If you want quality public services – you have to pay for them via taxes
Mike Hedges – MS for Swansea East
Taxation is the price we pay for being part of a civilised society. Taxation exists to pay for the public services we all need and use.
Too many people believe that we can have the same quality of public services as Scandinavia but have a taxation system which is more like that of the USA.
When you look at the cost of private education and private health care, it puts into perspective the value for money we get from our taxation system.
It is not by random chance or serendipity that those countries with the highest tax levels have the best public services and those with lowest tax levels the poorest.
It is because taxation is necessary to raise the money to pay for the public services, we all need.
Savings
Whilst there is a commitment by the government not to increase the rates of income tax, there is no reason why dividend income cannot be taxed at the same rate as income tax and for those who pay income tax and tax on dividend income to have it aggregated and to get taxed accordingly.
Currently dividend taxation is substantially less than income tax with a rate of 8.75% on earnings from £12,571 to £50,270, 33.75% on earnings between £50,271 and £125,410 with an additional rate of 39.35% paid on earnings over £125,410.
We need to have efficiency savings across public services. It is not about reducing numbers in employment but about using them more efficiently.
Health has an opportunity using AI to improve productivity and produce substantial efficiency savings. AI enables more accurate diagnoses, predicting patient outcomes, patient monitoring and personalizing treatment plans.
AI-driven tools can analyse medical images faster and with higher precision than traditional methods. It can also enhance patient care through wearable devices that monitor health in real-time.
We could also have better and more efficient use of equipment, keeping designated operating theatres available for routine but necessary operations such as cataracts and orthopaedics to improve the productivity of surgeons and the outcomes for patients.
Personalised
Efficiency savings are available in education administration and by the confederating of small schools in the same area under one headteacher. AI can provide personalised learning experiences, automated administrative tasks, and improve the accessibility of educational resources.
On council tax the average Band D council tax bill in Wales this year is £110 lower than in England and more than 256,000 low-income households in Wales receive support with their bills through the council tax reduction scheme. Also, in some council areas most council taxpayers are in bands A, B and C.
Whilst council tax is based upon the value of property, and it replaced the much-disliked poll tax which itself had replaced the rates system based upon the rateable value of a property which is still used to tax businesses, it is not fair. The principle is fair; the best indicator we have of wealth is the value of houses and property owned.
The value of council tax bands was set on 1 April 2003 so the value of all properties will have increased substantially since then and the relative values will also have changed.
Band A is for properties up to £44,000; Band D is for properties between £91,001 to £123,000, with Band H is for properties between £324,001 to £424,000.
Unfair
Council tax is set on band D and all other band payments are based on that. Properties in Band A pay 75% of the amount charged on band D. Properties in Band H pay twice the amount charged on band D.
A £40,000 house will be charged two thirds of the amount of council tax paid for a £120,000 house despite being a third of the value.
A £420,000 house will be charged twice as much in council tax as a £120,000 house and three times as much as a £40,000 property despite being worth substantially more.
This is unfair because the payment is not proportional to the value of the property. I continue to call for all houses to have a Council tax set as a fixed percentage of the value of the property.
We know that ratepayers in the retail, hospitality and leisure sectors have received more than £1 billion in additional business rates support over the last six years and almost half of all business ratepayers pay no business rates. We also know that for many retailers it is rent rather than rates which is the most expensive.
I have had personal experience of a business in hospitality whose costs increased each year. They paid combined rent and business rates; the landlord said the increased bill was due to increased rates. When I investigated the business was small and zero rated for rates.
Finally, if you want quality public services you have to pay for them via taxes. Asking for more expenditure but less tax does not create a coherent economic policy – remember Liz Truss and her budget.
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Absolutely spot on. Years of the Tories obsessing about tax cuts while driving the country into the ground has to be corrected through fair taxation in this country. It is currently inherently unfair as lower taxes benefit rich people the most while they have the comfort of knowing they can afford good housing, private health care, private personal care. The rest of us can’t and to believe we will be supported in our needs by public funding is completely deluded unless taxation is reformed.
Will someone also please explain this to the current disappointing Labour Government.
No, we don’t, Mike. Taxation – the fundamental reform of which I firmly support and at which the thrust of your article is mostly aimed – doesn’t pay for anything. That doesn’t mean tax is unimportant – it is critically important for managing inflation. Except at the top end – where the wealthy pay much much less tax than they should – from where much of our recent inflation has arisen. Proves the point, somewhat. Luxury goods – property, sports cars, racehorses, private jets and yachts – evade most tax and ensure that you and me pay more. It’s only… Read more »
Thank you for proving a little knowledge is dangerous.
