Cut Income Tax and Defend Yourself

The Spire private hospital in Liverpool is a modern building, clean, comfortable, reassuring – luxurious almost. Liverpool’s public hospitals right now are run-down, aged – sad and unhygienic because of that. Since the pandemic there has been a rush of business away from the NHS to private care (where you will see the same doctors – but, perhaps, quicker).

But here’s the thing.

The road to the Spire is built and paid for with public money, as are the drains and refuse services and so on. Doctors who make the Spire profitable are trained in the NHS and in State universities. Spire hospitals cannot provide complex acute care or significantly intensive surgical interventions – they rely on NHS back-up. If treatment (say, an operation) in Spire goes awry the patient is often transferred to the NHS. Without public infrastructure money and NHS back-up Spire hospitals would be loss-making.

For example, more than 160 specialist doctors work at the Liverpool Spire hospital, which allows it to offer services from paediatrics to ENT, from plastic surgery to orthopaedics. Each doctor costs upward of £250,000 (around $350,000) for initial training. That amounts to a no-cost resource for Liverpool Spire of around £40m ($55m). There are currently 39 Spire hospitals in the UK.

Now think of universities. In Liverpool there are three. All three occupy extensive space in the highest rateable land areas (in the City Centre and in the Mossley Hill, Childwall leafy suburbs). None pay business rates or Council Tax, and, again, rely on publicly-provided infrastructure – the land they sit on and the services they receive come for free. And yet, successive governments of Right and Left hue have effectively turned universities into commercial businesses. Up to the 1980s State funding amounted to more than 90% of university income. Under Conservative governments this fell consistently until over just 10 years between 2011 and 2020 government income to universities collapsed from more than 50% to less than 25% – some faculties with non-favoured subjects receive almost nothing. Universities are now almost entirely reliant on private fee income (more than 75% for revenue). Like private hospitals, universities rely on public services to survive for which they pay little or nothing.

What allowed hospitals, schools, universities, police forces and other public services to flourish in the post WW2 era was a high-tax economy. Throughout the 1950s and 1960s when we were rebuilding cities and transport systems, building a new wave of universities and a national network of General Hospitals income tax reached as high as 90% (on incomes at today’s value of £250,000). In fact, in 1974, with the highest rate of income tax at 83%, and a surcharge of 15% on investment income, the tope rate (for very high incomes) reached its peak of 98% – with intermediate tax levels of, for example, 60%. This forced the country into a high level of income equality, and squeezed out the extreme inequality we have today. At the lower end, the basic rate of income tax – what you and I paid – was 33%. This was the ‘golden age’ for public service. Margaret Thatched saw successive falls in tax over the years – and even Gordon Brown lowered income tax – to the current basic rate of 20% – with the highest rate (for millionaires and billionaires) halved to 45%.

The trick was twofold: first, indirect taxes (eg. VAT) were raised. Income tax is a progressive tax – which is to say, the more you earn the more you pay/the less you earn the less you pay. Indirect taxes are regressive, which is to say that the poor and the wealthy pay the same amount – so that the poor pay a higher proportion of their income than the rich. Second, of course, public services – which Margaret Thatcher argued were “unproductive” and, therefore, “inflationary” – received substantially less money. This was the gradual entry to the era we now live in of rolling austerity and the erosion of public service. The lesson is that if we want better public services from security to education to health and good infrastructure, we need to pay for them. We need higher taxes.

The Conservative government has just announced that it will reduce income tax again, in 2024, to a base rate of 19%. This is imagined to be a key election attraction. It probably will be. We are still beguiled by Margaret Thatcher’s mantra of ‘the pound in your pocket’. Such a reduction may give us more disposable income, but then we will have to spend it on private health, schoolbooks and the rest. Before the Russian invasion of Ukraine, we might even have imagined a Conservative government cutting the defence budget to zero, returning £750 a year to working people (roughly what the £42bn defence bill amounts to) and telling us to defend ourselves. Absurd, isn’t it.

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