Ed Hall: Raising the income tax threshold is an assault on democracy

Ed Hall is a businessman and Conservative activist in Kensington and Chelsea who occasionally blogs here.

You can’t send a gift horse back to the pet shop.  And if you paid nothing for your government or your public services what right do you have to complain?  I don’t believe that the Lib Dem inspired policy of raising the threshold for paying income tax to £10,000 is a sound one, and believe that it will create a painful social division in Britain between those who pay for services, and those who use them.

The logic that everyone contributes to the cost of running Britain, of defending the country, of educating our children and supporting those who cannot support themselves has underpinned taxation and the welfare state for decades.  That principle is under threat as more and more working people are excluded from paying income taxes altogether.  In order to have a mature society, one in which we all become ‘stakeholders’, we need all of society to be engaged both as user of public services, and as their funder.

It’s the economy, stupid.  It’s only when the impact of the quality of local government has an impact on your Council Tax bill that most people start to complain – and then councillors lose their seats.  The same must be true of central government.  If the choice of political party has no real or immediate financial impact on many voters, then they will become even less engaged with the political process. 

This plan will ensure that anyone earning less than £10,000 per year has less reason to vote than they do now.  The idea that voting is affected by taxation policy has been a key part of every post-War election analysis, but this plan intends to take millions of individuals and households out of the loop altogether.  A promise to lower personal taxation, or to raise it, was at the heart of the General Election debates of the 80s and 90s.  A very large proportion of the electorate won’t care one way or the other if this process of raising the threshold continues.

For years in Nigeria the population have paid little or no personal taxation as the country was funded by the levies on oil revenues and corporate taxation.  Nobody knew how much each state received from the federal government and as it seemed in many ways to be a case of ‘shut up and be grateful for what you get given’.  It was one of Obasanjo’s last tasks as President to publish how much money each state received from the Federal Government.  The result was a dramatic increase in local engagement with politics, ‘Where is the money?  What has it been spent on?  How many millions?’.  For the first time many Nigerians felt the right to really question their politicians.

I’m not making a serious parallel, but the principle is important.  If you disengage the electorate from the machine that’s driving the economy, why will they try to control it?  In fact, they become logically interested only in staying quiet and being grateful for the largesse being handed out by the tax payers.  The current Daily Mail-driven resentment felt by British tax-payers when they read the accounts of so-called benefit scroungers claiming thousands will pale into insignificance when we have households earning £19,000 and paying absolutely no income taxes at all. 

The logic has already been established with our public servants.  A young civil servant earning £20,000 a year will pay thousands a year in tax and National Insurance.  Why?  It makes no real sense.  We pretend to give the employee the gross salary, and then take back the tax.  Why don’t we stop pretending to tax public servants?  In public accounting terms they don’t actually pay anything.  It would be much easier to administer the Civil Service if our public servants were just paid free of tax altogether. 

But that would make them a different class of citizen, exempt from the systems and structures of modern life, and they would no longer be engaged as fellow citizens, merely employed as our servants.  We tax our public servants as we tax ourselves,  and as a consequence they are full members of society and have the same rights and obligations as the rest of us.

If we allow the Income Tax threshold to keep rising, then we will create a large cadre of British people who are not engaged with national politics, won’t bother to vote, and will be perceived as a virtual Dickensian workhouse by the tax payers earning the hardly considerable salary of £11,000 or £12,000, but who will be funding the public services for those earning £10,000.

We need a fairer tax system, and the scale of increasing rates on people who earn more seems justifiable on both rational and fairness grounds, but I think we need to urgently revisit the lower tax rates on the lower paid.  A very low tax rate on the lowest earners would make little difference to the Exchequer, but it would ensure that even the least rewarded in our society had the right and the reason to vote for the Government that taxes them. 

Perhaps the proposed merger of National Insurance and Income Tax provides the opportunity to re-introduce a 10p tax rate (or lower) that would be paid by all British citizens, including those on benefits, and would consequently help to encourage the whole electorate to engage with the governments they elect.