Government’s can borrow or print money(quantitative easing)
What we know from Liz Truss budget is that getting cutting taxes and not reducing spending creates problems such as bond rates increasing and the currency reducing in value.
Why do you want to reduce the size of the economy, Mike? If you understood how money works, you would know that it is only by boosting the public sector (printing money, as you might say), that we can ensure a vibrant private sector. Your Labour and Tory governments have it precisely around the wrong way! And it won’t work – Rachel will be removed from Accounts soon. Comprehensive taxation reform holds the key to reducing income tax on low and middle incomes and fair Council tax. Redistribution of income holds the key to economic justice – which your Labour… Read more »
There’s no such thing as a free lunch. Printing money devalues money. More pounds but every pound is worth slightly less, causing inflation. Borrowing more means paying more interest on that debt meaning less to spend on public services. This can be justified for infrastructure spending, where there’s a short term boost from the projects themselves as well as the long-term boost from the infrastructure itself once built. But it can’t be justified for day-to-day spending like tax cuts, public sector salaries or pension increases.
It is certainly possible to devalue a currency, Badger. Have a look at the fall of the pound over recent decades. That ‘excess’ funding (by way of deficits, 71 under Conservative governments) has most times maintained sufficient liquidity in the economy to keep things ticking over, especially during a bank crisis 2007 – 2008, say. But it’s not essential to print too much money – the balance needs to be right – controlling inflation with an effective and efficient taxation regime, which we don’t have. Especially at the luxury end, the source of much of our inflation. In the sense… Read more »
The magic money tree is directly inflationary, that’s why it’s not a free lunch. Putting more money in the pockets of people who’ll spend it on goods and services in their local economy is absolutely the way to boost GDP and tax take which is broadly related to GDP. But boosting pensions isn’t a good way of doing that. A million pensioners are paying the higher rate of income tax, so with an annual income over £50k and probably no mortgage to pay it’s safe to say they’re already spending what they want in the local economy. Giving them a… Read more »
Now, Badger, where is your evidence that MMT is directly inflationary?
Do you not know that all government operations are funded by money simply being created out of nothing – that’s MMT at work, every day (or by borrowing, but why would you if interest was paid on it). That is the driver of the economy.
The objective of boosting GDP is not sustainable and wholly ineffective in reaching low income groups, including the millions of pensioners NOT paying the higher rate. Starmer and Reeves are wrong – agree with them if you wish.
It’s self-evident. Printing money can’t make a state more wealthy. If that were possible, the UK could become the richest state in the world tomorrow by simply giving everyone a few million pounds each. I assume you agree that’s absurd so all that can happen when money is printed is for the perceived wealth of the UK state to be represented by more pounds, meaning an individual pound is worth less and buys less stuff. And that’s inflation.
Printing money, or raising money for investment. It depends how you use it. Printing money, it’s not really printing it is it, doesn’t in itself cause inflation. Not when the economy is at less than full capacity and that’s certainly not the case with the UK. As for your argument that it wont make the state more wealthy, that isn’t self evident to me. Take two scenarios. An Independent Wales and that’s really what we should be talking about, on independence will need to raise finance. It is a sovereign state with a fiat currency. Wales has energy resources off… Read more »
Printing money doesn’t itself make a state wealthier otherwise every state would be doing it, but of course the money can invested wisely to create new wealth. That’s no different to a business loan. Getting the loan and using it just to pay bonuses to directors (Trussonomics) is a one-way ticket to bankruptcy. But using that loan to develop new products that are highly profitable, or upgrade systems to improve efficiency, or market to find new customers, are ways to increase the business’s profitability that enable the loan to be repaid and everyone to get bonuses. And you didn’t explain… Read more »
You seem to need to move the goal posts to make a point.Your statement was ‘ it is self evident that printing money can’t make a state more wealthy. My answer was that it can and in my example is essential. The difference between a businessman and the state, is that a businessman relies on someone else to agree the loan, the state does not. On your argument that all nations would be wealthy if it were the case, 66 nations have pegged their currencies to anther country, others are directly or indirectly using another country’s currency in these cases… Read more »
If you’d read the thread instead of just jumping in at the end you’d see the point was being made about printing money being “directly inflationary” because the *act* of printing money doesn’t *immediately* make a state more wealthy.
I’m not arguing against printing money. I’m simply saying it’s not a free lunch.
