Does “Tax and Spend” have public support?

The economy and taxation are set to take centre stage in the election campaign with three national papers leading this morning that for the first time in more than a decade average household incomes are on the decline – the direct result of tax increases.

This will bring to a head the central philosophical difference between the two main parties which was the main reason behind the Howard Flight sacking.

The Telegraph, Times and the Mail splash the reports that average incomes fell last year for the first time in more than a decade as a result of tax rises imposed by Gordon Brown after the 2001 election, according to a study by the Institute of Fiscal Studies.

The IFS said Mr Brown’s big tax-raising 2002 Budget – the first after the 2001 election – which put up national insurance and froze personal allowances saw average take-home incomes fall in real terms in 2003-04, the first annual drop since the recession of the early 1990s. These tax increases were brought in with the specific intention of providing extra money for the NHS.

In another study the Telegraph reports that private pensions have dropped by upto three-quarters as a result of the tax changes brought in by Gordon Brown in 1997 and declining investment returns.

All this will bring to centre stage the question of whether we are prepared to pay higher taxes for better public services.

Last September ICM asked: Thinking about the present levels of tax on the one hand and the state of the public services (like health or education) on the other, do you think the party you support should pledge to increase taxes, hold taxes at their present level or to reduce taxes?. A total of 18% said raise taxes to 36% who said they should be cut.

YouGov last week reported a 44% to 12% split in favour of tax cuts to the question“Should whichever party wins the general election pledge to increase OR reduce taxes and spending, or are the present levels about right?

There is little doubt that tax increases are more acceptable when real income are rising because they are not noticed as much. With incomes falling – if only by a touch – the debate could change.

Mike Smithson