The Autumn Statement did little to depart from Plan A, the economic equivalent of letting blood. Businesses desperately in need of customers can only look on in despair as the disposable incomes of families are reduced by wage stagnation, welfare cuts and hundreds of thousands of public sector workers being sent to the dole queue. The economy is running well below capacity with millions of workers unable to find a job and sites of production standing idle.
Stapled onto Plan A last week was a rather modest programme of investment. It is fiscally neutral, so there is no new money to stimulate the economy, but it involves transfers intended to move finance to where Ministers believe it will promote growth. This includes £1 billion of tax credits taken away from low income families so that petrol duty is kept 3p lower.
The tax credit cuts include the cancellation of an above indexation increase to child tax credit of £110. The cancelled increase had previously been intended by the Treasury to prevent the welfare cuts announced in 2010 increasing the number of children in poverty. The Treasury’s own analysis this week stated that they now expect 100,000 more children in poverty as a result. The Institute for Fiscal Studies presented a grim analysis too, calling the Autumn Statement’s measures “a takeaway from lower-income families with children, and giveaway to the middle and top of the income distribution”. The promise of fairness has been utterly abandoned.
The last government reduced the number of children in poverty by around a million, but we still have one of the worst rates in the EU. The Lib Dem manifesto and coalition agreement both pledged to retain targets to reduce the number of children in poverty, but the IFS say under current policies we should expect 400,000 more children in poverty by the end of the parliament. The tax allowance increase does little good as most low earner families get 85p in every extra pound taken straight back through the housing benefit and council tax benefit tapers. Even Nick Clegg doesn’t seem to want to talk about poverty and is only interested in ‘social mobility’. Poverty as commonly understood – a lack of material resources – no longer seems to concern the Coalition.
Trying to finance economic recovery by taking from the poorest is not just morally abhorrent, it’s an economic disaster too. The poorest families have the highest marginal consumption rates: they spend their meagre incomes immediately in their local shops and services. This is just what the economy needs. It is associated with an economic multiplier of around 1.6, meaning that it for every pound that enters the economy in this way, GDP output increases by £1.60.
The importance of the economic multiplier has been argued by the IMF in several publications on fiscal stimulus. But what we have from the austerity programme is the reverse – benefit cuts that will total £18 billion annually and which constitute a massive fiscal hindrance package. The longest suicide note in history is no longer Labour’s 1983 manifesto, it is the Coalition’s economic policy. At least Michael Foot didn’t drag the nation down with him.
Although the outlook is bleak, another way is possible. We can refinance the economy through asset taxation.
A major survey by the Office for National Statistics reveals that British households have a total of £9 trillion net wealth and assets. The poorest third of the population own just 3% of this wealth, but the top 10% own nearly half of it. If the net wealth and assets of the richest 10% were taxed at just 1%, the government would have an extra £40 billion to invest in the economy. I’m sure we can safely assume that the richest will still get by just fine on 99% of their current wealth.
£40 billion is twice the amount of the 2009 fiscal stimulus. Part of it could be used to cancel welfare cuts, putting demand back into the economy and preventing poverty. But part of it should also be used to finance the new infrastructure and jobs needed for the Great Transition to an environmentally sustainable economy.
Companies sometimes have to draw down assets to finance restructuring and investment and ensure they are fit for the future. The only way out of this crisis for Britain is to draw down a small proportion of the assets of our wealthiest fellow citizens to refinance the economy. Even some Conservatives are now suggesting we look at asset taxation because it supports demand in the economy without having to tax job creation, and it does more to tackle inequality than income taxation. Tim Montogomerie from Conservative Home is now backing the idea of a tax on property wealth for these reasons. Wealth taxes are already being used, as net wealth or property taxes, in some European countries and some US states, so it can be done.
So next time you see one of our MPs, tell them you’ve found £9 trillion down the back of the national sofa. The UK is not broke after all. We don’t need to rob from the poor to refinance the economy, get people back to work and rebuild an environmentally and socially sustainable economy.
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48 Comments
I see. Thirteen years of Labour governments just forgot to tax rich people who vote Conservative. So we can increase the governments tax take by a quarter without the slightest difficulty! And the deficit will go away…
Somehow that argument just does not seem credible to me.
“The longest suicide note in history is no longer Labour’s 1983 manifesto, it is the Coalition’s economic policy.”
Lol!
@ad
“Thirteen years of Labour governments just forgot to tax rich people who vote Conservative.”
No, of course it was not that they just “forgot” to tax rich people. I’m not sure where you got this idea from, but it’s not in my piece above so I’d be grateful if you could keep straw men out of your critique. Labour made a deliberate decision to keep taxation more flat than it had been under Thatcher. They did this because growth was increasing tax receipts fast enough for the investment they wanted and they thought that by keep tax fairly flat it would help their chances of re-election.
“So we can increase the governments tax take by a quarter without the slightest difficulty!”
£40 billion is a lot less than a quarter of the government’s tax take. Official figures show the tax take for this year will be around £580 billion (http://www.hm-treasury.gov.uk/psf_statistics.htm). The £40 billion I propose taking in asset taxation need not necessarily be taken in a single year. For example, you could tax net wealth and assets at 0.25% per annum over 4 years. But it wouldn’t be that easy. You’d need more financial controls in place than we currently have and you’d need to set up deferred payment processes, particularly on property and land tax. You might still only bring in half of what the ONS survey suggests you should, so you might need a higher rate. But asset taxes nevertheless work in other countries, so there is no reason why we cannot do it in the UK.
“And the deficit will go away… Somehow that argument just does not seem credible to me.”
Sorry, but your argument doesn’t seem credible when you get basic facts wrong that you could have discovered in less than a minute with google. If you really thought the UK tax take is only £160 billion then it’s hard for me to take you seriously.
