British voters care less about tax rises than politicians think
The Cornish pasty looms large in David Cameron’s memoirs. In 2012 the then Conservative government decided to levy vat on hot takeaway food such as the beefy snack. It was a measly scheme that would have raised an annual £110m ($140m; 0.005% of gdp). Outrage ensued. “Pasties,” Lord Cameron despaired. “I hadn’t even thought about pasties.” For page after page, he gaily recalls the scandal which saw headlines of “Let Them Eat Cold Pasty” and a Marie Antoinette lookalike hounding George Osborne, his chancellor of the exchequer.
In comparison, Lord Cameron’s memoir spends precisely one paragraph on the biggest tax rise of his tenure. In 2010 his government raised £13bn a year by increasing vat by 2.5 percentage points to 20%, its highest level ever. It was a huge rise, yet attracted little opprobrium at the time and is now largely forgotten.
Tax policy leads to peculiar politics. Outrage bears no relation to fiscal impact. The biggest increases often receive the least blowback; small ones can trigger fury. Voters are rarely grateful for a cut; often they barely notice. Rachel Reeves, the new chancellor, finally admitted on July 30th that taxes will have to increase when she presents her first budget in the autumn. The bizarre politics of tax will come to the fore once more.
In general voters pay far less attention to tax than politicians think, whatever direction it moves. Consider the last Tory government. Jeremy Hunt, the then chancellor, was generous to the point of irresponsibility, knocking 4p off the rate of national insurance at a cost of £20bn per year. Taken together, the tax cuts saved a typical earner £900. Yet about eight in ten said the cuts would make little or no difference to their personal finances. They did nothing to stop the Conservatives receiving a historic beating in the general election on July 4th.
Tax rises are swallowed far more easily than people in Westminster expect. Between 2019 and 2024 the Tory government raised taxes more than any parliament since the second world war. Freezing income-tax thresholds resulted in huge increases; middle-class earners on far from extravagant wages were dragged into higher-rate bands for the first time as nominal salaries shot up. In 2010 one in ten people paid Britain’s 40% rate; now one in six does. By 2028 freezing thresholds will bring in £40bn per year—as much as raising the basic rate of income tax by 5p per pound.
Describe this scenario to an mp in 2019 and they would have predicted civil unrest. Instead, British voters grumbled in focus groups but largely accepted it. Some may not even have noticed. Only six in ten people check their payslips; few of those will bother to untangle how much extra the taxman took—particularly if more money is landing in their bank account overall. On the eve of the election 1% of voters thought tax was the most important issue facing Britain. Only 5% thought it was among the most important; in contrast, one in three voters opted for the National Health Service. Raising the money is one thing; what the government does with it is more significant.
How the tax is collected often matters more than how much is taken. Taxes that people pay directly are much less popular. Council tax is hated. Sending a direct debit of £200 a month to the council is more visible than the much larger sums whipped directly from people’s salaries by the government. In general, voters would prefer a cut to council tax (which makes up a small chunk of household costs) over one to income tax (which would leave them materially better off), according to More In Common, a pollster. Inheritance tax is loathed. Only 4% of estates pay it, but many more people resent the idea of it. Writing a cheque to the government shortly after a relative has died is no fun.
Sage commentators often quote Jean-Baptiste Colbert, a 17th-century French statesman: “The art of taxation consists in so plucking the goose as to obtain the largest amount of feathers with the least possible amount of hissing.” In practice this strategy often results in few feathers being plucked and an angry bird, as Lord Cameron found with pasties. It is better to follow the strategy of Lord Cameron’s vat rise: grab the goose, ignore any hissing, and hope it eventually forgives or forgets. Voters often do. Ken Clarke, one of the more successful chancellors, put it best: “There is nothing so dead and forgotten as old budgets.” What was controversial one day becomes the norm the next.
On October 30th Ms Reeves will have the pleasure of announcing her first soon-to-be-forgotten budget. When it comes to raising money, she has limited her options. The chancellor has ruled out an increase to vat, income tax, national insurance and corporation tax. Together they account for about 70% of all government revenue. Rather than pulling one lever as far as it can go, Ms Reeves has to yank as many as possible to raise proper money.
Tax doesn’t have to be taxing
The more levers Ms Reeves yanks, the higher the chance that she will experience what Lord Cameron faced with the Cornish pasty. Perhaps it will be farmers, dragged into inheritance tax for the first time. Maybe doctors, who now have a taste for striking, will not like their pensions being pilfered. Grumpy businessmen whacked by capital-gains tax may prove a formidable lobby group. Better to pick a larger tax—whether national insurance or vat—and make any outrage worth it. If a revolt is possible over a pasty, it is possible over a pension.
What of the pasty? Following the outcry, Lord Cameron’s government allowed a loophole. If a warm pasty was cooling down, having been recently removed from an oven, it would remain exempt. The Cornish pasty defeated Britain’s mighty Treasury. It was a loss the Treasury could bear. After all, Lord Cameron’s vat rise remains in place. It is worth about £20bn per year. Tasty. ■
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