January 18, 2015 by Paul Goldsmith
The release of a tranche of documents from the a National Archive under the ’30 year rule’ has cast a light on the issue that was the final undoing of Margaret Thatcher. In amongst her concerns about GCSEs not being rigorous enough and subject to manipulation by ‘committed left-wing teachers’ and her ministers’ worries about the effect that the ‘Big Bang’ deregulation of the City would have on risk-taking in banking (later proved catastrophically right) is a discussion about the Community Charge. If you haven’t heard about the community charge it’s because that was Margaret Thatcher’s preferred name for it. Others call it the ‘Poll Tax’.
In the documents, relevant now because some are written by Oliver Letwin, then a Thatcher policy adviser and now chief of David Cameron’s policy forum, Thatcher is warned that implementing the Poll Tax could be economically and politically disastrous. Even those Ministers and policy advisers who were ‘for’ the policy wanted her to be aware of the potential implications. That Thatcher still went ahead with it says much about the state of mind she was in by the time of her third election victory in 1987. Essentially, she thought that she could do what she wanted and still win, and was less likely to consider any negative consequences of what she was doing if she thought she was ‘right’.
Thatcher did feel she was ‘right’ on this one. She had felt that domestic rates (Council Tax) were applied in an unfair way as they were only paid by people who owned properties. This meant that they were effectively a tax on property ownership, which was this a tax on a Conservative Shibboleth. Property ownership was at the centre of Thatcher’s reforms because she felt that if you own property then you own a ‘stake’ in society and are thus going to want to do more to protect your local area from crime and litter and generally enable people to feel safer. This was behind her ‘Right to Buy’ policy where people could buy their own Council House. Property ownership, Thatcher felt, gave people responsibilities in their society as well as just having rights and expectations from that society. Thus, a Council Tax that was only applied to property owners was a tax on property ownership, which was taxing something she wanted to encourage.
Furthermore, Thatcher felt that Council a Tax being paid only by property owners meant that there weren’t enough people paying it, so if everyone registered to vote paid it instead, everyone could be charged less.
Most importantly, Thatcher believed that if you paid Council Tax then you cared more about what your Local Authority was spending money on and hold them accountable. This was ideologically coherent with policies such as privatisation, which was brought in, in Thatcher’s words, to “enfranchise the masses in the economic life of the nation”. What she meant was that if you own shares in a company that provides your needs, you are more likely to demand better performance from that company and hold their management accountable, which is far more difficult if they are part of the public sector monolith. So it was with Local Authority spending. She, and some of her advisers also thought that once people were holding their local authority accountable for spending, they would throw out the high spending (Labour) ones and vote in the low spending (Tory) ones.
So, the Community Charge was about changing who pays Council Tax from everyone who owns properties in a Local Authority to everyone who is registered to vote, whether they own, rent, or live in Council housing. By broadening the tax ‘base’ (how many people paid it), people could pay less.
In the released documents Oliver Letwin urges Thatcher to embrace the Poll Tax. But he doesn’t deny the political implications of what she is about to do. Because it was simply related to whether or not you were registered to vote, everyone paid a flat rate, with poorer people paying as much as wealthy people.
Letwin and current Tory MP John Redwood warned, “the package, in its present form, would have a number of unpleasant effects: 7.5 million households (44 per cent) would lose out (1 million would lose more than £250 per annum); some parts of London — including some which are politically sensitive — would be very badly hit; the local tax paid by each adult would in some cases almost double; the inhabitants of some northern industrial areas would also suffer large personal tax rises”. They also cautioned that the reform would “be attacked as both a ‘tax on votes’ and for its regressive nature”. (Regressive means that people on lower incomes pay a higher proportion of their income in a tax than those on higher incomes).
Lord Rothschild, who had been an enthusiastic supporter of the move, wrote that “The community charge is, I believe, a winner, but I am nervous lest it is accidentally or deliberately misinterpreted, for example: ‘Tories hit the poor again’, ‘No compassion for the have-nots’, etc.”
Rothschild was right. It was deliberately misinterpreted. Not only that, and in a manner that neither Letwin or Redwood or even Thatcher had predicted, local councils, particularly Labour ones worked out that they could beat the policy by raising the amount they spent as much as they could, realising that the protests from the payers of the Poll Tax would outweigh any comeback that the Government visited upon them. Those who had to pay these higher rates didn’t blame the local authority charging them, but instead blamed the Government who had decided to tax them for merely existing.
During the Scottish Referendum campaign, we were reminded how in 1979 a third of the Scottish electorate voted Conservative, but it was now a political black hole for them. To understand why, and there are a variety of reasons, including the effect of Thatcher’s industrial policy on manufacturing, it is worth knowing that the poll tax was ‘tried out’ on Scotland.
This was because Letwin had pressed Thatcher to do that. “No one can say you are being insufficiently radical, since you will be trying out an extremely radical system in a significant part of the country.” The result in 1989 was just as significant. Thousands of Scots deregistered from the electoral roll just to avoid the tax (many not re-registering until the recent referendum). There was a wave of protests across the country. Some people, including Labour MPs, refused to pay, some even going to jail.
These mass protests spread to England and Wales when the tax was implemented there in 1990. This included the protest in March 1990 that turned into what is known as the “poll tax” riots, mainly centred around Trafalgar Square.
After Thatcher’s downfall, the Conservative Party quickly repealed the Poll Tax, and that is why Council Tax is still charged on people who own properties. But, had she listened to the warnings, or properly understood the consequences of the policy, she may have lasted longer.