly plausible that, say, a more empathetic or more sympathetic citizenry would desire higher taxes to provide more generous services.”
If we are indeed more sympathetic to those who are less well off, the BSA survey shows we remain “quite picky in terms of who we think is deserving of increased welfare help”, says Harding. It’s still hard luck for the unemployed and single parents but “the groups that are seen as being more deserving are disabled people and older people.”
Why, then, did Theresa May think she can get away with diluting the triple lock on pensions, scrapping winter fuel payments to better-off pensioners and making changes to how older people pay for social care? Interestingly, while support for increasing benefits for the elderly remains high, it has dropped from 71 per cent in 1998 to just 49 per cent today. May’s policies, framed as “making the tough choices”, chime with growing intergenerational suspicion from young people who feel that the older generation has had enough good fortune.
Nonetheless, it took less than a week for the outcry from older voters (so much more likely to turn out) to force May to back-pedal from her so-called ‘dementia tax’.
Neither the LibDems or Labour have risked angering the grey vote, both promising to keep the triple lock. Their major difference is who will pay more tax. The LibDems foresee us all forking out an extra penny in the pound to fund the NHS, whilst Labour focuses its attentions on the richest.
People may say Corbyn is more to the left but the type of increases he is proposing are moderate
As economic inequality rises, alongside public dissatisfaction, it might seem like the right moment for redistributive tax to return. The Tories dismissed the Labour manifesto as a return to the 1970s but is that actually where we’d like to be?
Professor David Stasavage, from New York University’s politics department, doubts it. He and Stanford Professor Kenneth Scheve investigated tax debates and policies in 20 countries from 1800 to the present for their book, Taxing the Rich: A History of Fiscal Fairness in the United States. They found that the political landscape that allowed top rates of tax to reach 83 per cent in the UK in 1974 is long gone.
“We tried to explain why a lot of that was driven by the wartime context [following the Second World War] and that no longer exists,” says Stasavage. “People may say Corbyn is more to the left but the type of increases he is proposing are moderate.”
Although by no means a return to the 1970s, this election undoubtedly marks a shift in the prevailing winds. What the current data cannot yet tell us is how Brexit will come to impact upon this conversation. The latest BSA stats come from data collected in 2015, when an EU departure was but a twinkle in Nigel Farage’s eye. New figures are due at the end of next month and may show a change – but for now it looks like the UK is ready to make a change. This could even be the moment when we turn our backs on an ever-shrinking state and find a new place for empathy.