There are two main ways in which governments can try to influence social behaviour: they can make things illegal, and they can use taxation to encourage a market solution. The French have used family allowances to try to boost the population since the First World War; Canada has cut teenage smoking by 61 per cent in the past 10 years by more than doubling the real price of cigarettes; we have used tax allowances to boost owner-occupation since the Second World War.
But it is curious that the rediscovery of the power of the market during the Eighties has not resulted in a greater use of it, particularly as the other method of influencing people, passing laws, seems less and less effective. A minority will always flout laws, but just about everyone is affected by the market. There are at least three areas where the tax weapon can and will be used increasingly to influence behaviour. The first two aim to discourage people from behaving antisocially - where the law is not working or where the state wants to discourage something but does not feel it appropriate to make it illegal. The third aims to encourage people positively into more social behaviour.
There are plenty of instances where laws are sufficiently widely disregarded as to be ineffective. The most obvious relate to soft drugs, where excess profits are siphoned off to Swiss bank accounts rather than accrued by the state in the form of taxation. The country may not yet be ready to curb drug abuse through the market rather than by law, but there are other, less contentious examples.
About 10 per cent of cars are uninsured, with some people apparently choosing to pay a fine if they are caught because this can be cheaper than paying car insurance. One solution, suggested in the United States, would be to provide centralised third party insurance through a levy on petrol. People could still pay for additional cover, but it would become impossible to drive without being covered by the minimum insurance.
Particularly in environmental control, financial sticks and carrots are more likely to be effective than regulation. You encourage better home insulation not by making it illegal to build homes below a certain standard, but by offering tax incentives for houses that are better built; you encourage car manufacturers to improve on the present standards for emissions by offering tax incentives on new cars that beat them by a certain margin.
Some items or activities in the second group - things that society frowns on but does not feel should be illegal - are already discouraged by taxation: betting, smoking and alcohol. The existing targets could be attacked more vigorously: if we want to discourage lager louts we should increase the tax on lager. But the range of targets could be extended. If the Government were serious about improving the national diet it could consider a tax on fatty foods; we already pay VAT on chocolate digestives (which count as confectionery) and not on the regular sort.
We could use differential VAT rates to charge more for pornographic magazines than for learned journals, more for violent films than for family entertainment. The body count in some of Shakespeare's plays could mean that he hit the top VAT rate - it could be done, though, if society thought it important.
But it is the positive use of the tax mechanism that will always attract most attention. If we want to encourage adult education and training, why not allow such costs against personal taxation? If we believe that families which stick together are more likely to bring up healthy, balanced children, there should be tax incentives in favour of cohabitation. If we want to rebuild marriage as an institution, maybe the tax net should be still further biased towards it. If we want to encourage preventive health care, then introduce allowances for annual check-ups.
The biggest area ripe for reform is surely taxation of savings. If individuals are to take more responsibility for themselves and rely less on the state, they must be encouraged to save on an advantageous basis. At present people can put aside money for a pension before tax, but they cannot put money aside for a period of unemployment on the same terms. If we want people to have a larger cushion of savings for hard times, the tax mechanism is the obvious way to encourage this.
The great advantage of using the tax mechanism to encourage social behaviour is that it is not as bossy as regulation. It would be unacceptable to try to reinforce 'family values' by legislating to make divorce very much more difficult. But it would be possible to change the tax system to make staying together financially more attractive. If the pendulum in Western industrial societies is swinging away from individualism and towards greater social control, far better that the state uses the tax system to tilt the playing field rather than imposing the harsh (but pretty ineffective) hand of the law.Reuse content