The EconomistJanuary 27th 2018 47For daily analysis and debate on Britain, visit
Economist.com/britain1D
ENIS HEALEY had a bittersweet mes-
sage when he took to the stage at La-
bour’s annual conference in 1973 with a
pledge to increase taxes. There would be
“howls of anguish” from the rich, the then
shadow chancellor promised delegates in
Blackpool. But he added: “Before you
cheer too loudly, let me warn you that a lot
of you will pay extra taxes, too.” Pay they
did. Two years later, Healey raised duties
on alcohol and tobacco and increased the
basic rate of income tax from 33% to 35%. It
was the last time a British chancellor
moved the basic rate upwards.
Today such rhetoric—and such a poli-
cy—is alien. The tax burden as a share of
GDPhas dropped some three points below
where it stood in Healey’s day. Income-tax
rates have fallen steadily, as tax-free allow-
ances have risen (see chart). The bracing,
revenue-raising budgets of the past have
given way to onesthattrumpet tax cuts
and do their best to disguise measures that
might bring in more money.
Yet the long-term tax-cutting trend may
be over. If the quality of public services—in
particular, the National Health Service—is
to be maintained, Britain faces the grim
prospect of across-the-board tax increases.
Healey’s budget, one of the harshest in the
post-war period, raised tax equivalent to
1% ofGDP. According to official estimates,
putting the country’s finances on an even
keel requires permanent tax rises in the re-
gion of 2% ofGDPeach decade, for manycal political culture and round-the-clock
media coverage makes it hard for chancel-
lors to take unpopular decisions, says Ken-
neth Clarke, who did the job in 1993-97. “A
few years ago [an increase in taxes] would
not have been regarded as sensational,” he
says. “People knew perfectly well that
sometimes taxes went up and down.” In
2002 Gordon Brown increased national-
insurance contributions (NICs), promising
the extra money for health care. But such
boldness is rare. These days, governments
prefer to raise money by stealth. In the Hea-
ley budget of 1975, there were eight big tax
measures. In George Osborne’s budget in
2016 there were 86 crafty little ones, includ-
ing higher taxes on landfills.
But the reality of Britain’s financial
straits is forcing a rethink. The best esti-
mates say that the NHS needs another
£20bn ($28bn) per year by 2022, equivalent
to 1% ofGDP. Other departments are also
squealing. This week the head of the army
issued ominous warnings about the need
for more cash. Voters will have to pay more
or receive even less—and after eight years
of cuts, they have no appetite for the latter.
The two main parties are responding,
albeit cautiously. Labour talks boldly
about raising revenues, including by re-
versing recent cuts to corporation tax. But
even its avowedly socialist leaders blanch
at increases to tax for anyone bar the rich.
They have ruled out increases to the basic
rate of income tax, VAT orNICs. Only those
earning over £80,000 a year—about the top
4%—would face higher taxes (a policy
which might not raise money at all, in part
because high earners are adept at manag-
ing their finances). Recently a shadow min-
ister raised the prospect of those in big
houses paying more council tax. He was
promptly forced to resign.
Among the Tories, there is a growing
clamour for more spending, if not yet fordecades to come. Political minds on the
right and left are turning to the question of
how to raise this kind of money.
Until recently, politicians could dodge
tough decisions on tax. From the 1950s to
the late 2000s, the economy in general and
wages in particular grew much faster than
they are growing today. That made it easier
to collect extra revenues. In the decade to
2008, bankers’ juicy salaries and rising em-
ployment meant that income-tax receipts
rose by 60% in real terms, despite a soften-
ing of the income-tax regime.
As a result, the public is unused to the
idea of structurally higher taxes. A hysteri-The politics of taxSacred cows no more
Long-standing opposition to tax rises is slowly softeningBritain
Also in this section48 Northern Ireland’s shutdown
49 Bagehot: The Midlands engineThey can’t take that away from meSources: Tolley’s
IncomeTax; IFS; BofE*People aged 65 years and under.
1974-89, single people onlyBritain, income tax, years ending March 31st
Basic rate, %Personal allowance*, £’000, 2017 prices203035251974 85 95 2005 180369121974 85 95 2005 18РЕЛИЗ
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