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Taxing and Spending

As far as taxation is concerned, whereas the early part of that period had featured special and explicit war taxes (notably on excess profits) in the two world wars, there have been no such taxes since the 1950s, despite overseas military operations such as the Falklands, the Gulf War, Bosnia, Iraq, Afghanistan, Libya.

Nor were there increases in regular taxes that were specifically justified by the need to finance wars, although war sometimes featured as a reason given for not cutting taxes, for example in the 1990s.

But there seems to have been some increase in the later part of the period in 'stealth taxes'—a term rather drained of meaning in recent political debates, but used in this book broadly to denote less visible taxes and charges, and 'small print' tax increases outside headline rates of income tax and VAT. Examples include stamp taxes or parking charges, the 'regulator' power to vary key indirect taxes outside the traditional budget procedure (a measure first introduced in 1961, as described in Chapter Six) and a number of sudden 'windfall' raids on politically unpopular groups or institutions. Cases of the latter include the Conservatives' 1981 bank windfall tax, Labour's 1997 windfall tax on the privatized utilities—in that case, foreshadowed in its election manifesto—and the Conservative-Liberal Democrats' 2010 tax on bank balance sheets, following a previous Labour tax on bankers' bonuses. Just as budget airlines over recent decades have built their businesses by combining (at least apparently) low basic charges with less immediately visible supplements, changes in government revenue, on the direct tax side at least, seems to have had some of those characteristics.

Indeed, at the intersection of revenue and expenditure (since it was commonly counted as 'negative expenditure' in public accounts), the resort to asset sales in the later decades of the century beginning with Labour's sale of BP stock in the late 1970s, might also be considered as a kind of intergenerational 'stealth tax' under certain assumptions. That is, unless such asset sales produced sufficiently higher taxable profits through higher productivity associated with the shift to private ownership, those sales could have the effect of depriving future taxpayers of revenue streams they would otherwise enjoy for the purpose of lowering the financial demands on current taxpayers. Of course, asset sales were far from unknown in earlier parts of the century (indeed, as we have seen, they figured large in the demobilization periods after the two world wars), but such sales seem to have received more emphasis since the 1970s than in the 1930s or in the 1950s and 1960s.

Those changes on the revenue side might possibly be linked to Martin Daunton's (2002: 361-2) account of changes in the UK tax regime between 1914 and the late 1970s. At the beginning of that period, Daunton claims that a relatively autonomous Treasury and revenue departments prioritized the revenue-raising function of taxes, promoted a culture of tax compliance, equity, and 'balance', and resisted political pressures for changes to the tax system that might undermine tax compliance by threatening the apparent equity of the fiscal system. By the late 1970s Daunton argues that the system had changed into one in which there was more emphasis on using taxation for social or economic micro-management or for short-term benefits to politically favoured groups, though he does not discuss the 'budget airline' approach to revenue raising mentioned earlier. But to the extent that there was indeed such a change in the administrative culture of the tax regime over that period, it is hard to distinguish its effects from other major changes, such as the shift from the position in the 1910s when the income of the median voter was below the income tax threshold, to that of the 1970s when the median voter had become an income tax payer (Daunton 2002: 368), and other social changes such as large-scale immigration which may also have undermined voters' willingness to pay higher taxes to support other groups.

On the spending side, we showed in Chapter Two how the changing composition of public spending over the century meant that defence expenditure (traditionally advocated by the left as the proper target of public spending cuts) amounted to a steadily smaller part of overall public spending, even though it did not fall in constant-price terms. That change meant that major efforts to rein in public expenditure on the part of any political party in government could not leave 'welfare state' spending untouched and hence led to the application of 'heresthetic' within welfare state politics, characterized by the development of new political dividing lines over precisely which elements of 'welfare state' spending were to be 'red-lined' for protection and which were not. Those dividing lines not only reflected older distinctions between the 'deserving' and 'undeserving' poor (or 'strivers and shirkers', in the media language of the 2010s) but involved other cleavages too, for example, between state spending on higher education as against earlier years' education, between spending on welfare benefits for retirement pensioners as against benefits for those of working age, between spending on healthcare as against social care. Some of those new welfare dividing lines were reflected in formal 'ring-fencing' arrangements that separated politically favoured domains of spending from the unprotected domains that were subject to cuts.

The implication of a changing composition of public spending for fiscal squeeze may also account for two notable cases involving an element of 'stealth' in welfare state spending restraints, in the sense of changes to future entitlements rather than current ones, or small-print changes in current entitlements over the last three decades or so of the period considered here. One case is the raising of entitlement ages for state pensions and other age- related benefits (a decision taken for the first time in 1994) to take effect well beyond the following general election or the expected term in office of the responsible ministers. The other is the switch from one price index to another (RPI to CPI) as the basis for uprating retirement pensions and other benefits in 2010, with little immediate effect but calculated to produce large savings in the medium to long term.

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