Politics: Rates, Taxes & the Working Class (1975)

From the March 1975 issue of the Socialist Standard

The swindler Horatio Bottomley, when he was a Liberal MP in 1907, proposed in Parliament measures to finance Old Age Pensions for all people over sixty-five. The chief proposals were an Employer’s Tax of a penny in the pound on all wages; super-tax on investments; Stamp Duty on share certificates; a tax on racing and betting stakes; and State appropriation of all dormant bank balances and securities.

His biographer Alan Hayman says: “It is a tribute to the acumen of Horatio Bottomley that nearly every one of his suggestions has subsequently passed on to the statute book in some form or another.” The acumen obviously came from the frauds Bottomley had already been involved in: having done down a number of wealthy individuals, he knew that if revenue on a big scale was wanted it could only be had from the capitalist class on the assumption that it was in their ultimate interests to pay.

It is a pity that more people have not understood the position so realistically. The idea that taxes are paid by the working class to upkeep institutions which belong to them is one of the myths by which the majority are misdirected towards non-issues. Of course phraseology plays a major part; the revenue from rates and taxes is always described as “public money” and “the taxpayers’ money”. As with terms like “the nation” and “the British people”, it is necessary to ask what is meant by “public” and who are the taxpayers. The case which the Socialist Party of Great Britain has put forward consistently since 1904 is that rates and taxes are a burden not on the working class but on the capitalist class; and this remains just as true in 1975.

Working Out Wages

Many workers would at first glance treat this as preposterous. They are possibly “having to pay” several pounds a week in income-tax deducted from their wages; the prices of petrol and cigarettes are high, and other prices are pushed up, by tax additions. At the present time local rates are expected to go up by fifty per cent. or even more. These are seen as inroads on the money people have to live on, and there has been talk of organized refusal to pay rates if the increases are as great as expected.

The first and most important question is: what are wages? The capitalist system is based on the ownership of the means of production and distribution by a minority, who therefore live by owning. The great majority, having no such resource, have to live by selling their labour-power — that is, working for wages. Thus, labour-power is a commodity like anything else, and its price like all prices is the expression in money of its value — what went into producing it and is needed for reproducing it. At the lowest level that can mean enough money for the food and the rent, but in practice it means meeting many requirements. If the unskilled worker’s labour-power is a cheap product sold at a low price, the professional worker’s salary (equals wage) takes account of his training and the components of his “standard of living”.

But whatever their amount, wages are obviously what is received: the actual payment, not a hypothetical one. Workers cannot help but be aware of this. No-one will be persuaded that £30 is £40 and that the latter figure is a “true” wage; the opposite is the case. The illusion created over “tax deductions” is that if only they could be evaded or reduced in some way, the worker would be so much better off. The single man with a big gap between gross and net pay sees that his colleague with a family has a smaller gap, i.e. takes home more wages, though he probably has less to spend in the end. If only some benevolent tax legislation would provide the best of both worlds!

Paring and Portions

It should be recalled that large numbers of workers were not involved with income-tax at all before the last war; like keeping a bank account, it was regarded as a sign of being well-off. In Studies in an Inflationary Economy (1966) F. W. Paish gives tables showing the percentages of total earned-income tax drawn from different income groups before and after the war. In 1938, 87 per cent. came from the first (the highest) 500,000, and all the tax was attributed to the first 5 millions or less than half of all employed persons. By 1959 the first 500,000 were responsible for only 42.3 per cent. The first 5 millions provided 72.3 per cent., and the range covered the first twenty millions.

This is part of an argument by Paish that there had been a marked equalization of incomes. In fact, the changes in the figures for earned incomes at the top and tax drawn from them reflect changes in the taxation system more than anything else. But, if one granted that the working class as a whole had become concerned in direct taxation since 1938, these figures show what a small concern it is. In 1938 more than half of earned incomes paid no tax; in 1959, with the number of employed persons doubled, roughly three- quarters paid only just over one-quarter of the tax.