And of course the deficit doesn’t just “go away”. The deficit will be hard to clear whatever, but my argument is:
– the best bet for clearing it is with growth
– for growth to happen we need investment and demand
– for investment and demand we to to refinance the economy
– to refinance the economy we need to look to where wealth actually exists
– according to official figures the wealthiest 10% have so much wealth that with just 1% of it put to the public good we would have a fiscal stimulus twice the size of 2009 and without increasing sovereign debt.
It’s a simple plan really and none of it depends on faith in how the irrational ‘animal spirits’ will react with the supply-side obsessed voodoo economics we get from Osborne.
Good informative post Tim…
I am so pleased to see Liberal democrats starting to speak up and speak out…
Tim Nichols…..If only?…….. So there are still a ‘few’ who believe that the “No Alternative” is as misleading as the “We’re all in this together”…..
Sadly the ‘Danny Alexanders’ are all that the electorate see as the voice of the LibDems….
A good article. Even if you agree that the austerity programme is necessary (and it has hardly put us on the path to economic recovery thus far) its distributional impact has targeted the less well-off much more than the wealthy, whilst councils in deprived northern areas have lost much more in grant, proportionately, than those in the wealthy south-east.
If we are to have cuts, let them be fair cuts.
You need to be more specific about how we can increase taxes on “wealth and assets”. Land Value Taxation has the extra benefits of not harming production, of actually encouraging productive use of land (e.g. occupied housing), of being un-dodgeable, and replacing the awful mess that is council tax (and others).
I do agree that taxes on the very richest need to be increased to increase (or at least not further decrease) demand at the bottom. But one problem is that much pre-recession demand was credit-fuelled. Continuing that model doesn’t seem sensible or even possible. So demand is necessarily going to be lower until we get over our debt binge. Some might say we’ve already ‘spent’ this decade’s growth, in the previous one. That consumption was borrowed from the now present.
I think you’re wrong to say that increases in the personal allowance are then taken back through benefits withdrawn: aren’t those benefits based on pre-tax income? And the coalition’s universal credit will be a big improvement though the marginal rate could still be much improved
“We can’t refinance the economy from the meagre incomes of the poorest, only the wealth of the richest”. They really do print virtually everything they get at LDV. We are not doing the first, and cannot easily do the latter.
They really do print virtually everything they get at LDV. We are not doing the first, and cannot easily do the latter
I would say the opposite is true. It is refreshing to read such rare articles … We are easily doing the first and have no political motivation to do the latter.
Great post, the tax system certainly needs looking at . I would argue that not just the poorest, but the majority of ordinary households are paying the price for this mess. I always felt that the credit boom was evcouraged under the Conservatives and Labour because debt looks like and to a large extent is profit in financial markets, but also to mask the fact actual disposible income has decreased over the last 30 or so years.
Honestly it’s great that there are still lib dems who are think ing clearly.
I have heard Tim make these arguments before and I have yet to hear a well reasoned coherent from any Lib Dem as to why he might be wrong.
Tim, this really is a brilliant article and I agree completely. Have you considered putting this into a motion for spring conference?
@George Tim did precisely that but FCC did not accept it. In fact they stopped a lot of decent motions from being debated in favour of presentations and so forth, but well done for getting your motion in which bucked the trend.
Excellent piece… surprising to read it anywhere ‘political’… sadly the facts don’t seem to stand a chance of being recognised and acted upon within our current governmental system. I am one of those in a tent at Occupy London and was (once upon a few years ago) hopeful that the Liberal Deomocrats might have the right intent; I gave up a while into the coalition when it became obvious that there was no power in the role and the bad that the Conservatives do would always far outweigh any small in-roads the LibDems might make.
I (along with the rest of the occupiers) am now aiming for an alternative system of government – not just a change of party. I do not believe that any party (whetever their intent) can possible achieve for the people within the system. A Spanish Indignado joined a working group that was discussing how politics and economics would look in a true democracy… he summed up well when he said what was needed was “A methodology – not an ideology”. A method of ‘goverment’ where all are heard, concensus paramount and roles are important – not the individuals who take them on.
Occupy London and other Occupy actions across the world, including our new http://www.bankofideas.org.uk/ occupation are actively being the change we want to see and remaining firmly non-heirachial. I long to see the good politicians engage with us… we have a tent sharing scheme (ie: I am at home working for a few days so my tent is given to others in my absence) run by our ‘shelter’ group who ensure visitors are made welcome and accommodation, food and information are provided to any.
This is an open invitation 🙂
Thanks so much for this article it almost restores my faith in our party.
Child poverty isn’t as important an issue to tackle as social mobility. A child hood with toys from charity shops but good life chances is better than a childhood with toys from Argos and no prospects. Social mobility is the long term solution to child poverty as it’s the only way to break cycle of poverty.
@Tina Louise
I’ll admit Direct Democracy looks wonderful, but I think your support for it will wane before long. After all, you leave it alone for five minutes only to find its gone and poisoned Socrates or declared war on Sparta, or something equally stupid.
We need representative systems operating under the rule of law, alias a Republic (system of government by democratic mandate, nothing to do with Lizzie Battenberg being the figurehead or not), to protect the individual from the tyranny of populism and majority, and to provide us with a discourse that can, occasionally, transcend the level of popularity contest.
@Everyone Else
Asset taxation at 1% for the top 10% of asset owners is too high. The rate is too high, and the threshold is too high. Less should be taken from more. The low end of the top 20% of asset-owners, for example, are still very well off people. And the problem of capital flight must be considered.
I do back asset tax though, as a replacement for other taxation with a greater tendency towards driving capital flight. Income taxation should come down, with the take there being replaced with this asset tax. It should also be progressive, not a flat rate. Otherwise it falls unfairly on the low end of the top slice.
This should then be combined with other ways to tax wealth that don’t impair growth. As has been mentioned earlier, Land Value Tax. This doesn’t discourage any form of economic activity as it doesn’t depend on it. In fact, the case is more that LVT encourages economic activity because it is still charged whether you use your asset or not.
