One year at the TPA

This article was first posted on ConservativeHome's Platform.

I’ve been at the TaxPayers’ Alliance a year; I’m a year into my first serious job. It seems a good time to take stock and think about what that work is for. What is the role and function of the TPA?

Of course, there is a simple answer to that question: to campaign for lower taxes and public sector reform. However, I think that such a simple answer misses the deeper problem that the TPA addresses. The case for low taxes, and for the government to do less, isn’t just one more conflicting priority that must be lobbied and advocated for. Campaigning for low taxes requires us to confront the fundamental logic of how a democracy operates.

Mancur Olson, in a landmark work of political theory, set out the Logic of Collective Action in the mid-sixties. An understanding of his thinking is vital to understanding how the modern British state functions. He explained how a minority could effectively dominate a majority.

Any individual has a powerful incentive to free-ride on the efforts of the rest of any group providing public goods. While someone may want lower taxes they have every incentive to leave the political effort required to get tax cuts to others. The results of their effort, or slacking, will be diluted across all those with an interest in low taxes. It will not be in their interests to put the socially optimum amount of effort into securing tax cuts.

Successful societies evolve ways of encouraging people to act in the common good. However, it is harder for large groups to do so. It is easy to encourage six people to act in their common interest by personally appealing to their sense of duty, tradition, loyalty or shame. It is far harder to do the same for a group of sixty million.

Beyond that, in a large group each individual person will usually have less of a stake in a given decision than the members of a small group will. Suppose the British government were to decide to give £3 million a year from general taxation to the 125 residents of the isle of Iona, off the Western edge of Scotland. The islanders would each receive £24,000 a year. That would make a pretty substantial difference to their standard of living. People will definitely turn out to vote in droves to be given £24,000. By contrast, each taxpaying household would face a bill of about 12p a year. Who is going to change their vote for the sake of 12p?

I actually think that it takes about £2.5 billion – if it is paid for from general taxation - for a fiscal decision to become a real live political issue. At £100 a year, £2 a week or half of one percent of median gross income, people start to care. Anything smaller than that and you are no longer appealing to peoples’ concern at how their money is being used and can only really get them interested by finding some lunacy, perversity or corruption that is important or interesting despite the amount at issue being relatively minor. What so many people describe as apathy in the face of significant fiscal decisions is actually rooted in a rational decision to accord little importance to decisions that, in each case, have such a small impact on the well-being of each taxpayer.

£2.5 billion is a lot of money. It is more than the budget for the Foreign and Commonwealth Office. It is a real problem if a numerically tiny group can so easily extract, say, £1 billion as they have every reason to invest huge effort in presenting the benefits of their billion pound scheme and no one really cares about the cost.

Politicians are faced with hundreds of groups each claiming a vital need for a billion here, a billion there and it all adds up to a colossal, and increasing, tax burden far larger than the socially optimal amount. The political logic becomes simple: Group X won’t vote for us if we don’t give them taxpayers’ money. Taxpayers won’t change their votes for a few pennies each a week. Give X the money. This is repeated for group after group demanding taxpayer cash until people have little income of their own left, the economy is crippled and we are all less free.

Popular outrage at each overly eager use of their pocketbook is further weakened by a lack of transparency that means it is next to impossible to fully understand where taxpayers’ money actually goes – Group X gets their cash and no one but the politicians, civil servants and those directly involved ever hears about it. That’s the main purpose of the quangos that disperse so much taxpayer money with pretty much zero accountability.

There is no single ‘answer’ to the problem posed by Olson’s Logic of Collective Action. Olson himself came pretty close to claiming that only totalitarian revolution and then losing a war could clear the cobwebs of special interests out. I wouldn’t be as fatalistic as Olson though. It clearly is possible for political entrepreneurs to change things. He didn’t predict Thatcher’s successful challenging of union power, for example.

A vital, long-term, reform which would improve matters would be to decentralise and, thereby, decrease the scale of government decisions. If we make decisions on a smaller scale then the majority who need to be mobilised will be smaller and each member of that majority will be more interested in the outcome. If the difference in size between a minority who benefits from a fiscal decision and the majority who pay the bill falls then all of the problems discussed above become less severe. That is why the TaxPayers’ Alliance should always have a respect for localism in its bones.

However, localism cannot ‘solve’ the issue. Most local politics takes place with constituencies of tens or hundreds of thousands. The difference in size between a minority and majority can clearly still be very significant. The disparities that create the Logic of Collective Action can still exist in small democracies, even though they will be less marked than in large ones. Beyond that, few localists plan on abolishing central government and the Logic of Collective Action could easily lead a shrunken central government to grow again.

One thing we’re told a lot by groups who feel slighted by our research attacking their claim to public support for themselves or their cause is “well, I’m a taxpayer”. Indeed, most people are both taxpayers and, in some way, recipients of taxpayer funds. When I get my pay packet or buy something I’m a taxpayer. When I enjoy a painting at the National Gallery I’m a happy beneficiary of public generosity. The TaxPayers’ Alliance speaks not for a clearly identifiable group of ‘taxpayers’ but for the taxpayer in all of us. We speak for the cause of leaving as many pounds in peoples pockets as possible.

Our work is essential as we can help better mobilise the majority, on each individual issue, that has to pay for each government scheme. By making it easier, more rewarding and more obviously necessary for people to look at and take account of the cost to taxpayers of spending on each item we will make it less likely that the Logic of Collective Action will lead to the wrong decision being made. We make wasting each £1 billion a politically bigger deal.

It requires a thick skin. When people are told that their, often quite reasonable, particular pet use for taxpayers’ money – whether higher doctor’s salaries, more wind turbines, increased museum subsidies or anything else – may not represent good value it is understandable that they sometimes take it poorly. It also requires willpower as trying to fight against the very logic of collective action is quite a challenge.

However, the work is essential to our future prosperity and the defence of the basic freedom of ordinary people to spend a good portion of their money as they see fit. The TaxPayers’ Alliance needs to be eternally vigilant if economic liberty is to survive.