What tax deductions achieve is an apportionment of income among the working class. Their introduction early in the war (linked with the post-war credits scheme, a fraud which Bottomley would have envied) had the object, besides raising money, of restricting consumption: they were reductions in wages. The workers most hit by them were, of course, the unmarried ones whose spending money was cut. This remains the case, and it means that the discontent of married workers with homes and families, which is the main strength of wage demands, is checked to some extent.

Incidentally, a report in The Observer of 16th February bears out that tax deductions are cuts in wages. Wedgwood Benn, the Secretary of State for Industry, addressed a Labour meeting at Hillingdon:

Although ostensibly attacking the Tories, Mr. Benn was evidently warning the Chancellor [Denis Healey] that he would not accept any brake on consumption. He denounced as a ‘pre-war remedy’ the idea of a wage cut.

Under Mr. Healey’s plans for bringing down inflation, the level of take-home pay after tax would have to rise less fast than prices.

Paying for What ?

Realistically, therefore, income-tax as far as the working class is concerned is a more sophisticated version of Bottomley’s proposed Employer’s Tax on wages. Not much thought is needed to see that it is paid by employers in any case. It is applied to individual wage-packets to effect varying payments according to status — single, married with no children, married with several to support, etc. — from a notional common wage. (We are not here considering national insurance contributions, which generally are returned to the workers as benefits.)

One argument is that workers do pay taxes but receive benefits in return; thus, that food and housing subsidies and public services are, as it were, purchases on an equalled-out, socially “just” basis. Certainly it is true that subsidies and services are provided by the Government out of taxation, but the beneficiaries over the costs are the capitalist class. Subsidies are an important means of keeping down the cost of living, and but for them the wages bill would be much higher.

Moreover, they are a means again of apportioning. Those chiefly affected by them are workers with families. Why should capitalists have to pay workers ail round to meet a cost, when those to whom it applies can be selected ? This is the purpose of housing subsidies, rent rebates, family allowance and so on, as well as subsidies on food.

What should always be borne in mind, nevertheless, is that the main burden of taxation is for government expenditure on the civil service, armaments, law enforcement and the rest of the general maintenance of capitalism. This is what the capitalist class must support. That is not to say they pay tax willingly. On the contrary, they try continually to have the costs of government reduced — usually by one section seeking to have part of the burden transferred to another section. The differences between the main political parties are largely differences over taxation and expenditure: hew the money shall be collected and how it shall be spent.

Taxes and Prices

Where indirect taxation is concerned, here again it is commonly assumed that the taxes on commodities are an extra charge to the purchaser. In fact price increases caused by taxes are no different from increases due to other factors. Although the introduction of Value Added Tax in Britain has made the prices of many commodities rise (though some have fallen, or risen less than they would otherwise have done), few people would think of it as a reason for continuing inflation; and even fewer would think of taxation as a reason for the difference in prices between 1914 or 1939 and now.

Government policy over indirect taxation in the past has always been to seek industries where monopoly or near-monopoly conditions ruled, demand for the products was fairly inelastic, and high profits being steadily made; and then to “cream off” some of the profit. It is by no means true that the tax must be passed on as an addition to retail prices. In Benham’s Economics (1967) F. W. Paish says:

In practice, however, a monopolist seldom charges a price high enough to maximize his profits . . . The normal response of producers is to “pass on” the tax to consumers by adding it to their selling price. They may discover after a time that their sales fall off so much that their best course is to reduce their prices somewhat, but to begin with they are likely to add on the full amount of the tax.

The position may appear slightly different with VAT, since the tax takes the form of a straight percentage addition to the retail price. The increasing practice is for prices to be stated “including VAT” instead of naming a separate price to which tax is added. In other words, the producer or seller still seeks the best price he can get, taking the tax he must pay into consideration: prices are prices, just as wages are wages.

The Rates Bill

To workers who are householders, it seems undeniable that rates are an increasingly heavy burden on them. Since there are misunderstandings over what rates are for, it may be worth explaining that they pay the running costs only of local government administration and services: staff salaries, welfare services, the maintenance of schools, roads, sewers, etc. The maintenance of Council housing is normally a separate fund which must be supported from the housing income.

