06 August 2008

How Unequal Must Society Be, To Be A Fair Society?

Polly Toynbee has written on this subject 4 times in the last 2 days - here, here, here and here. Some facts to highlight from her articles:-...

'74% of voters in the UK think the gap between rich and poor is too large'.

'The top 10% of income earners get 27.3% of the cake, while the bottom 10% get just 2.6%'.

'Twenty years ago the average chief executive of a FTSE 100 company earned 17 times the average employee's pay; now it is more than 75 times'.

'Tax consultants Grant Thornton estimated that in 2006 at least 32 of the UK's 54 billionaires paid no income tax at all'.

'So the top 10% now owns 54% of personal wealth - and that's only what they declare. Despite the crunch, the total packages of chief executives of the 30 biggest UK companies rose by a staggering 33% in 2007-08'.

'How much, we asked our group, would it take to put someone in the top 10% of earners? They put the figure at £162,000. In fact, in 2007 it was around £39,825, the point at which the top tax band began. Our group found it hard to believe that nine-tenths of the UK's 32m taxpayers earned less than that. As for the poverty threshold, our lawyers and bankers fixed it at £22,000. But that sum was just under median earnings, which meant they regarded ordinary wages as poverty pay'.

'the bottom tenth pays 38% of its earnings in direct and indirect taxation, while the top tenth pays only 34% - and top tax avoiders far less'.

'Social interventions, from SureStart to Aim Higher, do work. They help counter the weight of disadvantage; they add to future productivity; they are worth every penny and more of the public investment behind them. But their authors are strangely silent. They don't make the public case for the taxation on which this spending depends – not necessarily more taxation but fairer taxation, to do away with today's fiscal anomalies and the absurd situation where poorer households pay a higher proportion of their income in tax than the best off'.
So where to start?

When broaching this subject, the Right will talk a lot about merit, incentives and morality. Some will still argue that inequality doesn't matter at all - those few suggesting this have lost the argument for now at least. As now, even the Tories have to pretend to want to reduce inequality to stand a chance of getting the support of the 1 in 5 of the electorate they need for government under our undemocratic electoral system. The Tories may pretend (or maybe even truly desire) to reduce poverty and inequality, but they still prescribe the same old Thatcherite solutions that actually tripled it in the 1980s and early 90s.

Leaving aside whether even a meritocracy would be fair or desirable, for the argument from merit to stand up, the Right have to justify the difference between a chief executive pay and the minimum wage. Does the chief executive really merit wages hundreds of times greater than a retail or hospitality worker slaving 50 or more hours a week on poverty pay?

Would slightly less pay or slightly higher taxes really disincentivise most on over £250,000 a year? There is even an argument that more pay can disincentivise effort in some cases - thousands of middle and upper class 'downsize' every year to have more leisure time. They could only do this because they can afford to. New Labour have accepted the argument that the filthy rich can up and leave the country, and without international effort some will use the lowest tax countries to lower taxes everywhere - this is a downward spiral that leads to zero taxes for the richest. Is that what we want? How many really would leave their comfortable settled lives in England for a mere 10% extra tax? And would we miss them anyway? Most chief executives have been with their companies their whole lives - international head hunting is greatly exagerated.

Finally the morality of the poor has come back into vogue - thanks largely to our gutter right-wing press. So the Victorian concepts of deserving and undeserving poor are to be assessed with Purnell's new welfare state. Cameron can talk openly of fat people, the poor and alcoholics having only themselves to blame. Yet nothing is said of the morality of the idle rich or wealthy tax avoiders or those who try to justify obscene pay. The wealthy always claim to have worked hard to get where they are, but few acknowledge that in fact, most of their wealth has come from asset appreciation, inheritance or initial support from a privileged upbringing.

