A Modest Proposal

Swift’s famous essay (A Modest Proposal, published in 1729) is, of course, entirely satirical. Its humour merely makes it an even more devastating indictment of a capitalism deracinated from any morality.

We now live in a world where Swift’s capitalism is the norm, now economically transformed through a pandemic. Perhaps it is time for another ‘modest proposal’.

On March 11 the Chancellor delivered his budget. It envisaged 1.1% economic growth this year and allowed £30 billion towards coronavirus. At the time no one seemed to think this unreasonable. It is now just over one month on and the latest economic predictions from the OBR are for a 35% economic decline in the second quarter. Yet the information on the threat of coronavirus, the speed of its spread and the measures necessary to stop it were as known then as they are now. Although it was ‘known’ it wasn’t ‘accepted’.

I thus take all of these forecasts and predictions with a very large pinch of salt. In my own business and those of my colleagues I see far more lasting damage and the necessity of a far longer recovery. It is a dangerous delusion to assume the world will be the same again, nor should we want it to be.

So what can we economically do? The UK budget deficit is already predicted to substantially exceed that of the worst year of the 2008 recession. Our debt levels will balloon well beyond the magical 100% of GDP figure. And we will have all the further unwelcome distortions of quantitative easing, the crowding of credit markets with the governments insatiable demand for money along with all the other consequences of emergency action.

So what is to be done? The British economy in 2018 had a GDP of roughly £2.3 trillion so the scale of this crisis goes way beyond the simple use of tax and spend to both hold the line and rectify the damage. It challenges to other routes such as monetary easing.

However in 2018 the net asset value of and within Britain was thought to be some £10.4 trillion. Is it not now time for a Wealth Tax? Let us set that tax at 15% and allow suitable exemptions. Furthermore let us set it as a charge against an estate (setting very tight anti-avoidance rules). This then represents a future realistic gain for the government against which it can legitimately borrow. Furthermore it has the advantage of entailing no immediate issues for individuals (since it crystallises on death).

Then let the money and borrowing for this be set against a separate fund – let us call it the ‘Investment and Emergency fund’. There is thus no impact on day to day spend and borrowing as the fund takes the strain in crises. Allowing for exemptions this fund might then be able to access £1.5 trillion in capital – a titanic sum and a highly redistributive one as the take is a flat percentage on wealth, money to meet our current emergency, money to kick start an economic recovery by giving all those below a certain income a cash sum at the end of this crisis to restart consumer spending, and above all money to pour into a Green revolution in our country – the desperately needed rebalancing investment spend to create a sustainable society with the added advantage of making Britain a leader in green technology.

Marianne Mazzucatto’s ‘The Entrepreneurial State’ made a powerful case for the state as prime mover in much that we take for granted today – by setting and financing a strategic direction of travel for an economy.

Let us embrace ‘The Entrepreneurial State’ and turn our current crisis into a lesson and an opportunity. So let the Liberal Democrats consider  ‘A Modest Proposal’ as a path to a destination we will want to see for our times and for our future.

 

* Hugh Andrew is Managing Director of Birlinn Ltd, one of Scotland's largest publishers. He served as Convenor of the Scottish Policy Committee.

Read more by or more about .
This entry was posted in Op-eds.
Advert

17 Comments

  • Steve Trevethan 18th Apr '20 - 1:12pm

    Thank you for an interesting and timely article!
    Reference is made to ballooning debt levels. To whom do we owe the debts?

  • Jenny Barnes 18th Apr '20 - 4:21pm

    The Uk state treasury owes the UK state Bank of England. It’s meaningless. Look behind the little bits of notional value floating round computers to what the real economy can produce.

  • Steve Trevethan 18th Apr '20 - 5:09pm

    Thanks to Jenny Barnes!
    If, as seems to be the case, we owe money to ourselves, why are we so bothered about our self paying debt and use it as a premise for most, if not all, our financial-economic policies?

