There is a case for higher taxes but it must never come from the politics of envy, a Consensus activist writes

Making a winning argument on tax is essential to Labour’s renewal and electability in 2020. It will require developing a compelling story of why society needs to tax and its purposes. This story must also embody a powerful sense of fairness that cuts through to the public consciousness. To achieve this, we must understand the demographic, economic, and technological challenges facing the country, which hold profound implications for tax policy.

But first, we must recognise how unfair the system is.

Currently, we see the poorest tenth of households paying the highest amount of tax as a share of their earnings at 45 per cent, with the richest only paying 35 per cent. This is a damming indictment of our system. Labour must champion a fairer settlement.

There is a legitimate, and even moral, case for higher taxes. But this is dangerous turf for Labour. We cannot allow ourselves to be portrayed, and many will try given the chance, as a party driven to tax on the basis of envy.

Our approach must instead be led by a sense of purpose, and belief in the kind of society we wish to create. The question should not be how much to tax, but how we wish to do so and how to redistribute wealth in fairer and more economically productive ways. This mindset must guide us as we confront the major economic policy challenges that lie ahead.

The first immediate challenge is generating the necessary revenues for an ever-ageing society. Over the coming decades, we need to find billions more for social care and the treatment of long-term medical conditions for those in old age. Adding to these pressures are rising healthcare costs for conditions like obesity. With our population forecast to increase considerably, more money must also be found and committed to education, housing, and transportation.

Developing a larger tax base will be essential to answering these spending challenges. But there are no easy answers. The dependency ratio (the number of working age taxpayers to those in retirement) is increasing, and the OBR has said that for public finances to be sustainable then the country will need immigration levels in the hundreds of thousands each year for the next 50 years. In the wake of the EU referendum, this will be an uncomfortable truth for many across the country.

The second pressing challenge facing us is the growing levels of inequality in the UK, and the huge disparities in the distribution of wealth. As Thomas Piketty’s powerful work found, the value of wealth is outstripping wage growth, meaning the rich continue to get richer while the rest fall behind. This matters, as large inequalities hold back growth – a view now robustly affirmed by the IMF. And without growth, wages remain depressed – the principal way one can acquire wealth over time. This perilous cycle must be halted, and requires a major cultural and policy shift in tax from earnings to wealth. It will also require new ideas, as recent Fabian research found inheritance tax to be deeply unpopular, across all voter groups.

The advance of technology and artificial intelligence (AI) poses major questions for taxation. Historically, machines have generally complimented rather than fully displaced human endeavours in the world of work. They have also been integral to the evolution of work – there weren’t many social media officers or App designers at the turn of the century. But we are now at the cusp of an age where many forms of work could be fully replaceable by advances in technology. Driverless cars and trucks, self-automated service machines, drone couriers, and even robotic surgeons no longer live in the world of science fiction.

So real is the threat posed that the Bank of England’s chief economist Andy Haldane has warned up to 15 million jobs could disappear in the UK: that’s roughly half of all jobs currently in the labour market. This is not as far fetched as it may sound. In China, the first all robot factory is being built in Dongguan factory city, which aims to reduce the workforce of 1800 by 90 per cent. Closer to home, the first driverless taxi pods are being trialled in Milton Keynes.

The implications of this great technological shift for tax policy is immense. If professions and even industries become obsolete, the goal of full employment may become impossible to achieve – resulting in the loss of a major source of tax revenue (robots are not known for coughing up tax). If Haldane is right, we will have to contend with a future of technology induced mass unemployment, and a world of work where there is simply isn’t enough for everyone. Such a reality, would only exacerbate inequality, as wealth becomes more concentrated in the hands of those with the ability to generate an income, and invest in the technologies that will predominate.

The left must ask themselves searching questions about what this means for how we generate income as a nation and fund our public realm. It will also have to consider how we support those affected most by this technological revolution, and seriously look at ideas like a universal basic income.

The shadow Chancellor John McDonnell has declared an end to the tax and spend model. He’s absolutely right to do so. To win again, Labour must think completely anew on matters of tax. Our story must be built around fairness, and part of an economic strategy to renew our country and build the kind of society we wish to see. It must also prepare us for the immense challenges that lie ahead, and in turn offer a compelling vision in response. The hard thinking and work must start now.

Rayhan Haque is a founding member of Consensus, which will be exploring fair taxation in its first seminar tonight.