Whatever happened to progressive taxation?

The social contract between different groups of citizens could completely unravel if we don’t see a return to progressive taxation

Matthew Bishop
Matthew Bishop

I recently asked a UK government minister whether he was embarrassed that students were being charged £9000 a year to go to university, when a poorer country like Trinidad & Tobago (where I am based) funds tertiary education up to PhD for free. He responded with the usual guff about Britain needing to avoid ‘becoming like Greece’ etc.

Afterwards we had a friendly chat where he said in a suspicious, yet authoritative, fashion: ‘I hope you give a balanced view to your students’.

This comment has gnawed away at me ever since.

In the minds of most MPs, a ‘balanced view’ is one that simply weighs up, in a manner redolent of a faux BBC-esque commitment to impartiality, the technocratic merits and demerits of, say, £9000 fees. However, for my generation, a balanced view is one that looks rather different.

Our grandparents made enormous sacrifices – often through high taxes – to build a welfare state and expand access to healthcare and education for their children. These baby-boomers then benefitted in two further ways. First, they went to university for free and bought their houses cheaply, and many are retiring with final salary pensions too. Then, they gained from the recent slashing of taxes, so they haven’t had to make the kinds of sacrifices that their parents did for them for us.

Consequently, young people today have to pay a fortune to go to university, they won’t enjoy universal provision of free healthcare in future, nor have a decent pension, even though they will still be working longer to pay for the final salary pensions of the baby-boomers, and they are often stuck renting the houses which the baby-boomers now own.

Clearly, this is a crude picture I’m painting, but a recognisable one nonetheless. And the thread which is fraying, which, in the past, bound the generations together, is that of progressive taxation.

Taxes are not simply about paying for public services. They ensure equity between different groups in society – and especially between generations – by redistributing wealth, resources and opportunity. They are a common pool that we all pay into, according – as Adam Smith argued – to our relative ability to pay, and from which we extract a degree of social insurance. But in the fetishisation of ‘low’ taxes – or, rather, the shifting away from progressive taxes, which benefit the many, to regressive taxes, which benefit the few – this has been lost.

This is no clearer than in the recent evolution of UK higher education policy, the topic of my ministerial conversation in Trinidad.

When the Coalition’s awful reforms were initially mooted, there was a debate about the merits of higher fees versus a ‘graduate tax’. The latter was always a stupid idea: why should graduates pay a specific, separate, income tax and not, say, people with kids in school? Or people who call the police more often? If we want to defend progressive taxation as a contribution that we all make regardless of what we put in or take out, then a graduate tax represents the thin end of a very dystopian wedge.

But the alternative argument – justifying higher fees – is disingenuous too. This came in variants of the ‘why should dinner ladies pay for graduates to attend university?’ question. Well, firstly, they don’t: most graduates will end up paying a lot more tax over their lifetimes. Secondly, who is going to do all of the designing, teaching, operating, insuring and other skilled jobs from which dinner ladies and their families benefit, if not graduates? Thirdly, who is to say that dinner ladies – and certainly their children – don’t have ambitions to attend university themselves?

Yet it gets worse. As was leaked recently, there is a plan bubbling away in Whitehall to privatise the £40 billion student loan book, and thereby create juicy returns for what are euphemistically called ‘investors’ (I prefer ‘rent-seekers’) by retrospectively jacking up the interest rates.

The most Orwellian aspect of this idea is the deliberate attempt to set my generation (i.e. the pre-£9000 cohort) against today’s students: in the script prepared for ministers, one of the arguments developed to convince us of the need to pay more is ‘you have a deal which is so much better than your younger siblings’.

Well, maybe. But guess who got an even better deal than we did? Answer: the politicians who enacted these measures.

If the political elite really believe that students should ‘pay their way’, and that the repayment regime for £9000 fees is really ‘just a tax’ by another name, is this not an implicit argument for progressive taxation? Why not put a couple of pence on the higher rate of income tax and ring-fence the revenue for higher education?

This would surely be fairer.

High-earners would eventually pay more into the system; those who earn less would pay less, and have none of the attendant stress of tens of thousands of pounds of debt. And if, as politicians keep telling us, we need to raise more revenue because so many more people are attending university, slightly increased taxes at the top end will, in future, fall largely on people who did actually benefit personally from higher education. But, by far the most important effect would be that, in contrast to fees, such a tax solution would also include the baby-boomers, the vast majority of MPs included, for whom university was free and who would be able retrospectively to pay (some of) their dues.

So, rather than asking whether dinner ladies should subsidise students, perhaps we should be asking why those who benefitted from free higher education in the past can get away with avoiding paying for it? Particularly when such a simple and equitable mechanism for doing so exists.

More broadly, if we do not reject the notion of tax being a ‘burden’ to be avoided, and thereby rediscover a politics which recognises and re-legitimises progressive taxation as, to paraphrase Oliver Wendell Holmes, the necessary price we pay for participating in a civilised society, we will all be poorer. The scaling back of the collective pooling of our resources for public investments, together with the intergenerational theft, atomisation and individualisation that this implies, will only propel further inequality, disillusionment and anger. We may even in time witness a revolt characterised by systematic mass refusal to pay taxes by everyday people.