  • Toby Keynes 18th Apr '20 - 8:22pm

    Hugh,

    Firstly, saying that we live in a world where capitalism is deracinated from any morality is about as useful and fair as saying that all politicians are ignorant populists. Some of our captains of industry and of capital are utterly unprincipled; but then, so are some politicians.
    This sort of absurd generalisation is useful for satirical purposes, or if one intends to depict a portion of the population as enemies of the people worthy of collective punishment.
    It’s not helpful if one intends to put forward credible and fair proposals.

    Secondly, what you’re proposing appears to a 15% inheritance tax.
    We already have an inheritance tax, and it’s set at 40%.

    Finally, it would be well worth considering a straightforward annual wealth tax, with suitable allowances, set at a low level but raising significant revenue over the long term because it is charged every year rather than once, to replace the utter mess of transaction and capital gains taxes that we have today.

  • Richard Underhill 19th Apr '20 - 8:32am

    “Satire died when Henry Kissinger was awarded the Nobel Peace Prize.”

  • Richard Underhill. 19th Apr '20 - 8:42am

    Joseph Bourke 18th Apr ’20 – 1:06pm
    “Tax land, they are not making it anymore”
    except in Hawaii, new islands arise from volcanic action.
    A definition of land could include the upper floors of tall buildings, oil rigs in the sea, etc.

  • Richard Underhill. 19th Apr '20 - 8:53am

    Joseph Bourke 18th Apr ’20 – 1:06pm
    From the end of WW2 until Tony Blair starting repaying debts incurred after the Napoleonic wars, to the surprise of George Bush junior. Windfalls included north Sea oil and gas, and third generation mobile ‘phones. Neither are repeatable.
    Imagine that we elect a PM who is interested in the Roman Empire.

  • Richard Underhill. 19th Apr '20 - 12:22pm

    Joseph Bourke 19th Apr ’20 – 11:54am
    Many proponents of land value tax assert that buildings are land.
    How does a local valuer do his/her job? He/she estimates the potential value of what can be built and the rental value or the potential sale value and might (if only!) reduce the value because of the destruction of quality of the topsoil expected to be done by builders who turn farmland into motorways or car parks.

  • Hugh Andrew 19th Apr '20 - 2:43pm

    Thank you all for your comments. To respond:
    1. I only have 500 words so all that can be laid out is a broad brush proposal.
    2. With regard to satire, good satire is very serious. Swift was making a powerful economic critique. I too am very serious.
    3. Of course there are good capitalists and bad. I fully accept that – remember I only have 500 words – but an economic system which valorises acquisition and consumption above all else has some fairly basic problems.
    4. Inheritance Tax: As currently constructed it has so many loopholes and exemptions that its yield is a fraction of that which it should be. Reform was outside the ambit of what I was attempting to say (although I fully agree).
    5. We can indeed borrow or print money to finance the crisis. That is what we are doing but this has real time consequences in the economy. QE for instance inflates as we know asset values to the benefit of the rich. Printing money finances inflation. My proposal (based on a tax on assets held at death) does not affect the real time economy or borrowing but is intended to create a separate fund against which borrowing can be raised. This is its key difference from a wealth tax operating annually within the existing economy (whose merits or otherwise are not the subject of this article).
    6. Nor is it intended to replace other forms of taxation. I fully support LVT for instance. My intention was to propose a mechanism by which the emergency funding necessary for this crisis and its exit can be supplied WITHOUT impacting on the economy currently. One might wish to call such a fund a Sovereign Wealth Fund since it is the overall asset value of Britain that is funding it but that’s another matter.

    But above all it was intended to try and produce and provoke a scale of thinking and debate about what we want and what can be done as this crisis eases. Crisis not confronted can be an opportunity missed.

  • Toby Keynes 19th Apr '20 - 7:23pm

    Hugh: “With regard to satire, good satire is very serious. Swift was making a powerful economic critique. I too am very serious.”
    Well, yes, Swift was making his satirical point by proposing that society solves the problems of poverty and unsustainable population growth by eating all the surplus babies of the poor.
    Who are you satirically proposing that we eat?