Capital expenditure — the building of houses, flats and schools, the provision of roads and sewers etc. — does not come from rates. The large sums required for these are borrowed by local authorities, if and when the projects are approved by the government department involved. Local government is the branches of central government; its work implements the policies of the central government, by whom its expenditure is controlled.

Rates are a charge on property, and before rent restriction (starting in 1914) diminished private landlords the rates were paid by them from rent revenues. Since that time, house rents have divided into “inclusive” and “exclusive” of rates; in the latter case the tenant pays the rent to the landlord and the rates to the local authority. It is a matter of landlords’ book-keeping — most local authorities still offer a 10 per cent,.reduction for rates paid en bloc, but not many landlords think it worth while. The effect has been to create the impression that it is the tenant who is the ratepayer; whereas he does not own the house, and is only paying in two parts what he would have paid in total.

The position has been further complicated by the growth of owner-occupation, to the point where alternatives to the rating system are now being urgently considered. The most popular suggestion, though made vaguely, is a “local income tax”. Insofar as a great many workers have thought (encouraged by deceitful political catchphrases like “a property-owning democracy”) that acquiring their own house was a step upward, it is a tragedy that they acquire only crippling mortgage repayments and are caught in a system of charges intended for bigger fish altogether. When an alternative system is produced, it will show where the burden of supporting government correctly lies.

Socialism, not Reform

One of the hopes of working people when they vote is for reductions in rates and taxes. They hope for "tax concessions”, i.e. that their take-home pay will be increased by the deductions being lightened; and for changes in the situation over rates so that they have to pay out less. Their belief is that these changes would make them substantially better off.

A simple answer is to look at times, not so many years ago, when few workers were conscious of income-tax problems or received rate demands and prices were lower. Were they better off ? Alternatively one may ask if, supposing it were possible for a government to make tax and rate alterations which favoured the working class, the employers would readily accept the consequent jump in wages ? Hardly. Any fall in the cost of living has always been followed by the forcing down of wages, as happened in the early nineteen-twenties. The general lowering of wages was, in a short time, practically equivalent to that of the cost of living. Farm workers’ wages, which were 46s. a week in 1920, were 29s. by 1924 and remained at that level up to 1939.

Reformers exist by persuading workers that adjustments and reallocations within capitalism can change their situation. Before the war Dean Inge wrote in the Evening Standard: “Popular education is taking the bread out of our mouths.” He was voicing the belief of workers who considered themselves “middle-class” that they were being ruined by taxation; the same section of the working class now complains of being ruined by the rates instead.

The level of taxes makes no difference to the continual struggle to keep abreast of the cost of living, as the history of legislation in our lifetime shows. It is an error to think that rates, taxes and prices are an issue for the working class; the only issue is Socialism.

Robert Barltrop

This taxation business (1978)

From the July 1978 issue of the Socialist Standard

In the first issue of this journal The Socialist Party of Great Britain stated that it does not matter to the working class whether taxes are high or low, or whether they are direct, like present day PAYE, or indirect, like the duties on beer and tobacco. Other political parties and the trade unions greeted this with astonishment and unbelief; how, they asked, could anyone be so blind as not to see that workers would be better off with lower taxes? It is the purpose of this article to show that the statement was, and still is, a correct one.

Taxation is always in the news and it got special attention on May 8 last when a collection of opposition parties in Parliament forced the government to reduce Income Tax from 34p to 33p in the pound. The debate was being broadcast on Radio, which accounts for the MPs utterances containing more than the usual amount of humbug. With one exception, all those who spoke, whether for reducing the tax or for not reducing it, said that their sole concern was the wellbeing of “the nation”, but each side had the gravest doubts about the good faith of the others.

Mr. Healey thought the real intention of the Tories was to “grub up a few extra votes”. It seems that in his sheltered life he had never before encountered a political party so depraved as to frame its policy to catch votes. He made much of the Tory and Liberal admission that they favoured reducing direct taxation and increasing indirect taxation, VAT. What shocked him most was the Liberal John Pardoe’s view that there should be an even greater reduction of Income Tax. Did Pardoe not realise that the consequent “enormous ’’increase of taxes on beer and tobacco would raise the cost of living by as much as 3 per cent? (Under Mr. Healey’s guiding hand since February 1974, the cost of living has gone up by nearly 100 per cent).