Assets in and of themselves are not bad things, its when they lie dormant for too long that the problems set in. So taxing net wealth before income is good. Land is also a key example, with so much of it being held by hedge funds and corporations, often for the simple purpose of preventing a rival corporation from getting hold of it. Supermarkets, for example. Again, I’m not going to be moralistic and denounce it, but I also don’t see why they should derive such benefit for no cost. Especially since they’re preventing that asset from being put to useful means.
“It’s not the snow, the royal wedding or the eurozone crisis, it’s the lack of demand. We are probably already in recession now thanks to the major deflationary shock unleashed on the economy by the Coalition’s austerity cuts. ”
You are just wrong. Public spending has risen steadily in nominal terms and has held roughly flat in real terms. In other words government demand is exactly the same now as it was a year ago. There has been no deflationary shock.
Taxing assets sounds great. However, for example, thanks to my late parents leaving us enough to pay off our mortgage, my wife and I own a house valued at £305,000, a two-bedroomed terrace in the South-East of England. However, we are low paid. Between us we only have a net income of £1,200 per month and we can only just keep our heads above water, and we have virtually no money savings. Under your suggestion we would be taxed on the value of our assets. How could we pay this increased taxation with no liquidity in the value of our house. The same would be true of some of the big old houses owned by aristocrats – many of them are in cash poverty, while on paper they are worth a mint. To make the system workable there would have to be so many exceptions that loopholes would abound, and the policy wouldn’t raise the money you talk about without grotesque unfairnesses.
Well said Tim – on the right track!
However, critical to your proposal is that any “asset tax”…
1. only applies to land – not buildings – otherwise you penalise construction and improvements.
2. replaces taxes on productivity – by progressively raising income tax/NI thresholds and lowering VAT.
3. is a national tax – subject to precept by local authorities in lieu of council tax and localised business rates.
LVT is, of course, official Lib Dem policy “in the longer term” – though most party members, including our MPs, still appear to have no appreciation of this fact, or the immediate benefits to sustainable economic growth and that would result.
Given the parlous state of the economy, you have to wonder what the hell we’re waiting for.
LVT. So obvious, it’s not worth debating.
“we still have the real hit from the eurozone slowdown on its way next year…”
After France and Germany reach agreement the form of fiscal union that will save the Euro in the next few weeks it will be a surprise if Europe doesn’t rebound strongly. The UK’s trade will benefit, of course, but much less than if we were inside, and the chatterers who wish to use punitive taxation as a tool to drive social policy will be silenced.
Destroying wealth might create stability and provide opportunity for growth, but it does so by lowering living standards across the board, which hits the most vulnerable hardest.
We do not need more demand stimulus, we need to reduce the excessive drag caused by a lack of confidence in pricing mechanisms.
“Destroying wealth might create stability and provide opportunity for growth, but it does so by lowering living standards across the board, which hits the most vulnerable hardest.”
An efficient taxation regime distributes wealth to those that create it (workers, businesses) and away from those that appropriate it (City, landowners, corporations). Over the last decade we have seen a massive amount of wealth flow to the underserving rich from those that create wealth – if it had flowed to the deserving a rich I wouldn’t have a problem with it.
Thought-provoking article Tim, but you are not giving the Clegg and Alexander the same level of credit that you are asking your critical commenters to give your articlet. Let’s look at two critical points in your article. Taxing the rich and tackling child poverty.
Taxing the rich. Your big idea is to go after the assets, and it has a lot to be said for it. But the politics are poisonous. We put forward the idea of a mansion tax at the last election. Our opponents were delighted! It probably lost us Richmond Park. At a recent London Mayoral candidate hustings our candidates were queuing up to distance themselves from this clearly toxic policy. The trouble is that too many voters treasure high property values if not for their own properties, then their parents. Remember what happened to Gordon Brown over the politically and economically similar case of Inheritance Tax in 2008? So property taxes may be a good idea, but it will be a long time before they can raise the sorts of sums that will make a difference. Meantime, how else do we tax the rich? Well here are the obvious ideas: hold the top income tax rate at 50%; raise capital gains tax rate; go after the tax exemptions for big pensions; block the Tory plans to reduce Inheritance Tax; ratchet up the pressure on tax avoidance. Hmmm….
Child poverty. Clegg has always said the Labour policy of tackling child poverty by nudging the marginal cases over an arbitrary line and then saying you’ve solved the problem is nonsense. Therefore he passionately argues that mobility is the issue. And above all that means tackling education and early years care. In government he has been pretty constant and passionate in his pursuit of this – notwithstanding being undermined by Tory and Labour councils. I don’t think this is a dishonest line of argument.
And as for lack of demand in the economy, surely the big picture shows that this is not lack of consumption, since our savings ratio is by no means off mark – it is lack of investment. And the budget statement was a strong step in this direction, even if we should probably be doing more straight government funding of projects, rather than trying to recreate PFI.
My problem is that I don’t think top down incentives deliver. If this idea of “wealth creators” trickling money down to Joe Bloggs works so well, why are we asking joe Bloggs to accept working longer for less, whilst paying more for basics? Deep down I’m not convinced that an awful lot of the mega rich are doing much more with the bailouts than standing next to a fuel tank with a hosepipe and a truck parked round the corner.
Another point on which I’m pretty sure you’re fundamentally confused.
“If the net wealth and assets of the richest 10% were taxed at just 1%, the government would have an extra £40 billion to invest in the economy. I’m sure we can safely assume that the richest will still get by just fine on 99% of their current wealth.”
What do you think the rich do with their money? do you think they just put it under their matresses or bury it in their gardens? Most of rich people’s assets are already invested in some way. Either that or they are illiquid assets like owning a house.
There are worthwhile ways of increasing taxation of wealth, land property and consumption and taking it off earnings and investment but they require a lot more thought and careful consideration than this crude stuff. Please try again.