    “….an economic system which valorises acquisition and consumption above all else has some fairly basic problems.”
    That’s a pretty sweeping statement!
    I guess you’re talking about capitalism.
    The fact is that capitalism works – not very well, and not very fairly, which is why it absolutely needs to be regulated and constrained, but it works an awful lot better than any of the alternatives.
    It can work with progressive and moderate taxation, which we have in this country.
    It can also work with sustainability and responsible corporate governance, both mandated by law and self-imposed by socially conscious managers and investors – also something that we have in this country.

    We should certainly look at ways in which the current system could be improved, but I don’t see how a penal one-off tax on weath, that is deferred until after those who are subject to it have died, is going to lessen their “acquisition and consumption” tendencies. After all, “you can’t take it with you” – and if you can’t even leave it to your loved ones that’s another motive to consume what you can while you still can.

    As for not trying to sort out the many problems with Inheritance Tax: well, I suspectg taht throwing in a large one-off supplementary inheritance tax based on peoples’ weath NOW, rather than perhaps in many decades’ time when they die, would make a thoroughly messy tax somewhat messier.

    One technical hitch to consider: if you determine a 15% tax today, to be charged when somebody dies, if someone is worth £2 million today (say, £300,000 of lovely deferred tax liability), but blows it all and dies penniless, how do we go about collecting the money from their (worthless) estate?

    Having said all that:

    Thank you! I do agree that it’s worth trying out ideas, and engaging with this one has been stimulating and thought-provoking.

  • Hugh: I do broadly agree with your points. How would you treat assets held offshore in trusts. The owner never dies. Are they to be exempt? Why should taxes on companies be ignored. At present if a business makes, for example PPE for the NHS in the UK it pays corporation tax. And yet Starbucks and Amazon pay no corporation tax on their profits by the use of transfer pricing and tax havens. Would equal treatment not be a good potential source of revenue?

  • Peter Martin 21st Apr '20 - 5:40am

    @ Hugh Andres

  • Peter Martin 21st Apr '20 - 5:56am

    @ Hugh Andrew,

    ” QE for instance inflates as we know asset values to the benefit of the rich.”

    QE is essentially an asset swap of Govt Debt that doesn’t pay interest (cash) for Govt Debt that usually pays a small amount of interest (bonds, gilts). The end result is that interest rates in the economy fall. This is why asset become more affordable and so the price rises. But now that interest rates are ultra low, further QE won’t make any difference. It has become economically neutral.

    “My proposal (based on a tax on assets held at death) does not affect the real time economy or borrowing but is intended to create a separate fund against which borrowing can be raised”

    Anything which affects spending levels (it doesn’t matter if the spending is public or private) does affect the “real time economy”. So having the “separate fund” really doesn’t make any difference.

    “Printing money finances inflation.”

    All modern money is either printed or created in a computer. Including the euro and they don’t have enough inflation! They can’t meet their target!

Post a Comment

Lib Dem Voice welcomes comments from everyone but we ask you to be polite, to be on topic and to be who you say you are. You can read our comments policy in full here. Please respect it and all readers of the site.

To have your photo next to your comment please signup your email address with Gravatar.

Your email is never published. Required fields are marked *

*
*
Please complete the name of this site, Liberal Democrat ...?

Advert



Recent Comments

  • William Francis
    @Brad Burrows (2/2) Lasting and just peace can only be achieved on terms that favor the sovereignty and liberty of Ukrainians and a rejection of Putin's e...
  • William Francis
    @Brad Barrows (1/2) Desmond Tutu's adage that “If you are neutral in situations of injustice, you have chosen the side of the oppressor" is especially true ...
  • TonyH
    Christine - excellent article, but..... Can we /PLEASE/ stop calling him Boris? Every time I see one of our MPs doing this I really wince. This is not a trivial...
  • TonyH
    What Mick Taylor said....
  • Mick Taylor
    Sorry John. Parties standing down just denies voters choice. We really must stop talking about any kind of pre-election deals or candidates standing down. There...