An argument that did appear in several speeches was that reducing Income Tax would improve the workers’ "incentive to work”.

The one MP who stood aside from the general discussion was Enoch Powell. He made it clear that his group of Ulster Unionist MPs (who usually vote for the Labour Government) were simply using the occasion to bring pressure for the restoration of local government in Northern Ireland. Not one MP mentioned a certain forbidden ten-letter word — the word capitalism; but it is capitalism they were dealing with.

Capitalism is a complicated social arrangement, with many internal conflicts and contradictions. One consequence is that politicians, who need the workers’ support and votes, have perfected the art of presenting capitalist policy as if its real aim was to benefit the workers. It is not safe to accept things at their face value, which is the error made by those who tell the workers that what they need is lower taxes.

At first glance the case they make seems self-evident. If the PAYE deduction from wages goes up or if taxes put prices up surely the workers are worse off? And if PAYE or prices go down surely workers are better off?

The people who use this argument about price increases associated with higher VAT use the same argument about all price increases, whether related to higher taxes or not. (It is not necessary here to go into the question whether taxes on goods actually do simply put up their prices. For the present argument we can accept the belief that they do have this effect).

We can at once concede that at the moment when PAYE goes up or the cost of living goes up the workers are that much worse off: but what we should be concerned with is the longer-term, continuing, situation. And the fact is that, subject to variations due to other, quite different causes, the wages and salaries of the working class as a whole become adjusted to changes of PAYE and changes of the cost of living.

What really matters to workers is their “take-home pay” after deduction of PAYE and Social Security contributions, and what it will buy. It is this purchasing power that continually adjusts itself; not automatically, but through the struggles of workers inside and outside the trade unions, struggles influenced by the varying levels of unemployment. Government “wage restraint” propaganda and policies also play a part.

When purchasing power is reduced by higher tax deductions or price rises, workers react by seeking higher wages. When there are tax deductions or prices fall the workers’ resistance to pressure by the employers weakens. Earlier this year Mr. Healey held out an offer of lower PAYE as an inducement to unions to moderate wage claims.

There is plenty of evidence from past experience to show how take-home pay has adjusted to tax changes, and to changes in the cost of living.

First let us look at Income Tax. In the 19th century hardly any workers came up to the pay level at which tax became payable. During the Crimean War the government considered lowering the tax level so that most workers would pay tax. The idea was dropped for two reasons. First, the high cost of collecting large numbers of small amounts of tax would have been greater than the total amount collected. That is why, with inflation, Chancellors of the Exchequer periodically raise the taxable level to exempt low paid workers from tax. The second reason was that, because unemployment was then very low, it was realised that the workers would be able to get higher wages and thus maintain their purchasing power in spite of tax deductions.

Between 1938 and 1947, Income Tax changes brought far more workers into the pay level at which tax was deducted, and the proportion of pay deducted as tax had greatly increased. (In addition the cost of living had risen sharply). So were the workers worse off? A study of wages in Britain published by the American Department of Labour found that the purchasing power of take home pay had just about kept up with all the changes. A comparison between the purchasing power of present average earnings and that in 1938 shows that this upward adjustment has been more than maintained between 1947 and 1978.

Now for changes directly affecting the cost of living. In 1846 the industrial capitalists secured the abolition of the Corn Laws, thus enabling cheap food to be imported (at the expense of the landowners). It was presented as a boon to workers. Would not their wages now buy more? What the industrial capitalists really aimed at was that cheaper food would enable them to pay lower wages. (Later on when many manufacturers themselves wanted protection to keep out cheap foreign goods they presented it in the guise of “protecting the workers’ jobs”).

Between 1920 and 1926 the cost of living fell by 31 per cent, and PAYE was also reduced. Lucky workers? Not at all. Unemployment was heavy so that, in spite of attempted resistance through strikes, the workers were forced to accept an average reduction of wages of 32 per cent.