If you’re talking about confiscating a one off £40 billion worth of rich people’s assets for the state to invest then you’ll just reduce private investment to increase public investment. Obviously not all that £40 billion would have been invested but most would have, so the net increase in investment will be only a few billion.
When you add in all the difficulty of levying a one-off asset tax on several million people, the disruption of forcing people to sell or disrupt current assets and investments to pay the tax bill, and the future disincentive of knowing that the government might at any point levy arbitrary, deeply inconvenient taxes on people then there really would be ZERO actual economic benefit of levying such a tax.
the income tax rate for the top I% of the population in the the US from the late 40s to 1980 was70.1%. They did not strave to death, they in fact remained very wealthy. No one is suggesting hiking up tax to those levels.
No, of course it was not that they just “forgot” to tax rich people. I’m not sure where you got this idea from, but it’s not in my piece above so I’d be grateful if you could keep straw men out of your critique. Labour made a deliberate decision to keep taxation more flat than it had been under Thatcher. They did this because growth was increasing tax receipts fast enough for the investment they wanted and they thought that by keep tax fairly flat it would help their chances of re-election.
If the phrase “the rich” has any meaning, it describes a small group of voters who mostly vote Tory. There is no reason why a Labour government wanting reelection should not squeeze as much tax revenue as it can from them.
From this I conclude that Gordon Brown WAS squeezing as much tax revenue as he thought he could from them. And since the havoc in the City over the last few years has made many of the rich less rich than they were, I conclude that the upper limit on how much tax revenue can be squeezed from them must have fallen.
So I think that the idea that the government can vastly increase its revenue from a small group of people is wildly optimistic.
Gordon Brown was a bank dereguator. He did not raise the higher rate of tax that much because he did not believe in it. The Labour party was reinvented under Bair and Brown. . Secondly, if you look at the financial sector where most of the real wealth is, they have actually awarded themselves more money since 2008 on the grounds that they are working really really hard. And I’m sorry if ordinary people’s living standards can be squeezed and lowered so can the truly wealthy. The reason they are not being hit on anything like the same scale as everyone else is because there is no will do it and part of the reason for that is because governments are hoping for the boom days to return.
Good article. The key point is that we can really make a big dent in the deficit by taxing the richest more heavily. Of course it isn’t simple. Of course there are pitfalls. The rich will employ clever lobbyists, accountants and lawyers to try to parlay the hurdles into insurmountable barriers. We have to recognise the game they are playing.
“The politics are poisonous. We put forward the idea of a mansion tax at the last election. Our opponents were delighted! …. The trouble is that too many voters treasure high property values … Remember what happened to Gordon Brown over the politically and economically similar case of Inheritance Tax in 2008? So property taxes may be a good idea, but ………… Meantime, how else do we tax the rich? Well here are the obvious ideas: hold the top income tax rate at 50%; raise capital gains tax rate; go after the tax exemptions for big pensions; block the Tory plans to reduce Inheritance Tax; ratchet up the pressure on tax avoidance. Hmmm….”
Yes, the politics are poisonous, because whatever you suggest that might hurt the rich, they will fight very, very hard. Looking for the perfect policy which will take money from the rich without causing them to protest is like looking for the perfect alcoholic beverage that wil never make you drunk.
“they now expect 100,000 more children in poverty”
I despair of commentators expecting readers to give them credibility when they found their assertions on such an emotive phrases as “child poverty” – similar to the name of the CPAG – the Child Poverty Action Group.
Tim Nichols should define his terms if he expects educated people to take them seriously.
A
Look. At least he should please pretend to have looked at objective terminology in such as Wikipedia
http://en.wikipedia.org/wiki/Child_poverty#Definition
This has it that,
“Absolute poverty thresholds are fixed and generally only updated for price changes, whereas relative poverty thresholds are developed with reference to the actual income of the population and reflect changes in consumption”
It goes on,
“the World Bank and the International Monetary Fund, use the absolute poverty threshold of US$1 a day to measure poverty in developing countries”
This a figure, which would warrant, is a tiny fraction of what is spent on even the poorest child in Britain.
Presumably Mr Nichols is using a RELATIVE standard which CAN NEVER CHANGE because it is relative. Relative standards go up as the standard of living rises. The bell shaped curve ALWAYS has a bottom tail of those who are not as rich as the majority.
If I need to explain it further, if we had at today’s prices, a hypothetical rise of benefits per child to ten thousand pounds per annum for a typical unemployed family, but then the rest of the working population averaged two thousand pounds per child, then those on children benefits would still be seen as “in poverty”.
Even now, compared to world poverty our poorest children enjoy the riches of Croesus. So come on Tim. Grow up…
In fact, putting aside that I disagree with Tim Nichol on the foundations of his argument, I do agree with his eventual conclusion.
People being able to ‘earn’ money by sitting on assets, specifically land, and therefore benefiting from property price inflation, are an abomination as far as I am concerned. I am quite a Ricardian about this and believe there should be as close to a 100% Capital Gains Tax as politically possible on all property, including residential, so that at least the community benefits from its own efforts to improve the locale, instead of lucky individuals.
Begin spreading that idea around and then we would have easily enough to fund whatever is needed to give our kids every opportunity that can be imagined.
See my discussion on this
http://www.jamesmurraylaw.com/news/taxing-the-wealthy-so-that-everybody-benefits/
I agree with comments along the lines that the issue of taxing assets is rather more complicated, and the incentive effects have to be thought through, but broadly speaking I agree with the position set out in the original post.
The politics of taxing property are undoubtedly challenging. Matthew Green suggested the Lib Dems lost Richmond Park because of the mansion tax. Could well be – it’s certainly got plenty of multimillion pound mansions. But does that not raise a fundamental question about for whose benefit the Liberal Democrats are seeking to formulate policy? Of course the answer is that it should be for the beneft of all. But if the best way to achieve that is to make you less popular with some of the wealthiest in society then that should hardly stop you trying. It may be that if the party follows a just tax policy which favours taxing wealth wherever possible it might never have a chance of winning Richmond Park again. But its chances of winning elsewhere will have increased.
