17 June 2006

To reduce inequality we need to tax the rich.

I think the vast majority of people in this country would agree that the 1% of the population who are paid (or pay themselves) over £100,000 a year need to be taxed more. The practicalities of achieving this in a globalised world full of tax havens and tax avoidance schemes (and the UK is one of the biggest players in this tax avoidance/ tax haven market) are where the differences of opinion occur.

As long as we have countries dominated by the right-wing thinking of the US and pursuing 'cheating' social dumping policies, it is going to be very difficult to achieve fair taxation of the very rich.

The Conservative party have always had the super rich onside and have moulded their policies to suit them but now, even the Labour party have pretty much come to an accommodation with the super rich in running this country, maybe they have had to, with the power the super rich have over the economy and media. But if we are to improve the lot of the poorest sections of our society, someone has to pay for it and at the moment the burden is too heavy on the lowest earners. There is more scope to increase tax for the 11% who pay the top rate, but this government has been quite cowardly here as well.

Even the Conservatives now 'say' they agree that inequality needs to be reduced. Of course notional targets like this are easy without outlining how you are going to do it and the Conservatives spin their policies better, but they still see the same Thatcherite policies that widened inequality as the solutions to inequality.

Contrary to how the press try to paint the parties, Labour is the party for the aspirational, the ambitious, the wealth creators, it is certainly not the Conservatives, who are only interested in entrenching privilege - preserving the status quo or worse, taking us back to widening inequality and worsening public services. Labour has done much to improve public services and have now turned the corner in starting to reduce the inequality that was built up during the 18 years of Tory rule.

To those of you who think there is nothing wrong in being the lowest taxed, most unequal country in the EU, I ask why should the UK spend less on healthcare and education than Germany and France? Are you happy that our heightened inequality is proven to lead to more unhappiness, crime and health problems etc and a lower quality of life. This is not the model for an ambitious efficient nation that cares about its people and their quality of life. I look forward to hearing the 'caring conservatives' policies (if they ever admit to any), but if it is anything like the 'compassionate conservatism' of George Bush, (and the omens are not good), then we all need to be aware of exactly what we would be going back to if Cameron does win the next election.


  1. "Labour is the party for the wealth creators"?

    Maybe you could explain how you think increasing taxes will encourage the creation of wealth.

  2. Certainly. It's called opportunity. Under the Tories only those at the top get the opportunities to make it. Labour gives opportunities to more people.

    The more people given this opportunity the more efficient our economy and the more wealth is generated.

    Once you get to the very high salaries, there is no evidence that paying someone 200k a year makes them work harder than paying them 150k a year. In fact it might have a detrimental effect on their output.

  3. here here. not only that, but tax can be engineered so that wealth can still be created, but for the right people. one way would be tax beaks for companies who improve pay, from the top of my head...

    like tax really demotivates people from being rich.... this isn't the 70s...

  4. I'm all for taxing the rich but there is a but. If we increase the top rate on tax then people will find more ways to avoid it and actually less people will pay tax.

  5. If "Labour is the party for the aspirational, the ambitious, the wealth creators", why penalise those ambitious wealth creators earning over £100k?

    If you really want to reduce inequality, why don't you pay more tax than you need to rather than expect other people to pay more?

  6. adele: This argument about avoidance doesn't make sense. They will avoid it anyway if they can and they do. The rich object to tax rises because a lot of the time they CANNOT avoid it otherwise they wouldn't be bothered, would they?

  7. snafu: "why penalise those ambitious wealth creators earning over £100k?"

    Because a lot of these people don't deserve it. It is a distortion of the market. And besides, the marginal extra happiness they may or may not get from this unbelievable wealth causes far greater misery amongst the poor who are exploited to pay them these fantastic salaries. There is a moral issue to this.

  8. Isn't it better to have tax at 40% and eeryone paying it than have it higher and have everyone avoiding it.

    I know several people that will just about put up with 40% but would start avoiding if tax goes up any more.

  9. Neil, your 'moral' argument might carry greater weight if you were prepared to pay more tax yourself rather than merely call for others to pay more! I can only assume that you feel you already pay enough tax to this government and you 'deserve' to keep the rest of your earnings!

    If the market values these peoples' skills at over £100k per year then that is not a distortion of the market as you imply. I would question whether Polly Toynbee is really worth £140k per year but then she is a true leftie!!

    I always enjoy how the left scream and shout that the poor are 'exploited' whilst working yet complain when jobs are threatened or unemployment is too high.

  10. "To reduce inequality, we need to make the poor work."

  11. If the market values these peoples' skills at over £100k per year then that is not a distortion of the market as you imply.

    I have already tried to explain this to him (and in terms of the football pools too, so I thought there might be a chance he'd understand). Hope springs eternal.

    My advice to you - don't waste your time.

  12. "Once you get to the very high salaries, there is no evidence that paying someone 200k a year makes them work harder than paying them 150k a year."

    I think you have that backwards. You don't pay people more money to try and make them work harder - you pay people more money because they work harder (or smarter).

    My time and effort has value to me - I assume yours has value to you. Let's assume that I work for you for a salary somewhat in excess of 100k per year, and let's also assume that I have the opportunity to make myself significantly more valuable to you, by working harder, improving my skills or whatever. Let's say that the extra effort and time I put in would be worth 100k to you. You will therefore be happy to give me a pay rise of something less than 100k in order to make that effort.

    Now, let's say that you increase my marginal rate of taxation to 60%. Even though my extra work was worth 100k to you, the most you can actually afford to put in my pocket for that work is 40k - the rest goes to Gordon Brown.

    Maybe also I would be prepared to put in the extra work for 50k or 60k (because it will let me buy an earlier retirement, a bigger house or whatever) but for 40k I'd rather go and play golf instead.

    It's not well-paid people that distort the market. Taxes distort the market. In my toy example, work that should have been done (because it was worth 100k to you and 50k to me, so I should have sold you my time) didn't get done, because of taxes.

    Now, obviously you can't set taxes to zero - the Government has to have income - but you can try to collect the necessary tax in a way that causes the minimal distortion.

    Actually, far worse than high marginal tax rates for the rich are the high marginal tax rates that currently exist for the poor. When you add in (as you must) the rate of withdrawl of benefits and tax credits, there's almost no incentive for low-income families to work harder.

  13. Tax the rich. Yes, that's a slogan Robin Hood would have loved.

  14. Of course money is an incentive, but I fundamentally disagree that (above a certain level) it is a significant one.

    Most innovators and wealth creators wouldn't reduce their efforts for a marginal drop in an already vast salary.

    Why are a lot of rich Americans relocating to London? Because maybe, just maybe, they prefer to live in a society with less inequality.

    There are hundreds of reasons and incentives for why people work hard that have little to do with the financial incentive. Once you get past a certain salary level, financial incentives can become very marginal indeed, in fact they can be a DISINCENTIVE to work harder. Inequality is not just morally wrong, it is inefficient in my opinion.