A special case of capitalist policy presented as something to help the workers was the introduction of rent restriction in 1915, by a Tory Minister in a coalition government. Because house-building had stopped on the outbreak of war in 1914, rents were rising. Rent restriction was imposed (at the expense of the landlords) in order to dissuade workers from striking for higher wages which would have adversely affected manufacturers as well as interfering with the war effort.

Rent restriction was adopted in many other countries and in the nineteen twenties the International Labour Office conducted enquiries into its effects. A typical finding was that related to Austria. It showed that in Vienna the rent paid by workers had fallen from 20 per cent. of wages in 1914 to barely 1 per cent. in 1923. So were the workers better off?

Most of the workers were in the same position as in Germany; they had practically no liabilities under the heading of rent, but the corresponding amount was not included in their wages. The actual gain was thus nil.

So we are on the solid ground of experience in asserting that taxation is not a working class issue, not forgetting that this presupposes that the workers continue the struggle to maintain and increase wages as far as conditions allow.

For the capitalists the position is quite different. Having exploited the workers to the fullest extent, having got maximum output at the lowest wage they can induce workers to accept they have to pay, out of their profits, the cost of maintaining the State apparatus, the armed forces and so on. The burden of taxation falls on them. It follows that as a class they have very good cause to keep government expenditure as low as possible so that taxation can be correspondingly low. The workers have no such interest.

There is another difference between the two classes. The capitalists have every reason to continue capitalism indefinitely, but workers who give the matter a little thought must conclude, with us, that it is in the interest of the working class to get rid of it.

Edgar Hardcastle

Exploitation goes up (1993)

From the June 1993 issue of the Socialist Standard

Everybody has heard of VAT—Value Added Tax. It is ironic that the tax authorities should have recourse to a concept—"value added"—that sounds as if it might have come from Marxian economics. But when you deal with the real world, as the tax authorities do in a way that academic economists don't, you do have to take account of facts such as new value being added to the previously existing value of materials by labour in the course of production.

Value-added, as used by the tax authorities and also by those who compile the National Income statistics, is the difference between the monetary value of the materials and services a firm buys and the monetary value of the output it sells. The Penguin Dictionary of Economics defines it as follows:

The difference between total revenue of a firm, and the cost of bought-in raw materials, services and components. It thus measures the value which the firm has “added" to these bought-in materials and components by its processes of production. Since the total revenue of the firm will be divided among capital charges (including depreciation), rent, dividend payments, wages and the costs of materials, services and components, value added can also be calculated by summing the relevant types of cost and subtracting that total from total revenue.

In other words, value-added is the monetary value of the new wealth produced in a firm, which is divided into the property income of the firm’s owners (profits and the various charges upon it such as rent, interest and taxes) and the wages and salaries of the firm’s employees whose labour produced that new wealth. (Strictly speaking, depreciation, which is a measure of the fixed capital used up in the process of production, should be excluded but as this can't be calculated so easily and so quickly as the other costs this is not always done; value-added including depreciation is known as “gross value added".)

Unpaid labour

This division of value-added into property income and labour income provides a way to measure the exploitation of the workers in a particular firm or industry. This can be expressed in a number of different ways: as the percentage share of wages and salaries (or of profits) in value-added; as the ratio between the amount of profits and the amount of wages and salaries (roughly the equivalent of Marx’s “rate of exploitation"); as the amount of working time spent producing profits (unpaid labour time); and. if the number of workers are known, as the amount of profit per worker.

The Annual Abstract Statistics, published in January each year by the Central Statistical Office, very obligingly provides a set of statistics (Table 8.1) which allows us to calculate what these all are and so the extent of the exploitation of workers in various sectors of industry.

The 1993 edition gives the latest figures, those for 1990, relating to “manufacturing", which covers most of the sectors of the economy where wealth is actually produced. In 1990 the “gross value added" (output) in this sector was £111,051m; the total paid out as wages and salaries was £59,712m; the average number of employees was 4,840,000. This, the Table records, gives a figure for “gross value added per person employed” of £22,945.