Of course it may be that democratic politics is completely unable to shift the structure of taxation in this direction as a consequence of electoral calculation. That would be a sad situation.
I don’t know whether it is coincidence or of significance, but it is interesting that one of the first acts of Mario Monti’s government of technocrats in Italy has been to reintroduce a countrywide property tax that was abolished by Bungasconi in 2008. He’s not so worried about getting (re-)elected.
Tony Dean – “How could we pay this increased taxation with no liquidity in the value of our house. The same would be true of some of the big old houses owned by aristocrats – many of them are in cash poverty, while on paper they are worth a mint. ”
Two options:
– mortgage it to release value from the house
– sell it and move to somewhere with a lower asset value
House prices in this country are too high, driven by poor supply caused by the millions living in houses too big for them, whilst those who actually need such houses can’t afford them.
Time for a big restructuring of the property market.
Unless there is some objective research done, then is no way of knowing why we lost Richmond Park. The problem is that you might get some people who mention the mansion tax on the doorstep, but they might have voted Tory anyway.
Let us not overlook other factors; it was a marginal seat, there was a national swing to the Tories, the Tories had a very wealthy candidate and a lot of money to finance their campaign – frankly I thought we stood no chance of holding that seat at the last general election despite having an excellent MP.
@Adam
“You need to be more specific about how we can increase taxes on “wealth and assets””
I want to open up the argument on asset taxation. It’s an unrealistic ask to expect me to have a fully realisable set of fiscal instruments to put forward. So I would say “we need to develop more specific” ideas. If this is right in principle, we need lots of good minds turning their attention to it.
“I think you’re wrong to say that increases in the personal allowance are then taken back through benefits withdrawn: aren’t those benefits based on pre-tax income?”
No, I’m right. I spent three years as a housing benefit assessor for Islington and Haringey local authorities. When I have spoken to the party’s advisers and mentioned this point, they seem unaware or unconcerned. Very frustrating!
Check this confirmation at para 5.3.1:
http://www.lawcentreni.org/EoR/benefits-and-tax-credits/housing-benefit.html#5.%20CALCULATING%20HOUSING%20BENEFIT
@Charles
“Child poverty isn’t as important an issue to tackle as social mobility. A child hood with toys from charity shops but good life chances is better than a childhood with toys from Argos and no prospects. Social mobility is the long term solution to child poverty as it’s the only way to break cycle of poverty.”
What do you make of what seems to be a pretty strong consensus in the academic community that low social mobility is an outcome of high inequality? ‘The Spirit Level’ By Wilson and Pickett is just one of many sources for the evidence on this. The arguments that Gavin Kelly (Resolution Foundation) and others are making currently about the poor standard of evidence on recent claims about what is happening to social mobility are important too.
I have always put a question to the social mobility brigade in our party that none of them have yet been able to answer. In 20 years from now we will still need jobs like cleaners, retail assistants, hospitality sector workers, care assistants, fruit pickers etc. Today all these jobs receive poverty pay. How will a social mobility centred policy agenda – a narrowed agenda around early years and education – ensure that the people doing those jobs are not in poverty a generation from now?
I’d be interested to hear your answer Charles.
This article makes for a sad & sobering read: http://www.guardian.co.uk/society/2011/dec/05/income-inequality-growing-faster-uk?CMP=twt_gu
This is simply not acceptable to me and should not be acceptable to anyone with compassion. What makes it worse is that, sadly, we Lib Dems are now playing a part in making the situation even more grave for our poorest and most vulnerable members of society.
I, personally, have made up my mind. I simply cannot support our party as long as we’re wedded to extreme Tory neoliberalism which has failed us over the past 30 years. Depressing.
@Stephen W
– “You are just wrong. Public spending has risen steadily in nominal terms and has held roughly flat in real terms. In other words government demand is exactly the same now as it was a year ago. There has been no deflationary shock.”
I was talking about aggregate demand, not just government demand, so you have made a mistaken assumption. On aggregate demand I am right. Private demand has contracted and the government, by keeping public spending flat in real terms, is responding in a manner that leads to aggregate contraction instead of aggregate inflation of the active economy. Government demand is holding flat in no small part due to the kick in of automatic stabilisers: more people out of work means a higher benefit bill. But the automatic stabilisers are being messed with and reduced as the government continue implementing their economically devastating and socially horrific £18 billion of welfare cuts. The worst is yet to come…
– “What do you think the rich do with their money? do you think they just put it under their matresses or bury it in their gardens?”
Well those who have just had their money go into German 1 year yields at a negative rate of interest (-0.05%) are actually going one step further than putting it under their pillow!
– “Most of rich people’s assets are already invested in some way.”
Lots of wealth is being put into safe havens, such as precious metals. UK wealth can end up overseas too. Does it help the UK economy for money to go into a Swiss account and get invested in German bonds? Property and land help little unless we can liquidate some of it to add to demand.
– “Either that or they are illiquid assets like owning a house.”
In other countries that apply wealth taxes on property, they have deferral options which means the tax does not have to be paid until the sale of the asset, or from the value of the estate following death. It is therefore a very effective way of creating additional liquidity from non-liquid assets and giving a major stimulus to the economy without increasing sovereign debt.
– “There are worthwhile ways of increasing taxation of wealth, land property and consumption and taking it off earnings and investment but they require a lot more thought and careful consideration than this crude stuff. Please try again.”
What am I, a one man think tank? Why don’t you try it yourself? I am notable to churn out a perfectly realised suite of fiscal instruments all ready to be implemented. If you agree that there are worthwhile ways of increasing taxation on wealth, land and property then stop carping from the sidelines and start making constructive contributions on how we might do it. Start pressing ministers to put civil servants onto the task.
– “If you’re talking about confiscating a one off £40 billion worth of rich people’s assets for the state to invest then you’ll just reduce private investment to increase public investment. Obviously not all that £40 billion would have been invested but most would have, so the net increase in investment will be only a few billion.”
