Five things we learned about tax in 2014

Tax is one of the most important relationships between the citizen and the state. But despite its centrality, honest and rational political debate around tax has remained taboo this year. 2015 will see the fruits of a new Fabian programme considering practical options for tax reform after the general election, so as this year draws to a close, let’s take a look at five things we learned about tax in 2014.

 1.      Politicians still don’t like talking about it

Though tackling the tax avoidance of multinationals became a cause this year that almost every politician could rally behind, politicians are still no closer to having an honest and open debate about tax.

Everyone, that is, except Nick Clegg, who recently called George Osborne’s economic plans ‘complete and utter nonsense’ for their failure to admit that UK taxes will have to rise in the next parliament.

With the respected Institute for Fiscal Studies arguing that all main parties’ promises will require either further tax increases or further colossal spending cuts, and tax receipts falling short of OBR forecasts despite economic growth, our politicians are failing to level with us. Just as Andrew Harrop argued this time last year, there has been a continued absence of engagement about where increased revenue will come from, let alone a much-needed whole-system review of the overall balance of taxation. Indeed, the present pre-election debate this year has hidden the ‘inconvenient truths’ of public spending.

2.      Celebrities hate it…

“You might as well tax me on this glass of water“.

2014 was full of tax wisdom from celebrities. Outcry specifically crystallised around Labour’s proposed ‘mansion’ tax. Most famously, Myleene Klass passionately defended the owners of £2m properties who would ‘suffer’ from Labour’s ‘disturbing’ plans, claiming “you can’t just point at things and tax them”.

Meanwhile, writer and actor Griff Rhys Jones threatened exile over Labour’s ‘fatuous’ proposal (to great public anxiety), Sir Michael Caine lamented that the ‘preposterous and silly tax’ would even target his apartment on Chelsea Harbour and footballer Sol Campbell went as far as calling the Labour party the “grim reaper’” of “business entrepreneurs or anyone that has done well”.

 3.      …But normal people support it

Despite this anti-tax air amongst popular culture’s most affluent, most people don’t actually hate tax.

In fact, there’s a lot of evidence to show that they like it. A lot. This year’s polling has indicated overwhelming support for proposed tax increases, with 72 per cent in favour of Labour’s ‘mansion’ tax, and 65 per cent supporting an increase on the top rate of tax to 50p for income over £150,000. Indeed, as Zoe Williams writes in this winter’s upcoming Fabian Review: “Voters actually love tax, but they can never show it, because it’s never one of the answers on the democratic multiple choice at election”.

As well as supporting tax reform in the interests of fairness, we also learned that the public is particularly in favour of tax when they can see where their money is spent. An impressive 48 per cent supported a proposed increase in national insurance (despite it being a tax paid by all employees, including those earning below the income tax threshold) where the increase was explicitly linked to fund NHS spending.

 4.      Nobody likes a tax avoider

2014 was another year of wrath for the tax avoider. 85 per cent of us think that tax avoidance is morally wrong, even if legal, as we saw public demands for multinationals to pay their fair share.

Prolific tax avoiders Amazon, Apple and Google and their use of low-tax jurisdictions and transfer pricing have been specifically targeted by new Treasury priorities to deal with ‘aggressive tax planning’, part of a recognition that tax avoidance must be dealt with globally. This is just as well as despite 2013’s public demands which forced Starbucks to pay ‘voluntarily’ corporation tax (of just £5m) for the first time, Amazon UK paid just £4.2m in tax last year despite selling goods worth £4.3bn this year.

However, amongst these achievements we also saw the difference between tax avoidance (the legal use of existing tax laws and loopholes ) and tax evasion (the illegal circumvention to avoid necessary payment) almost forgotten. This means that this year we forgot that the elimination of loopholes that allow such practices is government’s responsibility alone.

 5.      There’s a lot more to learn about tax

Finally, despite this year’s Conservative pledges of tax cuts for 30 million people, as part of Cameron’s “priority … to target tax reductions on the poorest in our country” via a proposed extension of the personal allowance to £12,500 by 2020, 2014 was also the year where we learned that tax cuts do not make poorer people richer.

As well as the IFS’s criticism of the repercussions of tax cuts on the structure of the state, we know that increases in the non-taxable personal allowance disproportionately benefits higher earners, rather than those on a low to middle income. Furthermore, all parties have ignored the forgotten tax payers – those who still face regressive national insurance burdens but are not eligible to pay income tax. So why do politicians present such measures in terms of poverty alleviation?

And lastly, we’ve yet to understand the full repercussions of taking people out of tax altogether, weakening the traditional link between the citizen and the state, and possibly threatening to create ‘classes’ of taxpayers and non-taxpayers, indicative of how much more we have to learn in the coming year.

 Daisy Srblin is a research fellow at the Fabian Society focusing on tax reform