The Budget will present new Chancellor Rishi Sunak with some tough choices. This week the IFS have pointed out that Sunak will have to raise taxes, break the Government’s fiscal rule or entrench austerity.
The political context is challenging. The Conservative party has promised extra spending to “level up” forgotten parts of the country. The Government will have to work hard to balance its election winning coalition of traditionally Conservative voters in the south, who tend to favour low taxes, and its new supporters in former Labour heartlands, who desperately want to see more investment.
My organisation, Tax Justice UK, has carried out a series of focus groups around the country to understand what voters think about public spending, wealth and tax. The public’s knowledge about the finer points of the tax system is limited, and it is important to avoid making tax policy by focus group. However, we live in a democracy where the shape of the tax system is one of the very basic building blocks of our government. Ensuring popular consent to how the government raises funds is a crucial.
The seven focus groups took place over December and January in a number of new Conservative seats in the former “red wall”. These included Blyth Valley, Bury and Wrexham. We also visited London, Long Eaton and Reading. The research was carried out by public attitudes researchers at Survation with support from an advisory group of academics, communication professionals and policy experts.
Participants in all the groups brought up the impact of government cuts. In particular, in Blyth and Wrexham voters felt abandoned by politicians of all stripes. As one voter in Blyth said: “Public services are falling apart on a massive scale. Austerity has shafted the northeast.” We found widespread support for greater public investment. No one called for tax cuts.
The concept of being a taxpayer was fundamentally felt to be good, even if some people complained about individual taxes. One Conservative voter in London said “What is tax paying for? The NHS, politicians, it pays for your life – without it you have nothing. It is our money the government is spending, it is life”. However, people were also jaded about the ability of politicians to deliver on their promises and some voters were concerned about public money being wasted.
We were particularly interested in hearing views on taxing wealth. The UK is a rich country, but this wealth is very unevenly spread. Wealth, such as land, shares and property are lightly taxed. In advance of the budget, there have been a number of leaks suggesting that the Treasury is considering higher taxes on wealth; so far, many of these have been denied.
However, the focus on taxing wealth is in line with the views of many economists, and some political figures, who believe that wealth is under-taxed in the UK compared to consumption and income from work. Rachel Reeves and Ed Miliband, both floated as potential Labour shadow chancellors, have supported taxing wealth more. There are also Conservatives making this argument, such as Lord David Willetts and former Treasury advisor Tim Pitt. The IFS, IPPR and Resolution Foundation think-tanks all support increasing taxes on wealth.
At the last election, Labour’s manifesto promised a number of increases in taxes on wealth. The Conservatives said that they would limit the “arbitrary tax advantages for the wealthiest in society”. The Lib Dems also back increased wealth taxation.
In our focus groups we found support for specific policy changes, although participants were wary about blanket calls for higher taxes on wealth. We asked about three areas: capital gains tax (CGT), council tax and pensions tax relief.
At the moment, CGT rates are significantly lower than income tax rates. This means that capital gains - in effect income from wealth - is taxed at a lower rate than those subject to the income tax schedule. This means that many wealthy people can transform their income from work into capital gains and so slash their tax bill. It is this discrepancy that has led people to condemn the fact that a banker can pay a lower tax rate than his secretary.
In our focus groups we found support for equalising CGT rates with income tax rates. According to IPPR, this could raise £90 billion over five years. As one voter in Blyth Valley said, “Why should someone who is working hard to stay on the breadline, why should they pay more tax than someone who makes all that money from shares”. This matches the results of a YouGov poll that saw almost 70 per cent of the public backing CGT reform.
We found more qualified support for making council tax more closely aligned with a property’s current value. People were open to the idea of adding some extra bands on for the most expensive houses. However, there was nervousness about whether they themselves would have to pay more.
The voters we spoke to were broadly supportive of reducing the current pension tax reliefs for those on the highest incomes. At the same time, people were nervous about over-taxing pensioners and people were concerned about funding their own retirement
You can read the full results of our research on our website. As part of this project we will carry out a big poll after the budget and two further focus groups. Alongside other public attitudes work on tax, this will give us a good picture of what the public thinks about this vital aspect of our society.
People are often rightly sceptical about this sort of public attitudes research. Politicians have been accused of making policy based on what’s acceptable to a small number of focus group participants. However, the value of this approach is it gives you an impressionistic understanding of what people think about key policy areas. This should lead to better policy making and more public support for the end result. For us at Tax Justice UK, it is important to understand what the public thinks about tax as we campaign for a fairer, and more effective, tax system.
Guest blog by Robert Palmer, Executive Director, Tax Justice UK