The Table stops here but we can use the figures to calculate the extent of exploitation. A figure for profits can be got by deducting “wages and salaries" from “gross value added", which gives £51,339m, so a profit (what might be called “surplus-value added") of £10,607 per worker. The share of wages and salaries in gross value added, as the workers' share in the product of their labour, was 53.8 percent. This meant that in every hour they worked 32 minutes to reproduce the value of their wages and 28 minutes working unpaid to produce profits for their employers. The ratio of profits to wages was 86.0 percent.

More for profits

The Table, together that in previous editions, gives figures going back to 1981 and, once these have been converted into 1990 prices (so as to be comparable), it is possible to see what happened over the ten-year period 1981-90.

Between 1981 and 1990 output (“gross value added") increased in real terms from £97.704m to £111,051m, an increase of £13,347m, or 13.7 percent. Of this increase, £2,051m (15 percent) went to the workers as wages and salaries and £11,296m (85 percent) to the owners as profits. Over the same period the average number of workers fell from 5,778,000 to 4,840,000.

It is clear at a glance that this must mean that exploitation increased, even though the workers’ real wages also went up. A detailed analysis confirms this. Output per worker increased from £16,910 in 1981 to £22,945 in 1990 (36 percent); wages per worker, however, went up by much less, 24 percent, from £9,980 to £12,337, the balance going to profits. So all the measures of the rate of exploitation went up. Profit per worker increased from £6,930 to £10,608; the ratio of profits to wages went up from 69.4 percent to 86.0 percent; and the workers’ share in their product fell from 59.0 percent to 53.8 percent.

1990, it should be noted, as the year the current slump broke out, was not the best year for profits and, as the following table shows, exploitation increased steadily with the recovery from the previous slump in 1982. reaching a peak in 1988.

In any event, what the official government figures confirm is what the workers involved will have known already from personal experience: that in the 1980s the reduced workforce was forced to work harder to produce both more output and bigger profits for their employers. In concrete terms, at the end of the period the employers were extracting an extra £3,677 in profit from each worker left and, for a 40-hour week, had increased the period of unpaid labour time by 2 hours and 5 minutes.

Adam Buick

Letter: Taxing problem (1998)

Letter to the Editors from the August 1998 issue of the Socialist Standard

Taxing problem

Dear Editors,

I’d like to point out what I think is a mistake in the Socialist Party’s thinking on tax – that workers don’t really pay tax because they can’t afford to, and that it’s always a tax on profits. The poll tax fell most heavily on the poorest people and was not passed on to capitalists in paying higher wages – certainly not for unwaged people. The workers pay a lot of tax in VAT on fuel, electrical goods, taxes on cigarettes and alcohol. The council tax is much more of a burden to poorer people too. It got left to anarchists and Leninists to oppose the poll tax and these people are not known for believing in fairness and justice.

Lynn Stewardson,

Nottingham  

Reply: 

Actually, we don’t deny that workers pay, in the sense of themselves handing over the money, some taxes. Our argument is that the burden of taxation does not fall in the end on the working class but on the propertied class and profits.

This is based on the assumption that in the medium term workers sell their ability to work at its cost of production (or what Marx called its value), i.e. at the cost of what they must buy to keep their skills up to scratch and also to raise a family to take their place on the labour market when they retire. It follows from this that any permanent increase in the workers’ cost of living, whether from taxes or from higher prices will be passed on to employers as higher money wages and salaries (On the other hand, any permanent decrease in their cost of living, as from rent control or from subsidies to food or transport, will end up being a subsidy to employers in the form of lower than otherwise money wages.)

Having said this, most taxes in Britain are not even paid by workers but are collected and paid by businesses. Obviously, this is the case with corporation tax. It is also the case with income tax on wages and salaries, which is deducted by employers from nominal wages under the PAYE system and never even get into the hands of bank accounts of employees (income tax, in fact, is mainly a means of ensuring that workers without families don’t get that part of wages meant for raising a family)

Perhaps less obviously, this also applies to VAT. It too falls on and is collected by businesses. As its name implies it is a tax on “value added” which, in capitalist economics, translates into a business’s wages bill plus its profits. As we have just seen, wages in the medium term represent the cost of production of labour power, so though the amount of VAT payable is calculated on the amount of “value added” in fact just like corporation tax it only comes out of profits. Firms can’t automatically increase their prices by the amount of the tax; they reduce their profits by it.