At the current time public investment can be directed much better to the points in the economy with the highest multipliers than can private investment. If private investment looked like it was about to fund green r&d and infrastructure that would be great, but it aint. Private investment is also failing to get more money into the pockets of the poorest as it is not creating enough new jobs, and of those that are created too many are low pay, low hours and temporary.
You say the net in crease will be only a few billion. But even a net increase of only a few billion – targeted to where the economic multipliers and the social and environmental dividends are strongest – would actually be bloody fantastic right now, so I don’t know why you are sniffing at it.
– “When you add in all the difficulty of levying a one-off asset tax on several million people, the disruption of forcing people to sell or disrupt current assets and investments to pay the tax bill, and the future disincentive of knowing that the government might at any point levy arbitrary, deeply inconvenient taxes on people then there really would be ZERO actual economic benefit of levying such a tax.”
This is the kind of ‘can’t do’ attitude that is all too prevalent in our political class today. I don’t believe this kind of naysaying. It need not be a one-off net asset tax – there are many approaches we can consider. There is a plethora of decently functioning asset taxes of one kind or another that we can look to for inspiration in other countries.
The Occupy site is such a refreshing change because people are not hampered by orthodoxy, defeatism and pessimism. Where there is a will, there is a way. Why is it that these ideas can be discussed and developed there so much better than in or orthodox political institutions? A part of the change needed will be arguing in favour of a public ethic around taxation that has been eroded over the last 30 years. Those who don’t have the stomach to stand up and argue for this are of little use to the progressive response the current crisis demands.
@James Murray
Fine, don’t call it poverty. I am not interested in pedantic arguments about what ‘poverty’ really means.
But the kids at the bottom in our country have a life expectancy around 10 years shorter than the richest. They are twice as likely to acquire a disability during their life. They have a much higher likelihood of dying in infancy. They are much more likely to leave school without qualifications and to get stuck in low pay work, or worklessness.
So don’t call this poverty if you don’t want to. But call it a problem. And recognise that it is a much bigger problem here than in many other EU and G20 countries.
A relative standard can change. The current relative measure (one of 4 official measures – the others being absolute, persistent and material deprivation) is set at 60% of median income. On this measure several EU countries have child poverty rates less than half ours. Also under this measure, the last government reduced child poverty by around 900,000. Mathematically it is perfectly possible to have everyone above 60% of the median – the barriers are political. It is only impossible to have everyone above 100% median as half the people will always be below 100%, but that doesn’t mathematically preclude everyone being above 60%.
Do you think there is something exceptional about the UK – some kind of inferior attribute that afflicts us that means we cannot do as well for our kids as those other EU countries? A lot of people do go around making what I call the ‘bad British parents’ argument.
A relative measure matters to me personally too. I’m comfortably middle class, but I do not want to live in a country as economically and socially segregated as ours has become. It’s not what I call the Good Society. Pedantic nit-picking on the definition of ‘poverty’ is neither here nor there to that conviction.
Well done Tim for raising these issues and challeneging the current orthodoxy – the poorest in society get endlessly deamonised and hard done by whether in or out of work because policy makers don’t understand their needs or life experience. The worst sort of poverty is largely hidden from view. Tax credits aren’t a perfect system, but no welfare system works without problems or potentially false incentives. Our policy makers need to be challenged all the time over whether the outcomes of what they’re going may lead to more poverty rather than less.
Firstly, I’d just like to apologise. Having re-read my comments they come off as more rude and dismissive than I meant them. I shouldn’t post late at night or when in a rush.
I commend you for being willing to discuss this. I am certainly not a do-nothinger. If you want a well thought through economically efficient way to shift tax from work and investment to wealth, land and property and from poor to rich then here it is: http://www.ifs.org.uk/mirrleesReview/design Not my own work I admit, but certainly what I strongly support.
That said, I still think your approach is fundamentally wrong. Yes, demand in the whole economy has shrunk. Any deflationary effect this has produced in either price level or money supplyis obviously insignificant since inflation is at 5%. It is wrong to say the” Coalition’s austerity cuts” have unleased a “major deflationary shock”. If you mean that demand in the economy has shrunk and the government has not made up all the shortfall then yes, but that is to massively redefine what any person would think of when they hear the words “has unleased a massive deflationary shock”. Demand has fallen because we’ve had a recession. If you’re seriously suggesting that the government should have made up all the shortfall in demand of a private sector contraction through expanding public spending then that is a policy that no government, either Labour or Conservative or Lib Dem has ever suggested, and would be impossible to fund anyway. Beyond that you have no evidence that the slower rate of increase in public spending has caused our present problems, as opposed to say 5% inflation, the Eurozone crisis, or an unexpectedly weak global recovery.
“Lots of wealth is being put into safe havens, such as precious metals”
Do you have any actual facts for how much? I don’t mean to be rude but you do realise that when you talk about the richest 10% you are talking roughly about anyone on an income over about £50,000? These are relatively ordinary people, not all millionaire speculators with their wealth in gold bars in swiss bank accounts. The vast majority of that £4 trillion wealth is in property, i.e. every house in the country worth more than £300,000, or in pension funds. The vast majority of the rest will be invested in either banks, shares, cars or other pretty ordinary stuff. You are plain kidding yourself if you think there is trillions of wealth from that pool that is just lying around in useless forms gathering mold.
“In other countries that apply wealth taxes on property, they have deferral options”
Yes, and if you have a deferral option that means you are not getting £40 billion next year, you’re getting tiny drips and drabs for years down the line not “a major stimulus to the economy.” Possibly a small stimulus and only in the long term.
“At the current time public investment can be directed much better to the points in the economy with the highest multipliers than can private investment.”
I’m sorry but you have no actual evidence to back that up. State investment can be productive or like much of Labour’s investment it can be wasted. There’s no evidence it is by definition more productive than private investment either in creating jobs or anything else. Its main advantage is to take on projects that are just too big or complicated for the private sector, which is great if you’re adding to private investment but pointless if you’re destroying private investment to fund it.
