For those studying Economics A-Level at the moment, you will probably not remember the poll tax. This tax introduced by Mrs Thatcher was probably one of the most unpopular taxes ever introduced. It was widely condemned as being unfair and inequitable. The principle of the council tax was that everyone would pay the same. Whether you were wealthy or low paid, you received the same council services so therefore, the argument went, you should pay the same amount. The problem was that if the poll tax was £500, it could be a high % of a low income workers disposable income. Another problem with the poll tax was that the amount could vary widely from one borough to another. Some rich boroughs were able to charge very low poll tax, others charged a very high %.
After a long campaign, including the infamous poll tax riots in London, Mrs Thatcher responded to the criticism by offering a rebate, to reduce the cost of the poll tax. But, she wasn’t willing to compromise on the principle that everyone pay the same amount.
From an economic point of view we can say that the poll tax is a very efficient tax. What we mean is that it doesn’t distort economic behaviour in any way. If you place an income tax on people, it may reduce incentives to work. If you place tax on goods, it will reduce the demand for them. Therefore, the poll tax can be said to be an efficient tax. However, the criteria of a good tax involves various criteria – not just efficiency. These include
- Fair – proportionate to ability to pay
- Enforceable. – The poll tax was so widely disliked that many people refused to pay. The number of non poll tax payers was very high.
- Low Admin costs of collecting.
- Horizontal equity. People in same circumstances should pay the same. In theory the poll tax was horizontally equitable. However, in practise many people avoided paying.
- Easy to understand. The poll tax was easy to understand.
Because Mrs Thatcher refused to compromise on the poll tax, her own party eventually decided to get rid of her. After a challenge to her leadership, Mr Major became prime minister. One of the first things he did was to replace the poll tax with the council tax…