Excise duties on beer, spirits and tobacco are also paid out of their profits by the firms involved. Only in this case prices are raised. The government in effect creates an artificial monopoly position allowing monopoly prices to be charged – and then taxes away the monopoly profits for its own benefit. lnsofar as these goods, selling at their monopoly prices, enter into the general cost of living of the working class they are reflected in higher wage levels.

The taxes workers actually pay out of their own pockets are such things as car licences, TV licences and, if they are owner occupiers, council tax – but, once again, in so far as these enter into the general cost of living they are reflected in wage levels.

As regards the poll tax, the Thatcher government clearly made a major blunder in imposing a tax which had to be physically paid by every adult. Not only was this not cost-effective in capitalist terms (the extra costs of collecting it) but it led to resentment amongst those who had never paid such taxes and in many cases couldn’t afford to anyway. In the end a combination of non-payment, riots, demonstrations and the loss of votes in by-elections, caused the government to back down and restore something akin to the old system under which only owner-occupiers paid local taxes.

As to the unwaged, since they depend tor their income mainly on handouts from the state, taxing them does not make much sense from a capitalist point of view – its just takting back part of what’s been handed out, so why hand it out in the first place? This is why the government will he introducing so-called “tax credits”, under which what is to be paid as tax (if anything) is to be set against what is to be paid as benefit and only the difference paid. So, as with PAYE, the poor will never see the taxes they “pay”. Forcing the poor to physically pay a tax like the poll tax doesn’t make sense either as the level of income support (formerly supplementary benefit, formerly national assistance, formerly the poor law) is fixed as the minimum supportable level which in theory can’t be reduced further. If you try, you get riots even in small peaceful towns like Wells and Taunton. 

Editors. 

Britain Enters The Common Market (1973)

From the January 1973 issue of the Socialist Standard

From the beginning of this month Britain has been part of the “European Economic Community", to give the Common Market its official name. This means that the British government is pledged to pursue, along with eight other West European governments, common policies in such fields as foreign trade, transport and agriculture. By 1978 all trade barriers between Britain and the other eight countries should have been removed and all nine should have erected a uniform tariff against goods coming from outside their “common market”.

For the capitalists of Britain, or most of them, this will open up a vast new market in which to try to sell their goods at a profit. But what about the workers? How will the Common Market affect the ordinary wage- or salary-earner in the factories and offices of Britain?

First, and this has already begun to happen, there'll be a rise in food prices as a result of the British government having to change its method of subsidising agriculture. Till now Britain has followed a “cheap food” policy of letting food in at lower, world prices and paying farmers the difference between this and a previously-agreed higher, notional price. The Common Market agriculture policy, on the other hand, is based on subsidising farmers and peasants by fixing selling prices, with the help of tariffs and levies, above world market level.

Rising food prices of course mean, without a compensating rise in wages, a cut in living standards. It is this that has made the Common Market so unpopular amongst workers in Britain and why the Tory government was afraid to hold a referendum on the issue: they knew it would have been seen as a vote not about the abstract question of “Britain’s destiny in Europe” Heath likes to specify about, but as a vote for or against rising food prices, with the result a foregone conclusion. The Labour Party has cynically exploited this ordinary working-class reaction and has used it, with the help of the so-called Communist Party, to stir up latent anti-foreign prejudices. Rising food prices do represent a threat to living standards, but the way to fight back is on the industrial field by pressing for higher wages not by sterile and dangerous jingoism.

The second change the ordinary wage-earner will notice is in the way the goods he buys are taxed. From 1 April this year purchase tax and SET will be abolished and replaced by a Value Added Tax (VAT). This probably won’t make much difference to the overall price level but, being something new, will (like decimilization) tend to be blamed for inflation. In any event, tax changes are insignificant from a working-class point of view.

