Robin Hood in reverse

Writing in the Catholic Herald on 6 October, an article by Ed West voiced what I have long thought about the tax system - it enshrines major injustices that the Church should, but does not, speak out against.

Matters are far worse even than he claims in his article. The system is complex and understood only by qualified professionals. It has, indeed, evolved to the point that it has become a structure of loopholes, such that the whole tax-gathering operation is like trying to collect puffs of smoke in a string bag. This means that those who can afford to pay for the best advice can reduce their contributions substantially. The title of the article, "Robin Hood in reverse" is exactly right. The tax system is a major component of the "poverty trap", and when people are little better off when they work than when they are living on benefits, moral corrosion sets in.

And the running cost, about £25 billion a year, is about 6% of the total, and several times more than what a better and more efficient system would be.

The whole exercise is based on illusion. Employees are led to believe that they pay "their" Income Tax through the PAYE system. In reality, it is a tax on labour; taken together with "employees' " and "employers' " National Insurance contributions plus VAT, the overall
result is that it costs employers almost £2 to leave employees with £1 worth of purchasing power, measured in the real goods and services they can actually buy. This gives us the seemingly impossible - the high labour-cost/low wage economy. Employers are under continual pressure to reduce their labour forces, whilst in the public sector, we get "churning" - over 40% of the cost of running the NHS, for instance, is actually money that is promptly reclaimed by the government, those who work for the organisation never seeing a penny of it except as a notional "gross pay" figure on their pay slips.

The the system hits hardest on those with few skills or in disadvantaged locations, such as the former industrial areas in the northern half of the country, producing overcrowding and housing shortages in London and the South-East as people drift to that part of the country in search of jobs. Matters are much worse than the article argues, and the problem is not confined to the UK, being more severe in other EU countries such as France and Germany where it is the main cause of their persistent high levels of unemployment and regional imbalance.

And what is the money spent on? The bulk goes on either the relief of poverty ("redistribution") or on services which, in the right circumstances, most people could be sufficiently affluent to buy for themselves. Yet the need for wholesale redistribution is assumed to be a natural and unavoidable condition. Rarely is it suggested that there is something fundamentally wrong with an economic structure in which poverty is inevitable and so much has to be provided through government intervention paid for by high taxation. And those who question this state of affairs generally have little to offer other than cuts in taxes accompanied by cuts in public services, which drive large numbers of people back into poverty and leave the public realm in a state of squalor.

What is needed is not so much tax cuts as a tax shift: people should keep what they earn and the state should collect that which is not earned, thereby raising the revenue to pay for what individuals genuinely can not provide for themselves but which has to be supplied by government.

Using the social teaching of the Catholic Church as a starting point, we need to work out how that can be achieved.