Confronting tax evasion is not enough: We need to reform taxation entirely

One of the most urgent tasks facing a progressive government is reform of the current system of taxation. The reasons for reform are clear: the present system is inequitable, socially regressive and becoming more so; it is inefficient, due to the various forms of tax minimisation and evasion; and it yields insufficient revenue to fund social welfare, infrastructural investment, the transition to a carbon-neutral economy and the various other public services which a civilised society requires.

The present tax base is too narrow, even allowing for the large and increasing scale of tax evasion, and this places severe constraints on the policies that any future Labour government will be able to adopt. Furthermore, the system is losing public confidence and this threatens the very basis of collective provision within society. Increasing the tax base by taking effective measures to confront tax evasion is important but this, alone, is not enough; we must go further, to reform the system as a whole.

The relative success of the Conservative party and its allies in framing the debate on taxation on their terms and weakening public support for an adequate level of taxation suggests that few tasks can be more vital for the future of the Labour party than an overhaul of the system of taxation in such a way as to re-establish public trust.

The Report of the Commission on Social Justice, produced for John Smith in 1994, recognised that ‘taxation in the UK today… is neither fair nor efficient’ and set out the principles which it considered should govern tax policy. Since then, much further work by various individuals and groups has analysed the deficiencies of the current system (which are becoming steadily worse) and made the case for a range of new or remodelled taxes.

But the labour movement has not yet pulled all this together so as to produce a coherent set of proposals to transform the system. There is thus increasing realisation of the need for reform but no clarity about how to achieve it. There are two main obstacles: the first is the problem of winning public support in a situation where progressive positions have been pushed to the margins of public debate; and the second is how to decide on the optimum mix of alternative taxes. There is no shortage of suggestions for alternatives, such as a financial transactions tax, a carbon added tax, a land value tax, local income tax and so on. These and other proposals need to be evaluated from the point of view of such factors as social justice, anticipated revenue, feasibility of collection, and impact on economic activity and environmental protection, and decisions made on an appropriate mix of the various forms of taxation.

The establishment of a Royal Commission on Taxation, with suitable terms of reference, would make a significant contribution to overcoming both of these obstacles. The Royal Commissions of the 1950s and 1960s, which helped to introduce many significant reforms, fulfilled precisely these functions and Margaret Thatcher’s decision, in the 1980s, to turn her back on the institution of the Royal Commission was a severe blow to our ability to implementing progressive agendas. I therefore propose that the Labour party, on its return to power, should commit itself to setting up a Royal Commission to review the existing forms of taxation, evaluate alternatives and propose reforms in pursuit of the objectives of social justice, efficiency, social and economic welfare and environmental protection.

By taking evidence from a wide variety of organisations and individuals and commissioning, where necessary, its own research, a Royal Commission could carry out the tasks of evaluating the various forms of taxation and adjudicating on an appropriate mix.  This exercise would stimulate debate and educate the public, recapture the initiative for a progressive approach on taxation, give maximum credibility to proposals for change and in this way win wide support for much-needed reform.