Thirdly, workers from Britain will be free to move to the other countries in search of a job and will be able to carry social security rights with them. And workers from the other countries will be free to come here on the same terms, of course.

Within ten years, however, we could be using a common European currency and voting in elections for the European Parliament at Strasbourg. And after that, perhaps, there’ll be progress towards a “United States of Europe” as another Great Power challenging the current world hegemony of America and Russia — on condition, that is, that the various nation-States can agree to give up a great deal of the power they now have to protect their national capitalist interests even against the other members of the EEC. Which must remain very much open to doubt, since up to now the EEC has been a permanent inter-governmental conference rather than a embryo super-State.

But, in any event, the emergence of such a new capitalist super-State, or the creation of a single European capitalist economy, is of no concern to the working class. Though it will affect them nevertheless. To try to mitigate these effects they will have to start thinking in terms of united action with their fellow workers in Europe. Already some trade unions, and trade unionists, have — wisely — been making contact with their opposite numbers in the other countries.

But such actions, though necessarily, are only defensive of working-class interests under capitalism. The need will remain to go beyond them and build up a political movement on a world-scale aimed at establishing a united Socialist world making frontiers a thing of the past.

Cooking the Books: Income Tax or Sales Tax? (2013)

The Cooking the Books Column from the July 2013 issue of the Socialist Standard

Different capitalist firms operating in Britain have reacted differently to the criticism that some of them have not been paying their fair share of taxes to the British state. Some multinational corporations have defiantly replied that in choosing to pay tax on their profits in countries where the rate is lower they have broken no laws and are just pursuing the best interests of their shareholders. Others, mainly firms operating only in Britain and so not having this option, are complaining that this amounts to unfair competition against them.

Centrica, the conglomerate which owns British Gas, commissioned a consultancy to work out how much they contribute to the British economy:

  ‘The report, by Oxford Economics … claims that Centrica provides £4.2bn in “total tax payments” including its own payments to HM Revenue and Customs of £1.1bn, national insurance and PAYE contributions from its staff and tax paid by consumers on their bills’ (Sunday Telegraph, 24 February).

What is interesting here is the matter-of-fact way in which the report accepts that deductions from their staff’s wages of NI and PAYE are tax payments made by Centrica to HM Revenue and Customs, just as much as the corporation tax it pays on its profits. This goes against the carefully-cultivated mystification that wage and salary earners form a part of “the taxpayers”, but economic analysis confirms that it is correct to treat taxes on wages as a charge on employers.

Tax theorists distinguish between ‘direct’ taxes, as taxes drawn on a person’s income (income from rent, interest, dividends, wages, fees, pensions), and ‘indirect’ taxes, levied on items on which people spend their income (such as VAT, sales tax, excise duties as on tobacco and alcohol). To the extent that the market for the item can bear it (as it will in the long run), the seller passes on the tax to the buyer by charging a higher price than otherwise. In this sense shops are acting as tax collectors for the state, with the burden of the tax falling on those who buy what they are selling.

Although an income tax on wages is classified as a direct tax it has more in common with an indirect tax. Wages are a price, the price of the wage-earner’s ability to work which they are selling to their employer. The principle is no different here from any tax on something that is sold: it falls on the buyer not the seller. In other words, an income tax on wages is a sales tax on labour-power that is passed on to the buyer as higher wages than otherwise. It is the employer who is the “taxpayer” and Centrica is right to include this as part of the taxes they pay.

But aren’t workers consumers too and so have to pay indirect taxes such as VAT? On the surface, yes, but what workers buy is not a final consumption; it is raw material needed to reproduce what they are selling, i.e. their ability to work. Any increase in the cost of producing this, such as taxes on what they buy, will increase the price employers have to pay for it. So here too, in the end these taxes paid by employees are passed on to the employer.

This is why we in Socialist Party have always insisted that taxation is not a working-class issue. Let the various sections of the capitalist class argue amongst themselves over which of them should pay and how much to finance their state. As wage and salary workers we should concentrate on organising to end our status as mere bearers of a commodity used up in production.