So, most of us don't buy the Right's arguments of 'trickle down' economics, even the Tories pretend not to like it anymore. The wealthy use their resources to divide and rule a disenchanted masses with daily propaganda in the press. This Labour government that so lets us down, is still our best hope of getting even the simplest progress. Some rightly argue that council tax bands should be widened. Labour shy away for fear of the powerful big home owning pensioners revolt. But few of these people who revolt will vote Labour anyway. The problem for Labour is, if it doesn't start addressing this problem, the masses will either accept the Tory lies or join the apathetic 40% who have already given up. Without exciting this core group with real measures to tackle the massive inequality we face, Labour cannot win. Surely we can do better than the poorest 50% of the population only owning 6% of the wealth. Does anyone think that is a fair place to be?

9 comments:

  1. Is Polly in the top ten percent of earners?

    All those TV and radio appearances must be worth something on top of her £140k Guardian salary

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  2. I welcome income inequality as it shows we are living in a meritocracy.

    Too many people live for today without planning for tomorrow.

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  3. snafu: The poorest 50% only have 6% of the wealth and you think that is all their merit and hard work deserve. Most of the poor work 40+ hours in hard unrewarding jobs.

    As for your comment on Polly. It is best answered by a comment on Cif - 'you don't have to be teetotal to comment on someone drinking to excess' and 'you don't have to be on the minimum wage to comment on undeserved excess pay'.

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  4. Neil, is Polly in the top ten percent of earners? It's a very simple question.

    Those poor people working 40+ hours in hard unrewarding jobs can console themselves that thanks to the welfare state and the taxes they pay, there are many other poor people who have a better standard of living by relying on state benefits.

    I am all in favour of increasing personal tax allowances to £10k for everyone, scrapping tax credits and reducing state spending on quangos, public sector pensions and benefits.

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  5. snafu: I think both of us would like fairer taxes that tax the poor less (in my case I would like to see the shortfall made up by the richest). I am also for simplification of the tax and benefit system (flat taxes and citizen income) and (of course) we would all like less bureaucracy, who wouldn't? In practice both Tory and Labour governments have failed to reduce it by much, but it is still a small percentage of the total. The NHS is far better value than US health insurance for example.

    I find it laughable that some people think those on benefit are living the life of riley on £60 a week, while also thinking £250,000 a year is not enough incentive for the rich to stay here.

    Yes, some on the minimum wage are barely better off than being on benefit, but under the Tories (before tax credit and the minimum wage) people were worse off working. Benefits are barely enough to live on, so it is not that they are too high, it is that wages are too low that is the problem.

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  6. "It is best answered by a comment on Cif - 'you don't have to be teetotal to comment on someone drinking to excess' and 'you don't have to be on the minimum wage to comment on undeserved excess pay'."

    - Does this also apply to David Cameron when he talks about poverty and education!?!

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  7. Snafu: It would do if Cameron was a George Orwell or John Peel - someone who looked outside their narrow upbringing. I think Cameron's speech in Glasgow suggested otherwise.

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  8. To put all this in context, here is a piece that appeared in the FT a year ago, before Brown was acclaimed leader of the Labour party and made PM.

    Mr Brown therefore boosted incomes for a married couple with a family on around £20,000 to the tune of around £500 a year. The Conservatives argue, of course, that the complex set of income tax changes will penalise single people on lower incomes. But Mr Brown’s allies recognise this – indeed they have no problem with it. In their view, this group can bear a little more of the tax burden

    As one ally puts it: “Nobody aspires to be a single person on £12,000. Everyone in this group wants to get married, have kids, get into a higher paid job. And they know from this budget if they make it, the highest brackets are not hit

    So there you have it. According to this government, nobody 'aspires' to a salary of 12K therefore it is perfectly OK to use the tax system to take money from them and give it those paid twice as much. Indeed, the very poorest "can bear a little more of the tax burden". That was the sort of argument used by an old university acquaintance of mine, who was on the right of the Tory party and was denouncing Labour in opposition's plans to introduce a minimum wage. He saw it as taking away the 'incentive' for people to get better jobs. It's good to see that the Labour party has managed to move to the right Tory right wing in just 11 years.

    And they wonder why they are going to lose the next election!

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  9. "And they wonder why they are going to lose the next election!"

    Ironically Labour are going to lose to a bunch of right wing Tories that the people are going to hate even more, once in power. Such is life!

    I completely agree with you, except in your prescription not to vote Labour. Bad as they are, we have no choice.

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