Votes for women and the rise of the welfare state
Since women got the vote a century ago, we have developed a more progressive tax system and a transferred more wealth to the less well-off. That’s no coincidence, says Merryn Somerset Webb.
In 1918 women were granted the right to vote in the UK. The same happened in the US in 1920, though some states gave women the vote earlier and others had to be forced into it after the change in the law. A century on, what has that changed?
One answer might be that the size of government and, by extension, government debt has ballooned for the simple reason that women, who 100 years ago were obviously even more stuck with the social care, childcare and educational responsibilities of society than now, are more likely to vote for progressive welfare spending than men are.
Welfare programmes, once in place, are near-impossible to roll back. Get started and you can, in the main, only ever spend more. For evidence, see how hard it has been for the UK government to introduce its limited "austerity".
You might think this all sounds silly. Not so. A paper by two US academics in the Journal of Political Economy in 1999 looked at evidence that after getting the vote women increasingly looked at the state as an "insurance mechanism".
As women voted, the state got bigger
Using the huge amount of data from different states agreeing to the female vote at different times, they drew the following conclusion: "Single women, as well as women who anticipate that they may become single, may prefer a more progressive tax system and more wealth transfers to low-income people as an alternative to a share of a husband's uncertain future income. Indeed, we have found that after women have to raise children on their own, they are more likely to classify themselves as liberal, vote for Democrats, and support policies such as progressive income taxation", the authors said.
The study also found that the more female turnout grew (since it took several decades for women to vote in the same proportions as men) the more the size of the state grew. This isn't a niche idea; there are plenty of other studies on it and it has been on the go for some time in more or less pleasant guises. Howard J Ruff, purveyor of doomsday scenarios and author of some of the best-selling books on personal finance of 1970s America, blamed the ladies too. The exponential growth of welfare costs and property taxes can be "traced directly to the sexual revolution", he said in his classic How To Prosper During the Coming Bad Years.
All this might have happened without women ever voting, though I rather doubt it given the state of gender equality when it comes to household and care work even today. And, of course, the rise of the welfare state in this form, while imperfect, can hardly be considered a bad thing. It's also not really worth the blame game. After all, who are you going to hold responsible? Women, for their outrageous demand that they should in some way be helped out with even compensated for their labour? Politicians for attempting to buy votes with welfare bribes? Or perhaps (and this is my preference) those same politicians for failing to see that modern democracy is social democracy and fixing both the welfare and tax system in such a way as to pay for it over the long term?
Either way, running a modern state that tries and inevitably fails to be all things to all people is an expensive business. Today, the US has government debt of more than 100% of GDP and rising. The UK has close to 90%.
The US is running a policy of cutting tax rates in the hope of stimulating the economy enough to increase the absolute tax take. In the UK we are not. A report from the TaxPayers' Alliance last week noted that our tax bill now comes to 34.6% of GDP. Back in the mid-1990s it was more like 30%. At the same time we are seeing endless attempts by the government to find ways to nibble at the tax cherry.
The rise of stealth taxes
Take, for example, probate "fees". It used to cost a flat £215 to get probate for an estate, on the basis that the work of establishing that the person seeking the Grant of Probate is the correct person is the same regardless of the size of the estate in question. No more. The price is set to fall to zero for estates under £50,000 and then rise from £250 for those between £50,000 and £300,000, up to a whopping £6,000 for the largest estates valued above £2m. It is therefore no longer a fee, but a tax.
As the House of Lords Committee looking at it rightly says: "To charge a fee so far above the actual cost of the service arguable amounts to a stealth tax and therefore a misuse of fee-levying power." Quite. Expect more of this kind of thing.
But there's an even iffier element appearing amid the inability of the state to bridge the gap between its promises and its cash an unnecessarily intense level of aggression against taxpayers. Back to the Lords, where the economic affairs committee complains that HM Revenue & Customs is not "sufficiently accountable" in the way it treats taxpayers and is using its new powers to clamp down on evasion with a culture of "harshness".
Of particular note is the crackdown on people using "disguised remuneration" schemes, which allow them to be paid indirectly via a third company using loans that don't attract National Insurance and income tax in the way a straightforward salary does. Read that last sentence back and you will think it pretty clear that there is evasion involved. But the key point here is that most employees are not tax experts and that there was also a general view that HMRC had approved the schemes.
It turns out that wasn't so, and anyone who used them, from management consultants and construction workers to nurses and social workers, is being hit with stunningly large and often unpayable tax demands. Lives are being completely and unkindly destroyed. The Lords, on this occasion at least, are right.
What is to be done?
I have answers for the government, as I am sure you all do, but from a personal finance perspective the answer is straightforward: keep your tax affairs as simple as possible. There are many ways to avoid tax in the UK without entering any complicated worlds. Use your full Isa allowance (and that of your spouse if unused) every year. Use your full pension allowance. Use your capital gains allowance. Remember that the first £1,000 of savings income comes tax-free to lower-rate income-tax payers. And use the gifts from income and seven-year rules to transfer cash tax-free to your heirs.
All this will give you the ability to slash your tax bill without putting yourself remotely at risk of getting a call from HMRC. If you do, however, you will know who to consider blaming: the long-dead politicians who agreed to universal suffrage.
This article was first published in the Financial Times