22 April 2009

The Right's Argument On Tax is Sometimes Very Taxing

There is a clamour from the right (and now Nick Clegg of the Lib Dems), for income tax allowances to go up, explaining this is the best way to help the poor. It is a very persuasive argument and all sounds very fair - in fact it is anything but.

You see, income tax is a progressive tax in the sense that the poor generally pay less of it (it is regressive in other ways - e.g. as a disincentive to work).

A far better way to help the poor is to do something about taxation that hits the poorest regardless of income or wealth. The most urgent need is to reform (or preferably abolish) councill tax. A land value tax would be fantastic, but even I know that is too radical for this government. But surely a widening of the council tax bands is not beyond them?

We could announce cuts for all those in Band D and below and increases for those in the top 2 bands to pay for it. If Labour stands for anything it should stand for help for the poorest. Local democracy has been a joke in this country ever since Thatcher shackled it in the 80s - there is a real need to start thinking locally again, but this can only happen if councils are given the power to decide not just how much, but how they levy tax. If people do not like this method then (in theory) they can vote for change. Only there are two problems with this idea (especially for the Tories). One is the sheer unfairness of our electoral system (which means wealthy Tories would be unfairly targeted in poorer Labour areas - just as they were under the rates system) and poorer Labour voters simply haven't got the money to be targeted in wealthy Tory voting areas). First-past-the-post would have to be changed to PR to make this local democracy work (something the Tories implacably oppose because it gives power to the majority - it is easier for the Tory press to persuade a minority and split the opposition than persuade a majority to vote for the Right). Most councils remain in the realms of one party control (mostly Labour or Tory) for decades - not because voters are happy with the way things are being run but because of the way this electoral system mainly only gives two choices of governance and only 20-30% of votes (less than 10% of voters) are needed in most areas to remain in control of a council. This leads to inept and corrupt local government - which is one of the reasons central government is so keen to remain in charge of the purse strings in the first place (despite the fact that national government is little better once again because it is elected by first-past-the-post).

Secondly, there will always be a 'post-code lottery' in services even with well run local government some will be better than others and the press will highlight this relentlessly putting pressure on national government to do something about it. But this lottery is still preferable to control from the centre which inevitably is going to be more distant and slow to respond to local needs. In this day and age we have to swallow the pill and allow local democracy to be real democracy and that means handing over the power to set taxes and control services. Once again, every opposition will promise more local power when in opposition, but only under proportional representation can we trust councils will do a reasonable job. The Tories while they oppose PR will end up centralising even more once in power - mark my words. Labour should extend PR to local government now and give us the referendum on electing MPs they promised us. Only then will the poor have the power to alter how they are taxed. Help for the poorest certainly will not come from the Tories.

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