Taxes are the price paid for living in a civilised society.
That founding belief in the moral imperative to stump up for the public good lies deep in progressive bones, just as the belief that people should be able to keep more of their own hard-earned cash does for rightwingers. British liberals are so used to arguing that you can’t have lovely, Scandinavian-style public services on American-style taxes that most of us could probably do it in our sleep.
Meanwhile, even the embarrassment of being sacked over his own complex tax affairs seemingly hasn’t deterred the multimillionaire Tory MP Nadhim Zahawi from solemnly campaigning this week to scrap inheritance tax, on the grounds that taxing the unearned income of rich people’s children is supposedly a “spectre that haunts” us all. The battle lines on tax have been so firmly drawn for so long that this week’s report by the centre-right thinktank Onward on the political instincts of millennials – the late-20s-to-early-40s demographic poised to overtake baby boomers as the biggest electoral grouping – landed initially as something of a shock.
Unusually, this generation isn’t getting more rightwing as it ages, with only 21% willing to vote Tory at the next election. Yet Onward finds it is also more hostile than average to the idea of government redistributing income (as opposed to people keeping more of their own money) and it prioritises taxes over the social justice it is often thought to be devoted to. Something is going on under the bonnet here that neither Labour nor the Tories are properly addressing, and it’s about who genuinely gets a raw deal from the tax system. (Spoiler alert: it’s not Nadhim Zahawi.)
If millennial pips are squeaking, that’s because, compared with previous generations at the same age – or older people now – many of them really do pay higher marginal tax rates. Or more accurately, they’re paying what feels like an extra tax.
When Tony Blair first introduced tuition fees in 1998, he made it very clear that the system wasn’t intended as a graduate tax. But years of tweaking later, it doesn’t half feel like one. Graduates from English universities currently begin repaying student loans once they’re earning more than £27,295 a year, with 9% of anything over that threshold deducted from pay packets either for 30 years or until they’ve paid everything off – which for many would be never, given that their debt is growing with a punchy interest rate of RPI (currently 11.4%) plus 3%. (From this August, the repayment threshold drops to £25,000, while the repayment period stretches to 40 years, but with interest charged at RPI.)
Treat it as the tax it has effectively become, and, by the end of last year, young graduates were facing a marginal rate of 41% for basic-rate taxpayers or 51% for higher-rate ones. That’s on top of everything else millennials struggle with – such as expensive childcare and soaring rents and the gloomy prospect of never being able to buy a house, plus the same painful food and fuel inflation everyone is experiencing – and means that, even before housing costs, a 30-year-old earning a theoretically good salary just doesn’t have the spending power of previous generations on equivalent wages.
The struggle, as the saying goes, is real: the longing for tax cuts totally understandable. Arguing about whether Keir Starmer should or shouldn’t have ditched Labour’s promise to scrap tuition fees, meanwhile, now looks way behind the curve. Scrap them for next year’s intake and millennials would still be saddled with their old debts, plus the burning resentment of knowing they’d paid more than either previous or future students as a result of being caught up in what would be branded a failed experiment.
Similarly the message of Onward’s research isn’t just that young people are, in its words, “shy capitalists”, who might vote Tory if only the government built more houses. It’s that millennials are a new kind of voter, shaped by very particular economic circumstances, who demand new thinking from all the major parties.
The overall trend for taxes isn’t going to be downwards any time soon, in an ageing country with a shrinking tax base, public services crying out for repair, and an expensive but unavoidable decarbonisation programme ahead. Bim Afolami, the thoughtful 37-year-old Conservative MP for Hitchin and Harpenden who co-authored the Onward report, argues that the answer is to cut national insurance for the under-40s and hike it for older workers, a bold idea that might be too bold by half for Rishi Sunak. The alternative is taxes on wealth, which the shadow chancellor, Rachel Reeves, has begun edging towards, with commitments to end tax breaks for non-doms and VAT on school fees.
Wealth taxes are also a way of shifting the burden away from under-40s, who are understandably furious that they haven’t been able to build up many assets, and on to older people, who have accumulated more by dint of being born at the right time and have previously enjoyed an effective veto on wealth taxes given their power at the ballot box.
But, as Onward points out, it’s millennials who are now the biggest age cohort in just over half of British constituencies. Factor that in, and ideas Ed Miliband tried in vain to popularise in 2015 – such as mansion taxes on houses worth more than £2m – may start to look less electorally toxic, and more simply ahead of their time. The basic progressive case for paying your taxes remains unchanged. It’s who, and what, we tax that now must move with the times.
