Taxes

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taxes

Taxes, on the face of it, may not seem a threat to liberty, but the scale of tax rises that we are facing for a large part of this century mean that they will have a substantial impact on our lives and liberty.

The Institute for Fiscal Studies forecast that balancing the budget will cost every UK family “£2,840 per year by 2017-18 in higher taxes or public spending cuts" and that it would be 2032 before national debt fell to 40% of GDP. The National Institute of Economic and Social Research forecast that the basic rate of income tax could have to rise by “between 8p and 10p in the pound" to plug the hole in our public finances.

Indeed we have already seen tax increases on the entire population in the Pre-Budget Report 2008, in which national insurance contributions are set to rise by 0.5% from April 2011. Furthermore, there were rises in stealth taxes in the Budget 2009, most notably on cigarettes, alcohol and fuel.

Why does all this matter to liberty? As taxes rise, the liberty of taxpayers to spend their hard-earned money as they please is eroded away. To put the projected tax rises into context, with median weekly pay at £479, a rise in the average person’s annual tax bill by around £1,50014 represents over 6% of their income being paid in extra taxation.

Public spending can be cut relatively painlessly by cutting expenditure on quangos and bureaucrats; for example, there is huge scope for getting rid of countless managers in the NHS. However, the government’s determination to limit cuts in public spending to indefinite ‘efficiency savings’ that hardly ever materialise indicates that a large part of the deficit in public finances will have to be narrowed by raising taxes. And if excise duties, especially taxes on alcohol and cigarettes, are raised substantially, the poor, who spend the largest share of their income on such indirect taxes, will be hardest hit. Assuming that the marginal benefit of each extra pound spent diminishes as income rises, reducing the income of the poor will have the largest impact in reducing liberty, if we measure it in terms of the utility forgone by spending the money on taxes.

Imminent higher taxes therefore threaten our liberty because they will result in significant and larger-than-necessary cuts in disposable income and living standards for all.

Taxes is written by Akhil Shah, who finished second in The Young Writer on Liberty 2009.