“But even a net increase of only a few billion […] would actually be bloody fantastic right now,”
No it wouldn’t. It would be an utter waste considering all the costs and dislocation involved. And considering you criticise the government for unleashing “a massive deflationary shock ” these ideas are utterly small beer in comparison if you really think that’s what the problem is. They’re even small beer compared with the government’s plans to increase investment spending by £5 billion, underwrite £40 billion of loans and hopefully leverage £30 billion of investment from pension funds.
Also, I admire you for putting ideas out there. But if you come up with these ideas and make vast sweeping statements to support them then you can’t complain when people take you to task for having gaping holes in them. I am not a do-nothinger. I have told you the type of ideas for change I support. I suggest you read the IFS report and take up their ideas as your cause and abandon this deeply flawed stuff.
Stephen, I am sure Tim will give you a better answer than I would, but to pick up on some of your points;
— Yes, demand in the whole economy has shrunk. Any deflationary effect this has produced in either price level or money supplyis obviously insignificant since inflation is at 5%. It is wrong to say the” Coalition’s austerity cuts” have unleased a “major deflationary shock”.–
It is not domestic demand that has pushed up inflation. Inflation has risen because of commodity prices, notably oil has gone up substantially. David Laws reckons that inflation will come down quickly next year, presumably because of lack of demand although what is harder to predict is what will happen to commodity prices and whether they will push up prices.
— Demand has fallen because we’ve had a recession. — In 2010 we were coming out of a recession but now we are close to going back into one.
— If you’re seriously suggesting that the government should have made up all the shortfall in demand of a private sector contraction through expanding public spending then that is a policy that no government, either Labour or Conservative or Lib Dem has ever suggested, and would be impossible to fund anyway. Beyond that you have no evidence that the slower rate of increase in public spending has caused our present problems, as opposed to say 5% inflation, the Eurozone crisis, or an unexpectedly weak global recovery. —
The government has been contracting public spending and quarterly growth rates have undershot the OBR forecasts long before the Eurozone crises. During the last recession the Liberal Democrats argued in favour of an economic stimulus (and the Tories were against it). The prospect of doing the opposite this time round opens up the nightmarish prospect of a widening budget deficit caused by reduced tax receipts and greater benefit payments and no policy in place to throw that into reverse, achieving the very opposite of what the government says it wants to do.
By sticking rigidly to Plan A beyond even the next general election, Alexander has signed the party up to a suicide pact with the Tories.
@Stephen W
– “Firstly, I’d just like to apologise. Having re-read my comments they come off as more rude and dismissive than I meant them.”
No problem. I wasn’t offended and expect this to be a forum for robust debate!
– “Demand has fallen because we’ve had a recession.”
That’s putting the cart before the horse. We had a recession because of the collapse in demand caused by the credit crunch. We are now on the brink of another recession because of lack of demand. It started before it could be attributed to the eurozone, but if we have a new credit crunch in the eurozone we are proper screwed!
– “If you want a well thought through economically efficient way to shift tax from work and investment to wealth, land and property and from poor to rich then here it is: http://www.ifs.org.uk/mirrleesReview/design Not my own work I admit, but certainly what I strongly support.”
I’d be absolutely delighted if the government was looking seriously at some of the land and wealth taxation proposals in the Mirrless review! I’d also like them to look beyond Mirrless to other ideas and to the land and wealth taxes already operating in other countries.
– ” you have no evidence that the slower rate of increase in public spending has caused our present problems”
We could argue until to the cows come home about whether the correlation between the government’s cuts and the flat-lining of GDP is causal or coincidental, so perhaps best to agree to disagree. Our problems were built up over a number of years when households became over-leveraged and banks built up toxic assets, so I would not leave aside that important back story and simplistically say Plan A is causing our present problems. But Plan A is not solving our problems. If it was, we wouldn’t be having this debate. Plan A has failed.
– “The vast majority of that £4 trillion wealth is in property, i.e. every house in the country worth more than £300,000, or in pension funds.”
Indeed. The ONS survey shows about 39% of the total in land and property, and about another 39% in pension funds. So what? As Mirrless said: “Pensions and housing are, of course, two relatively tax-favoured ways of holding wealth.” So let’s balance it up. We can do it progressively within the top 10% if we wish given that a lot of the top 10% are nowhere close to the top 1%.
– “They’re even small beer compared with the government’s plans to increase investment spending by £5 billion, underwrite £40 billion of loans and hopefully leverage £30 billion of investment from pension funds.”
‘Hopefully’ is the operative word there! By your own argument though, the money in pension funds is claimed to be doing something useful already, so you are having it both ways here. I’d rather go for the certainty of taking a small part out of the largest pension funds of the very richest and spending directly where it does the greatest public and economic good. Not that I don’t believe in the dictum about living in hope, but sometimes you just need to get on with it. Anyway, I disagree that you could only raise a few billion this way, I think it is more than that. My point was that even if you were right about how little it would raise, it is still better than nothing.
– “If you’re seriously suggesting that the government should have made up all the shortfall in demand of a private sector contraction through expanding public spending then that is a policy that no government, either Labour or Conservative or Lib Dem has ever suggested, and would be impossible to fund anyway.”
Yes, I am seriously suggesting that. I think that Labour’s current proposals are inadequate too. I disagree that it would be impossible to fund. A mix of asset taxation, serious action to close the tax gap (it is shocking we are closing HMRC local offices and laying off staff) and perhaps a little extra borrowing allows significantly greater spending. This government doesn’t get that we won’t close the structural deficit without investment in restructuring our economy. To do this requires a state led plan as it did following the war. Leave it to the markets and we will get more market failure.
– “Do you have any actual facts for how much?”
