Hooray for Taxes!

Posted in Blog | Sep 28, 2012 | By: Victoria Winckler

Universal benefits such as free care for the elderly, free university tuition and free prescriptions are on the agenda. As Gordon Hector blogged here yesterday, Clegg opened up space for debate at the Lib Dem conference earlier this week. And they could already be on their way out in Scotland, according to a report in the Independent, with Scottish Labour Leader Johann Lamont ordering a policy review of the benefits, claiming that they amount to ‘electoral bribery’.  While the niceties of both the outcome of the review and Labour winning the next Scottish election seem to be overlooked by the Independent, these are two very significant steps away from the principles of univeralism.

Indeed, there are growing calls outside Scotland to scrap universal benefits, from Winter Fuel Allowance to TV Licenses for older people to free prescriptions in Wales. The argument is typically that the better off can afford to pay for these things and that they should therefore do so. We’re supposed to titter at the idea of the Lord of the Manor with his Winter Fuel Allowance and smirk at Lady Well-Off collecting her free statins, because they have enough money to pay.

 What these arguments miss is that Lord and Lady whatsit, and indeed all other people, do pay for their free prescriptions, free bus passes and all the other universal benefits. They pay through their taxes.  And, even in a relatively un-progressive tax system, the well-off pay more in tax (or at least are supposed to) than the less well-off.  Not only that, but the well-off almost certainly pay more in taxes than they would spend on a dozen items on prescription or get in Winter Fuel Allowance. 

So, the current system means the well-off get a few freebies that matter little to them, but they’ve paid for them.  But the current system also means that the less well-off get the same freebies, and these matter enormously to them. For every wealthy pensioner who says they don’t need their Winter Fuel Allowance there are plenty of other pensioners who rely on it to buy a load of coal or pay their winter quarter gas bill.  Universal benefits, paid for via progressive taxation, are redistributive – the best-off pay the most, and everyone gets what they need.

Start unpicking this principle and the welfare state begins to unravel rapidly. It means a shift from payment via taxation to payment at the point of use. Any redistribution is therefore via means-testing – precisely at the time a service is needed the size of the user’s wallet is measured.  And the redistributive effect of Lord X paying £7.20 for a prescription that Mrs Y gets free is very considerably less than the impact of taxing Lord X on his income. 

It might not be a popular message, but taxes are good! They pay for the common good, from defence and policing to education and the NHS, to the disposal of waste and regulation of water quality.  And they go some way towards balancing the haves and have-nots – of building a fairer society.

The inequalities in society will not be addressed by slapping a few quid on prescriptions or saving a few hundred by scrapping Winter Fuel Allowances.  The best vehicle for that is, and remains, a progressive tax system. 

Victoria Winckler is Director of the Bevan Foundation.