Why Taxation Matters to Social Policy

This blog is based on an article in Social Policy and Society.  Click here to access the article.

As the coronavirus pandemic shines a spotlight on the grim consequences of social, economic and other inequalities, and governments contemplate new tax and spending policies and a possible extension of austerity, social policy needs to give up its historic neglect of taxation and its impact on the distribution of resources.

Social policy has never really incorporated taxation into its mainstream activity. The visibility of taxation in our social policy conferences and journals is low and, in text books, is often seen not in terms of its role in social policy but principally as a means of paying for public services. Admittedly there have been exceptions with individuals, including Richard Titmuss, who have pointed to the contribution of taxation to welfare. Generally though, their contributions have not diffused throughout the body of scholarship.

Understanding this is a matter for conjecture. Clearly if social policy scholarship tends to marginalise taxation, it is less likely to feature very much in undergraduate degree teaching. And if social policy scholars have limited interest in fiscal policy, there are unlikely to be many social policy PhD students graduating with specialist expertise in taxation.

But taxation matters to social policy and there are plenty of benefits in building up our collective knowledge and expertise in it and I, Micheal Collins and Adrian Sinfield argue, in our recent article leading a themed section dedicated to taxation and social policy, that it can no longer be relegated to the side-lines in social policy scholarship.

Much social policy endeavour has been about identifying and addressing need and proposing and evaluating policies which allocate resources in response to that need. Yet the functioning of the tax system in its allocation of resources to households even before decisions about public expenditure are executed has largely been absent from our conceptualisation and understanding of resource distribution. So one of the key reasons for incorporating taxation into mainstream social policy is the recognition that all of the mechanisms for distributing and redistributing resources and changing or modifying behaviour must be understood.

For instance, it is often overlooked that in the UK at least, the operation of the tax system in the redistributive process widens inequalities rather than narrowing them. Social policy can shape public understanding by challenging this effect of the tax system, exposing the way for example reliefs enhance the means of the better off and revealing the scale of fiscal transfers to corporations.

Because of social policy’s core concerns, the development of a social policy discourse around taxation can foreground fairness and equity, need, inequality and redistribution. This stands in contrast to a dominant business, finance and economics construction which privileges notions such as ‘tax efficiency’ and ‘tax planning’: which often refer to minimising tax liability even though that can be socially inefficient. The conception of tax as a burden or business ‘cost’ can be challenged by fostering the counterview that tax can represent a positive accomplishment, contributing to the public good and enabling relationships of solidarity to be given practical expression. Moreover, a critical social policy is well placed to investigate the relationship of taxation to exclusion, the techniques of legitimation and redistribution, security and citizenship in ways which are rarely undertaken in the taxation literature within finance or accounting.

As more social policy scholars acquire knowledge of taxation, the nature of what counts as ‘tax expertise’ will broaden and relationships between social policy scholars and civil servants in taxation can evolve. The problem identified by Morel of tax policy discussions across Europe taking place in institutional arenas where social policy experts tend to be absent will diminish over time.

Recent decades have seen a notable shift, expanding the use of the tax system to achieve government social policy objectives. A greater reliance on ‘social tax expenditure’ – understood as a deviation in the normal operation of the tax system to achieve a social policy purpose – has developed, for example through tax reliefs and tax exemptions, whereby no (or reduced) tax is paid on certain categories of income and wealth or certain categories of expenditure. While capital gains tax exemption on gains from the sale of one’s main home is a long-standing example of this, tax expenditures have been expanded more recently especially in the field of labour force activation whereby more groups in the population are incentivised to take up paid work through the use of tax credits.

The analysis of social tax expenditures and fiscal welfare allows us to revisit the question of who benefits from social policies and the operation of the welfare state since they tend to benefit different groups of people when compared with ‘traditional’ public expenditure funded social policies. Pension relief is a good example of the ways in which reliefs and allowances tend to benefit the better off and represent an allocation of resources to people higher up the income and wealth scale. What this kind of social policy analysis can do is to reveal that ‘everyone is on welfare’. This has the potential to reshape the politics of the welfare state, since if people are aware of the financial and other benefits they derive from the state, they are more likely to feel they are stakeholders in it and be more likely to lend political support to it.

Closer involvement by social policy academics and practitioners with how fiscal policies operate and what their effects are can lead to greater pressure to make existing data public, expand the range of data being collected, raise all too neglected policy questions and promote more effective interventions.


About the author

Sally Ruane is Reader in Social Policy at De Montfort University with research interest in health policy and the social policy aspects of taxation. Recent publications include J Evans, S Ruane and H Southall (eds) Data in Society: Challenging Statistics in an Age of Globalisation (Policy Press, 2019) and D Byrne and S Ruane Paying for the Welfare State in the 21st Century: Tax and Spending in Post-Industrial Societies (Policy Press, 2017). She tweets at @SallyRuane.

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