Hain touches a raw nerve

Submitted by Anon on 2 July, 2003 - 9:45

By Martin Thomas

Peter Hain touched a nerve. However hard the New Labour government is trying to shake off its "control-freak" image, it could not stop itself shrieking when minister Hain made the mild suggestion that the very best-off might pay 50p income tax on each additional pound stuffed into their bulging wallets, rather than 40p.

Hain was immediately ordered to recant, and did. For, whatever else New Labour may do, its unshakeable principle is to reassure the wealthy about their comforts and privileges.

It was not always so with Labour. Between 1938 and 1949 about seven per cent of total income was shifted from the rich to the working class. "If you do not give the people social reform, they will give social revolution", exclaimed one Tory in the aftermath of war, and so it was with only scrappy resistance from the Tories that the 1945 Labour government redistributed income and introduced the welfare state.

The slice of income after tax gained by the top 10% of "tax units" (couples or single people) went down from 34% to 27%.

Between 1979 and the 1990s the Tory government worked a shift of similar size in the opposite direction: the top 10% of individuals (no exactly comparable figures exist) had their slice increased from 21% to 27%.

Under Blair inequality has increased further. The top 10% of households now get 31% of total post-tax income.

Even the wretched 1974-9 Labour government raised top income tax rates from 75p in the pound to 83p. The Tories then radically redesigned the tax system.

The average tax take has increased. In 1979, taxes took 34% of gross domestic product; now they take 37%. The Tories' policy, and Blair's, is not "low-tax". It is to tax the poor and ease the rich.

The top income tax rate was cut by 1990 to 40p in the pound. It stays there. Corporation tax (the tax on profits) was 52p in the pound in 1979. It was cut to 33p by 1997. New Labour has cut it further, to 30p. Exceptions and exemptions have increased.

The Tories increased indirect taxes, taxes on spending like VAT, which take proportionately more from the poor. New Labour has kept it that way.

The bottom 20% now pay out more of their income in tax than the top 20%! The worst-off 20% have 41.7p in every pound of their income drained off by taxes, mostly indirect taxes. The best-off 20% of households have only 35.3p in each pound drained off. The intermediate groups pay between 33.3p and 36.4p of each pound in tax (figures: 2001-2).

The "Gini coefficient" is a measure of inequality. For gross incomes of households, the Tories increased it between 1979 and 1997 from 30 to 37. For incomes after tax, they increased it more sharply, from 29 to 38.

With New Labour the coefficient for gross incomes has gone up to 39; and for incomes after tax, to 40.

In 1979 the households at the bottom of the best-off 10% had 3.3 times the income of those at the top of the worst-off 10%. By 1997-8 the ratio was 4.4. New Labour has increased it to 4.5 (2001-2).

"Thatcherite" tax shifts are international. More properly, as with most neo-liberal policies, they should be called "Pinochetist". Chile's dictator pioneered by cutting top income tax rates from 80% in 1974 to 58% in 1981. Thatcher followed from the early 1980s, and most other major states in the late 1980s.

But it is not true that to shift taxes slightly against the well-off New Labour would need some near-revolutionary will to step out of line. As of the latest comprehensive international comparisons, in 1999, Belgium, Denmark and the Netherlands are much less Pinochetised (top income tax rates 55%, 59%, 60%). In 2003 Germany's rate is 48.5%. The USA's, varying from state to state, is 45.45% in New York. Given the much lower level of indirect taxes there, US taxation is probably less regressive than Britain's. Corporation tax is 35% in the USA, 36% in Italy, and 38% in Canada.

New Labour's leaders are, for sure, servile to the world market. But they have a "surplus" servility, too-to the feelings and sensitivities of the moneyed men and women around them.

Add new comment

This website uses cookies, you can find out more and set your preferences here.
By continuing to use this website, you agree to our Privacy Policy and Terms & Conditions.