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.
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17 Comments
Hugh Andrew,
your article represent the kind of radical rethinking that a public health and economic crisis of the proportion dictates. The Governor of the Bank of England shares your concern about lasting damage and the necessity of a far longer recovery https://www.ft.com/content/9f7098d4-7044-4039-a452-433ae546faca
There are a number of pragmatic steps that can be taken on a evolutionary rather that revolutionary basis.
The first relates to the funding of local government with a land value tax as argued by the New Economics Foundation https://neweconomics.org/2019/11/funding-local-government-with-a-land-value-tax. As they conclude “…swapping business rates for a land value tax not only brings the economic efficiency improvements of taxing wealth from simply owning an asset over productive investment, but also has the potential to raise revenue for councils and plug the local authority funding gap.”
The second relates to the provision of a minimum income guarantee based on a land value tax https://www.progress.org/articles/why-land-value-tax-and-universal-basic-income-need-each-other, as a means of “reducing poverty, increasing the welfare of the lowest paid, boosting the incomes of workers, improving labour market flexibility, coping with a more fluid economy, reducing bureaucracy, improving equality, rewarding carers, assisting adult education and re-training and supporting those people who cannot take full advantage of the economic opportunities that the modern economy offers” The article explains why LVT and a Universal basic income/minimum income guarantee are self-supporting;
– One raises the revenue, one distributes it once collected.
– One makes demands on land/home owners, the other provides support.
– UBI improves incomes of ordinary people, LVT makes sure it isn’t swallowed up by landowners and other rent-seekers.
– Each requires the other to be fiscally, socially and politically sustainable
Thank you for an interesting and timely article!
Reference is made to ballooning debt levels. To whom do we owe the debts?
Is this article supposed to be satire?
If it is, it is lost on me. The phrases ” (since it crystallises on death) and “titanic sum” suggest some attempt at black humour, but to be effective a modern ‘modest proposal’ needs to be written with measured, incremental hyperbole, which this does not have.
Satire is a problem today. Trump his supporters, very many Brexiters and the so called ‘alternative’ right emit so much far-fetched and derisory bilge that there hardly seems any space for forensic satire.
Whilst I am in favour of greater taxation of wealth, I think your article’s approach to the national debt is somewhat flawed.
QE if anything has state access to credit really cheap (bond yields since 2010 have been at or below inflation) https://www.ft.com/content/09ff448a-b767-11e9-8a88-aa6628ac896c
Furthermore, fiscal crowding out is not especially problematic given the nature of the pandemic (with the lockdown reducing consumer spending and making business investment less viable in the short and medium-term) plus the general uncertainty over when things will return to “normal”, will reduce the private sectors demand credit and that’s before we consider Brexit!
Nor is the having a debt to-GDP ratio of 100% a hard limit on borrowing. Japan is a good example of this, and they aren’t particularly reliant on foreign creditors.
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.
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?
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.
“Satire died when Henry Kissinger was awarded the Nobel Peace Prize.”
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.
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,
“except in Hawaii, new islands arise from volcanic action.” And older seamounts are submerged under the sea as new islands arise in the Hawaiian Emperor seamount chain.
Buildings are not land. Putting a loft extension on your house or a hut at the top of Ben Nevis does not create any more land.
The electro-magnetic spectrum is a natural resource (not man-made) and therefore falls within the definition of land and natural resources subject to Land Value Tax. The tax is normally collected in the form of a spectrum auction; whereby a government sells the rights to transmit signals over specific bands of the electromagnetic spectrum for a specified period of time as a means of assigning scarce spectrum resources. Additionally, annual license fees are payable and regulated by Ofcom https://www.ofcom.org.uk/about-ofcom/latest/media/media-releases/2015/annual-licence-fees-mobile-spectrum
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.
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.
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?
@ Hugh Andres
@ 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!