In a significant but little reported letter published in the Financial Times last week (7 August), Lord Stern, Head of the Government Economic Service between 2003 and 2007, revealed that, in addition to his celebrated reports on climate change and for the Commission for Africa, he had been responsible for a report on tax reform. This report had, however, gathered dust in the Chancellor of the Exchequer’s in tray and even its existence has been kept secret. What did it contain that so scared the government?
Enquiries under the Freedom of Information Act may now enable the report to be extracted from the government. Whether the effort will be worthwhile remains to be seen. According to Lord Stern, his report called for:
a. value added tax to be applied at the standard rate to a wider range of goods, including food and energy. The poorest could (Stern’s word) be compensated;
b. higher taxes on congestion, pollution and greenhouse gas emissions – again with a suggestion that the poorest losers could be compensated;
c. more tax on the financial sector; and
d. reform of property taxes with a tentative endorsement of Land Value Tax.
Some of these proposals may be contained in the forthcoming report from the Communist Party on taxation, but it’s hard to believe that the Communist Party would endorse higher direct taxes without much firmer protection for workers and their families than Stern appears to think necessary. The surprising fact, however, is what the report does not contain. Stern makes no mention of the need for a return to progressive taxation of income and capital.
The recent book by Thomas Piketty, Capital in the 21st Century, has deservedly attracted much attention for demonstrating that inequality of income and wealth is even worse than we had suspected. His data show that we are returning to levels of inequality not seen since the early 1900s. While his analysis lacks the clarity of Marx, his conclusion echoes that of Marx in predicting that inequality will continue to grow under capitalism. We are rapidly heading for, or have already become, a plutocracy in which the bottom half of the population subsist and the top 1% are super-rich. Piketty sees a return to progressive taxation of income and wealth as essential if capitalism is to survive. Communists would support this but would conclude that capitalism won’t survive. It won’t, however, fall by itself. This will take organisation and political work.