No, I’ve found clear info on this hard to come by. Certainly the prices of precious metals have been pushed up to levels that suggest strong market interest since the credit crunch. And there is strong market interest in mining companies and commodity funds too b comparison to the pre-crunch markets. But I’d like to have some hard figures if you have suggestions where to look. We can be sure where it is not going though. It is not going into expansionary public investment because the opportunities are not on offer. Doesn’t seem to be going after corporate bonds in a big way either.
– “Yes, and if you have a deferral option that means you are not getting £40 billion next year, you’re getting tiny drips and drabs for years down the line”
Government can still spend it straight away because the extra revenue allows it to borrow more against the future revenue stream without increasing the structural deficit and without spooking the bond markets.
– “State investment can be productive or like much of Labour’s investment it can be wasted. There’s no evidence it is by definition more productive than private investment either in creating jobs or anything else.”
It depends which state investment you are talking about, which private sector investment you are talking about and what the prevailing economic circumstances are. Do you disagree with the IMF work on economic multipliers? Do you disagree with the decisions made by other countries to prioritize increased welfare payments and infrastructure investment in fiscal stimulus packages? Do you reject the pretty standard notion in economics that hand-to-mouth and credit constrained households – ie. the poorest – have the highest marginal consumption rates and therefore are one of the best routes for getting demand quickly into the economy?
And do you reject the view that the £18 billion of benefit cuts is a major fiscal hindrance? What do you think will be replacing that £18 billion annually? Where else would welfare recipients have been spending it if not in their local shops and service: a shopping weekend in New York? a skiing trip to Val D’Isere? a new painting? Or maybe some new skirts, blouses and jimjams for the kids from down the market?
The deficit will be hard to clear whatever, but my argument is:
– the best bet for clearing it is with growth
– for growth to happen we need investment and demand
– for investment and demand we to to refinance the economy
– to refinance the economy we need to look to where wealth actually exists
– according to official figures the wealthiest 10% have so much wealth that with just 1% of it put to the public good we would have a fiscal stimulus twice the size of 2009 and without increasing sovereign debt.
It’s a simple plan really and none of it depends on faith in how the irrational ‘animal spirits’ will react with the supply-side obsessed voodoo economics we get from Osborne.’
I just had to quote this – well done; as some other commentators have declared isn’t it great see there are LibDems who are ready to criticise policies that we should completely reject. Well done Tim.
The LibDems need to show that we have an alternative plan for the economy which many of us support – the Progressive wing of the LibDems needs to be speak up louder.
We need to rethink Capitalism As We Know It, (CAWKI) using Huber & Roberton’s New Money ideas. That could relese us from this problem of having to ‘Tax the Rich’. It could gradually remove the power from the rich and transfer it more equally and democratically.
Don’t tax wealth, tax the inheritance of wealth!
The moment at which it is possible to significantly redistribute wealth and spending power is at the point of transfer from each generation to the next.
Some inherit billions, often tax free: others inherit nothing. That is wrong from the point of view of young people in each new generation.
Those UK citizens who inherit great fortunes should pay more tax so that all UK-born UK citizens can inherit a basic minimum UK Universal Inheritance at the age of 25.
The average wealth of every adult and child in the UK is about £100,000. Finance UK Universal Inheritance by a 10 per cent Capital Donor Tax deductible from a progressive Lifetime Unearned Capital Receitps Tax starting at the same rate.
Start introducing it now! £2,000 for 25 year olds in 2012 up to £10,000 for 25 year olds in 2016 and hopefully more thereafter.
This would increase spending and entrepreneurial activity by the less well off.
This is already broadly the party policy of the continuation EU-sceptic Liberal Party, whose traditional liberal Preamble to the Constitution still calls for Liberty, PROPERTY and Security for All. Pity the Social Democrats deleted the property bit from the merged Liberal Democratic Party!
Think differently! Replace conservative dynastic capitalism (Capitalism as we know it) by liberal and enlightened conservative democratic and popular capitalism.
Let Britain lead the way with national universal inheritance schemes to spread more widely the private ownership of wealth, as Margaret Thatcher did with privatisation of state assets. Let us now significantly reduce inequality of inherited private asset ownership in each new generation.
“I am not interested in pedantic arguments about what ‘poverty’ really means.”
Mmmmm. The term ‘child poverty’ is always emotionally charged – everyone wants to protect children…
However, the IFS report talks about relative poverty and you do not, or do not admit it. Therefore, for your own persuasive argument you end up ‘using’ the emotional “400,000 more children in poverty” in a quite unsound manner, and then casually write off my objection as being unimportant to you.
I do admire your passion – that’s me being sincere. However, it is hard evidence, properly and logically argued, that wins the day. Unless of course, you wish to come across like so many left wingers of the trade union and hard extreme sort, as merely wishing to speak to those who agree with you. If so, then you can use whatever terms you wish.
BTW, does it help to point out that if we look at the ‘poverty stricken’ (my emotional term) 400,000 children at the end of this parliament, and compare the equivalent group of twenty years ago, they would be housed better, eat better, and educated better, as our absolute standard of living have steadily risen from that time?
“But the kids at the bottom in our country have a life expectancy around 10 years shorter than the richest. They are twice as likely to acquire a disability during their life. They have a much higher likelihood of dying in infancy. They are much more likely to leave school without qualifications and to get stuck in low pay work, or worklessness”
You have not made the argument that giving more money to the families of those kids would help. Perhaps more chips and pizzas etc would be bought, but that is worse that useless. I do not blame the parents as they are the children of similar parents and so the daftness carry on through the generations. I do blame society for not doing something about it.
A relatively cheap option is to teach kids at an early age about how ‘big food’ will try to get them hooked on salt, fat and sugar. Have primary schools teach them about how great it is to stop eating when full, instead of carrying on to bloated. Add to the National Curriculum standards of how to talk, debate, think, and visualise, so they can look up, instead of give up.
We owe it to them to look for solutions, not to use them in their their circumstances as political pawns in some daft ideological shouting match.