‘ Taxation is the price we pay for being part of a civilised society. Taxation exists to pay for the public services we all need and use ‘. You started badly and then it went down hill. Taxation in the UK [ and by extension Wales ] doesn’t pay for public services. Taxation in the UK is a mess. You quote other economies, the UK raises less tax revenues than they. Income tax and VAT is about the average, National Insurance contributions are well below and according to the IFS this is the difference. Whereas their contributions go more directly… Read more »
“Taxation [..] doesn’t pay for public services”
How do you think public services are funded?
i would start by looking at the £2.7 trillion national debt.
So your point is that taxes do pay for public services, they just don’t cover the full cost creating a deficit that’s funded by borrowing.
Perhaps I should have phrased it differently, in that the UK doesn’t depend on taxes to fund public services. The UK government pays for its public services before it raises any tax revenue.The points remain the same. The inefficiencies of the tax system rather than the amounts, that is the biggest problem.
The inefficiencies are intentional. How else can big money from around the world hide their wealth in labyrinthine schemes only accessible to the most expensive accountants and only understood by revenue staffers who may intend to retire early and rake in the real money as advisors to these folks. None of that is possible with a simple, efficient and easily understood tax system. The establishment takes great pride in London’s status as the dirty money capital of the world. It’s why they funded Brexit because the EU was coming for aggressive tax avoidance.
Taxation is excessive and maldistributed in the UK. A major problem is the funding of the NHS which has become unsustainable. This is not a problem unique to the UK – other healthcare systems also have problems. VAT is 20% which means that the poorest pay a substantial amount of tax on daily living. Council Tax while somewhat better in Wales than in England is ludicrously badly organised. Charities receive tax relief which increases the tax burden on all especially the poorest. It should stop on all charities. This is aggravated by Cameron’s definition of organisations like the Canal and… Read more »
Taxation is not excessive overall:
https://ifs.org.uk/taxlab/taxlab-data-item/total-tax-revenue-share-gdp-oecd-countries
How it’s collected and spent is a different matter, and taking more out of the pockets of people who’ll consume fewer good and services as a result is antigrowth.
Yes, but the issue is how much tax and for what? The UK already has the highest relative tax burden since WW2 and we must be at or near the point when government revenues start to decrease if tax increases further. There is scope for efficiency in education; but not by asking head teachers to do 2 or 3 jobs – get shot of the middle tier organisations instead and stop bringing forward unfunded legislation. As for Council Tax, Welsh Labour has had 26 years to reform it, but being scared of the consequences have repeatedly gone for the long… Read more »
Tax burdens are at the highest level in every developed country in the world.
Note; I fully agree re council tax!
Yes, that seems to be true; but my main point is that tax rising beyond a certain point means that government revenues actually start to fall.
That’s starts to be a problem above around 75%.
At around 40% according to some commentators. The small minority who pay about a third of all income tax would be long gone at 75%.
Feel free to update Wikipedia Laffer Curve article which states:
“In 2017, Jacob Lundberg of the Uppsala University estimated Laffer curves for 27 OECD countries, with top income-tax rates maximising tax revenue ranging from 60 to 61% (Austria, Luxembourg, Netherlands, Poland, Sweden) to 74–76% (Germany, Switzerland, UK, US)”.
I will leave that to the IFS who are in the 35-40% camp.
Do you wonder if the IFS, all likely to be higher rate tax payers, might be biased in this? Odd isn’t it that the numbers you quote are slightly below what we have today. But if it was up to me I’d go much lower and have one fixed income tax rate of 33% so everyone paid the same. What could be fairer – and more pro-growth – than that? I’d also set the tax free allowance such that no-one earning less than the London Living Wage (about £27k pa) paid any income tax. I’d also subject all unearned sources… Read more »
Great article, and good to see a politician putting their thoughts down on paper. Earlier this year, the FT compared tax increases over the past 50 years across developed countries. The UK ranked second lowest out of around 20 nations. Only the US had a smaller percentage increase in the tax burden. Unsurprisingly, ageing populations and healthcare have significantly affected all countries. The main reason the US saw a lower increase than the UK is because it relies on privately funded health insurance. Most other European nations experienced a 10–25% rise in tax burden, while the UK’s increase was just… Read more »
Double taxation is two states trying to tax the same income. Paying multiple different taxes is normal. Most people pay VAT, fuel duty, ctax etc out of earnings that have already been subject to two lots of NI and income tax.
I’d say we pay more than enough council tax. After a journalistic investigation last week, it turns out there are three Welsh councils that pay more than 30% of their council tax take straight into the staff pension funds. Blaenau Gwent at 39%, Flintshire & Neath Port Talbot at 35%.
Collectively we pay enough but it’s imbalanced, with the less well off paying proportionally more. This is fundamentally unfair because it’s supposed to be a property wealth tax ring-fenced for local government and not a charge for services.
