Ian Bell on fairness in finance

Are you rich? Me neither. Enjoy paying tax? Silly question. But do you believe in the idea, the principle if you like, of taxation? The answer to that can tell you a lot about a person. Sometimes it will explain more than mere attitudes to money. The nature of society, relationships between individuals, the differences between the world we have and the world we want: each is liable to get a mention.

Governments, as you may have noticed, are never wholly honest about tax. All need it, and some truly want it from you. Even the politician who claims to be rolling back the state and honouring those famous wealth creators can have a hankering for a few submarines, grandiose infrastructure projects, or a nice big dome by the Thames.

The idea that some in politics are more scrupulous than others is also distant from the truth. In Britain, for example, there has never been a hugely significant difference between the tax take exacted by the Tories and the percentage of national wealth demanded by Labour. Even Thatcher had only begun to earn her reputation as a tax-cutter towards the end of her miserable tenure. Blair and Brown pushed the figures up a bit, it is true, but that was done for what the latter calls "investment". Pips have not been caused to squeak, not often, under New Labour.

We voters can be hypocritical, of course: we like minimal taxes but we are also keen on a national health service. It is not our job to explain how the contradiction can be resolved. We expect governments to "get things done", to defend us, to provide, even when they are staffed - we know this for a fact - by spendthrift wastrels who shouldn't be let loose on a market stall, far less a country. But we, like governments, face a further intellectual difficulty.

Some taxes are preposterous, or have become so over the years. One thinks, as a lot of people have done lately, of stamp duty. It is a transaction tax. Why, exactly?

Next on my own list comes national insurance, taxation that no longer has anything to do, directly, with insuring anyone. If it feels like nothing more than another version of income tax, there might be a good reason. It is a device for transferring wealth. Is it fair? And what is wealth, in any case?

Simple questions both, and never yet resolved. Is an old person with a small fixed income and a big house wealthy? Is it fair to tax the interest such a person earns on savings? If they worked long years to put that money away they will have already paid income tax. Yet what if the hard-earned nest-egg ran into a million or two: would society be due nothing? Lovely people who run hedge funds and the like have been known to take that view.

The real conundrum arises when you attempt to identify the difference between wealth in the form of cash and wealth as other assets. In the latter case that generally means property. The Scottish parliament is presently entertaining itself with arguments over the distinction. The SNP is after a local income tax with a rate set nationally. The Liberal Democrats want such a tax, but to have it set by Scotland's local authorities, all 32 of them.

The Greens want a land valuation tax. Labour appears perilously close to defending the council tax. The Tories will defend it too, but only if it is cut. Try sorting that lot out when the government cannot command a parliamentary majority.

Or try, instead, to weigh the arguments over fairness and wealth. It is difficult to oppose a local income tax on grounds of equity - the practicalities are another matter - and difficult indeed to defend the council charge. The valuation system is a mess; the tax weighs most heavily on the poor and elderly; and it perpetuates the idea that the notional value of a house explains all that anyone should need to know about a person's wealth, or lack of wealth. In theory, at least, a local income tax is blessedly simple: the more income you have, the more tax you pay.

Then again, aren't some people adept at living extremely well with little in the way - or so it would appear - of income? You might even mistake them for the rich. Some would even tell you that everyone should pay towards society's common resources; that the fruits of their talents and labours should not be confiscated to pamper those in the dependency culture. Yet wasn't that the brainwave that got us the poll tax? I can think of one television journalist who lost a little of his Tory vigour when he discovered that his cleaner, with children over the age of 18, was paying more in "community" charge than the distinguished hack.

We were told, nevertheless, that the virtues of the poll tax were its simplicity and its fairness. For the same reasons some Americans evangelise for a flat-rate tax for everyone, from barmaid to billionaire. Even in the US, where the working class like to call themselves middle-class, the notion has yet to catch on widely. There are those who still insist that it is fair, though, and that it enshrines ideas of wealth and mutual responsibility.

But they all say that, sooner or later. George Bush cut taxes for the very rich. His party continues to insist that this has been good for everyone. Some in New Labour liked to boast that they were "relaxed" about the super-rich. Others of us have never been sure. Yet what do we mean when we rage about those City fat cats? Are they less entitled than J K Rowling, who has amassed huge personal wealth with her pen alone? Or are some individuals simply too rich, full stop?

Perhaps the best you can say is that anyone who attains great wealth has been lucky, and that with luck comes responsibility. A local income tax would not solve all problems. It would create anomalies, as the council tax does. It might raise 85,000 people from poverty, as the SNP claims, but it would probably also hit a young couple with two relatively modest incomes. In principle, nevertheless, it would escape the central charge against the council charge: that tax is unjust.

As such, the Tory belief that the £281 million "subsidy" promised for the local income tax could be better used to cut the council impost is irrelevant. It would provide some with temporary relief, no doubt, but it would not get to the heart of the matter. And it would not help us to understand the meaning of wealth.

There is a general concern, vague but real, over the nature and origins of riches. Just mention City bonuses to anyone who does not receive those windfalls. But there is also an unresolved, underlying argument over what "we" do, as a society, with "our" money. A devotee of the Daily Mail might tell you that social work services are an outrageous waste of money. I would respond that sometimes social workers save lives. Is that unfair to the put-upon Mail reader, or fair to society's victims? How does the dispute stand if that reader happens to have less in the way of income than this bleeding-heart liberal?

The rough answer, what used to be called the progressive answer, is that old bleeding-heart should pay more in taxes than the fan of the Daily Beast. It cannot make sense, equally, to believe that national government should be supported from our incomes, in large part, while local government is denied. If there are practical problems with a local income tax, the answer is to work to solve them. I agree with the SNP and the Liberals in this much: the council tax is wrong. If they can, governments should right wrongs.

Taxation can sound like the driest and dullest topic in the world. Often it is. But sometimes those are the subjects that matter most.