A plain brown envelope dropped through my letterbox last week. This is my first year of completing a self assessment tax form.
William Pitt the Younger introduced income tax in 1799 as a last ditch attempt to pay for the crippling costs of the Napoleonic Wars. He had already introduced taxes on land, servants and dogs.
It was a temporary wartime measure set at two shillings in the pound for the better off; with a sliding scale for those on low income and exemptions for the very poor. It was a very sensible attempt by a Tory Prime Minister to get at the rich.
The French were expected to invade any day. With maybe an element of self interest, City bankers made a substantial voluntary contribution to fight the war and their donations were matched by members of the royal family.
Perhaps the Gods did not like the idea of income tax as it was a year of great privations. In her fascinating study of everyday life during the wars, ‘In These Times’, Jenny Uglow recounts that there was still snow on the fields in May, floods in July and that in the autumn the crops failed.
The following winter, the oats were left uncut in Northumberland; a soup kitchen was set up at St Nicholas workhouse in Durham and there were riots over the cost of corn in Sunderland. Almost certainly the football club was fighting relegation.
Taxpayers in Pitt’s day were as intimidated by their brown envelopes as I was last week. They sought help from vicars and bankers to fill them in. Some did not bother to complete the forms at all. Tax evasion has always been rife and perhaps not sufficiently castigated for what it was: a fiddle and a crime.
The unpopular tax was dropped after the war but reintroduced by a Conservative Prime Minister, Robert Peel, in 1842 and reduced to more manageable levels by another Conservative Prime Minister, Margaret Thatcher, in the 1980s. Her predecessor, James Callaghan, had left office with the standard rate set at 33% and the higher rate at 83%.
Last week, yet another Conservative Prime Minister declared that, if he is re-elected, he will legislate to prevent any increase in the current 20% rate for the life of the next parliament. Mere promises are not good enough any more. Indeed, the Conservative Party hopes to reduce tax rates and hence the role of the state, still further. Along with those on welfare benefits, servants and dogs should be worried.
Income tax remains the single most important source of revenue – in 2014 about it constituted one quarter of total receipts. National insurance and VAT are poor seconds. It is also, to my mind, the most straightforward and fairest way to raise taxes.
I have never believed that high rates of tax act as a disincentive for the very rich to create so called wealth. Neither are they likely to depart these shores.
Tax cuts during a recession are unlikely boost the economy and increase government revenue in the long term. But politicians believe tax cuts are popular with the voters and no major political party dares increase them.
I have sat through three election hustings in the last two weeks. The one question that stood out for me was from a woman in Prudhoe with a chronic illness who required regular medication. She asked whether she might look forward to the return of free prescriptions.
The Green candidate offered some vague hope and the Labour man referred affectionately to the memory of Nye Bevan but the overall tone, set with admirable honesty by the Conservative candidate and endorsed by all the other parties, was scathing.
In the current economic climate and for the foreseeable future, free prescriptions are out of the question, she was told in no uncertain terms. (Prescriptions are free for anyone on benefits, children, pregnant women and the over sixties but not for the working poor.)
Allow me a digression: sometimes a leap of imagination is worth more than gold. A questioner in Hexham said that cash alone could not save the NHS and that a radical rethink of how we provide health services is needed. She said afterwards that only the Liberal Democrat came anywhere near understanding what she was on about.
It is depressing to see the extent to which all the major parties, apart from our friends in Scotland, accept that we face more years of austerity. It takes an American Nobel prize winning economist to point out that all the other European countries have now abandoned austerity measures.
Writing in the Guardian last week, Paul Krugman argues that “the austerian ideology that dominated elite discourse five years ago has collapsed, to the point where hardly anyone still believes it. Hardly anyone, that is, except the coalition that still rules Britain – and most of the British media.”
Krugman should sadly include the Labour Party too which would cut more kindly but which, until last week’s Question Time, wrongly accepted the blame for the mess we are in.
We do have a choice. We could stop cutting expenditure and we could increase government revenue to help the woman paying prescription charges.
The Institute of Fiscal Studies says that the tax raising measures in all the party manifestos fall far short of funding their proposals.
It points out that tax thresholds have not kept pace with inflation which means we are paying proportionately less tax than five years ago. It doubts whether pursuing tax dodgers will produce anything like the vague and vast sums claimed.
If we want decent public services in our schools and hospitals we have to pay for them. If we believe in reducing inequality, it has to come out of our pockets.
I would vote for a party that increased the basic rate of tax to 25% and the higher rate to 50% - which would still be less than in Callaghan’s day. Would you vote for that too?