The inability to raise revenues and the ease with which the ultra rich can avoid paying tax, has put “an almost impossible constraint” on chancellors, the veteran former Conservative minister Ken Clarke has said.
As a result, the onus has fallen heavily on cutting spending. Speaking before the spending review, which will determine the role of the state over the next four years, Clarke said the pressure of an ageing population will mean it will become the norm to work until the age of 75.
He added that a changing climate of public opinion may mean it will be possible for the state to cut back the generosity of pensioner benefits.
Speaking at a seminar in London, he said: “Obviously there must be someone in government who thinks the triple lock is affordable for future generations, but the only part of my income that is going up is my state retirement pension really quite markedly in real terms.
“Policy changes are required. Awareness of the treatment of pensioners is spreading a little among the public and we may be able to make some moves.”
He predicted a huge backlash, saying: “ I expect if you ever have the nerve to try to challenge these things pensioners will be as furious as the junior doctors when you turn down their pay claim.”
Clarke admitted ministers were finding it very difficult to find ways to pare back spending in the current spending round.
In an iconoclastic address, he said:
- Tax credits were a “state bung” that drove down labour productivity.
- A “false calm” had descended on the European economy since interest rates will soon have to rise representing a serious challenge on the finances of many western governments.
- The public has “not seen anything yet” in terms of the reforms that will be imposed on the health service due to demographic pressures .
- UK penal policy for the past 20 years has been run by the Sun newspaper with the cost of keeping someone in jail the equivalent of sending them to Eton.
He also blamed the housing shortage in Britain on “the well-heeled” being able to hire an army of consultants and lawyers to mount planning objections, adding “the only thing that will rouse the passions of the English middle class is the suggestion that you may build anything within five miles of where they live”.
But the bulk of his remarks at a Resolution Foundation seminar this week were devoted to the new constraints that have been placed on modern chancellors by a public that refuses to countenance tax rises and governments too nervous to make the rational case for such increases.
He said: “Nobody can raise taxes except from a tiny proportion of the ultra rich that you don’t know and are probably foreign. Other taxes are never to go up. It is an almost impossible constraint and requires chancellors to smuggle tax rises into parliament.
“It is an essential part of financing the activities of the state, but it is now regarded as a political no-no nowadays for people of most political complexion, so you reduce public spending.”
He recalled how as chancellor he tried to target spending so that it was no more than 40 % of GDP. Spending as a proportion of GDP is set to fall to 36%.
As chancellor he had raised taxes and lowered public spending, saying: “Which is what chancellors that I admire before me had always done. Politics was different then – people did not expect budgets always to be popular. They did expect budgets to have things they did not like in them.
“People even expected even popular budgets would have things they did not like. People understood it was the government’s best judgment, right or wrong, of what was in the national interest.”
He added that apart from the short-term nature of modern government, ministers were up against the underlying feature of public opinion –resistance to change– including an increasing aversion to reductions in spending that may affect them and their families and any increase in taxation.
“That is pretty primitive, but it is the underlying feature of public opinion. I am only describing the underlying human condition. It is not excessively cynical.”
He said raising tax was like “the art of plucking the goose with the minimum of hisses”.
“The secret to taxation is that most people will tell politicians and pollsters they are in favour of more taxes being raised from people that are richer than they ever expect to be themselves.
“The basic problem is there are not enough of these rich people to raise serious sums of money. I would love to tax the filthy rich. They are so rich, powerful and international and they find it damned easy to avoid most of the bases of taxation we have got.”
Rejecting the idea that Britain had experienced serious austerity, he said: “Electoral bribes, handing out money to people of all ages, has got out of hand. The trouble with electoral bribes is that they are damned difficult to take back because people do like being given money.”
Referring to tax credits, he said: “To have a welfare state that just pays millions of people in work a kind of bung-on-top of their pay does explain why we are developing a low-pay, low-productivity, long hours economy, which is the distinguishing feature compared with the French, the Germans, the Americans and our competitors. It is an astonishing amount of welfare benefits that you get on top of your income”.
In a properly functioning economy, he said, employers should be providing the income to its workforce. He added: “What we are finding it is damned difficult to tackle. We reached a stage where 90% of families in work got tax credits. It is a stupid name, tax credits. It is just a taxpayers bung on top of their pay.”
He also questioned the past numbers on incapacity benefit, saying: “One in 12 of the adult population apparently was permanently incapable of any kind of work. Well I don’t know where they all are but I don’t think that sort of matches my daily personal experience. Policy changes are required, and as [Iain Duncan Smith] has discovered, they are damned difficult to tackle.”
guardian.co.uk © Guardian News and Media Limited 2010