Nope – the top 1% pay around 30% of income tax, if you own an expensive property you pay more council tax, an expensive car? More VAT. Now – you can suggest taxing the wealthy more of course, but there’s this pesky thing called the Laffer curve that’s going to trip you up.
The point was about council tax. But VAT is a great example to make the point. Imagine you and your neighbour both buy a new car. Because you splash out on one that’s double the list price of your neighbour, you pay twice as much VAT. No-one says that’s unfair. No-one says they’ve paid enough tax already so they should get a VAT discount on their much more expensive set of wheels. Yet if your neighbour has a home worth twice as much as you, their ctax bill isn’t twice what you pay, or even close. And in 2017 research… Read more »
That’s because council tax has a base component for things like policing & street lighting, which are not related to the value of the property.
Nonsense. It was intentionally designed by Portillo with compressed bands because he was more worried about asset rich cash poor grannies who could’ve subletted a room than families working three jobs and still struggling to feed their kids.
>> Michael Portillo’s council tax bands confession
https://www.bbc.co.uk/news/av/uk-politics-17312335
And asset rich Farage with his multiple properties and farmland.
Oh, and the house he claims to have recently bought in Clacton which was actually bought by his lady friend.
Just a small detail you omitted, Adrian…just what proportion of income do the top 1% ‘earn’?
The Laffer Curve has been discredited many times. Try for example…
https://www.taxresearch.org.uk/Blog/2024/07/23/how-much-can-the-institute-of-economic-affairs-get-wrong-about-tax/
You’re having a Laff.
Glad to see you’re looking out for Nigel’s financial interests.
Do you mean the pension paid out by the LGPS for ex Welsh council employees is approximately 30% of Welsh council expenditure? Obviously Welsh councils do not pay out pensions. That is the job of a pension scheme?!
Mike, you’re so close to striking gold, yet veer off at crucial moments. I agree with your broader point. If we want to expand public services, we must accept the need for higher taxes. However, far too much public money is squandered on quangos, vanity projects, and fleeting fads. Artificial Intelligence is one such fad, or at least, it’s being treated as one by those who do not understand what it truly means. I urge you to look more deeply into the subject. We desperately need more programmers (software developers) and technologists (UX designers, web designers, database engineers, network technicians,… Read more »
Indeed. Monmouthshire Council has just blown £60K on a fence that they now have to remove, because they did follow their own process.
Unfortunately, Siobhan Jones, Mike Hedges is quite wrong – which in part he concedes in his earlier reply to me – “Governments can borrow or print money (sic) (quantitative easing)” – neither of which they are but are the standard means by which governments finance their expenditure and ensure (or not) there is sufficiency liquidity in the economy. They are sometimes camouflaged by QE for political rather than economic reasons (https://www.taxresearch.org.uk/Blog/the-qe-process/). If you agree with Mike about printing money(?), and I do, then you might agree that higher taxes might not be necessary…? The answer lies in understanding multipliers and the marginal propensity to consume… Read more »
what happened to Liz Truss when she tried this
You’ll have to be a more precise if you wish to hang Truss around my neck, Mike. Be assured that I would never advocate Truss-style economic management. Nor anything that successive Tory and Labour governments have done to inflict austerity on us. I am a libertarian socialist, not an authoritarian anything. I argue for low interest rates (abandoning the quaint notion that they can control inflation), unified management of fiscal and monetary policy (dispensing with the quaint notion that the MEPC/BoE are ‘independent’), a shift away from taxes on income to taxes on consumption, three different taxes on high income… Read more »
“I argue for low interest rates” How low? I argue that interest is the engine oil of capitalism. Too thick and the engine is sluggish and inefficient, too thin and the engine gets damaged. Central banks have been causing damage since 2008 with ultra low interest. For example, cheap and easy money has driven up house prices because people are able to offer more for their ideal property. But the same cheap money has encouraged land banking, disincentivising industry to respond by building more houses. Why build them when you can make more money by sitting on land with planning… Read more »
2 – 3%
Anything higher just makes unearned and largely untaxed income for the for the already rich.
That’s reasonable. As a minimum money in a savings account shouldn’t be eroded by inflation, but nor should it provide a healthy income as it’s better to have it active in the economy contributing to GDP than squirred away.
OK. But why are our taxes paying for war.
Or stop wasting money on fluff and get the basics right?
One person’s fluff is another person’s essential public service. Not everyone agreed with the Cons that the armed forces were “fluff” and should be squeezed to the point they were totally ineffective without joning up with Europe to create a European army but that’s just what we’ll have to do now.