Saturday, 30 August 2008

Your choice: more equality or less inequality?

One could ask that question about all areas of equality policy, I want to see how it relates to claims that we should aim for more financial equality or, as it usually put, for less financial inequality. As I mentioned in one of my previous witterings, "wealth" can refer to income or it can refer to capital assets, for present purposes I will look at income.

The way the policy is argued for is very interesting to me. If you want to narrow the gap between the richest and the poorest you have a choice between arguing for greater equality of income or for less inequality of income. Those on the left seem to argue against inequality far more then they do for equality. Perhaps this explains why their chosen method of securing their aim is to tax the wealthy. It is implicit in that method that the disposable income of the wealthy will be reduced, but it does not follow for one nanosecond that the poor will necessarily receive a penny. Yet, surely, the moral argument must centre around how to improve the lot of those at the bottom of the pile? Simply removing some cream from the top achieves nothing apart from satisfying a rather pathetic form of blood lust. Once they have skimmed the desired amount of cream they say that they have reduced inequality. Indeed they have, as a purely statistical exercise. And what good has it done? Of itself, I can see none.

Equality policy can only be justified if inequality causes a problem. Therefore the problem should be identified and the cure must be just that, a cure for the problem. What is the problem in one person having an income of £1million and another's being just £3,000? The problem is that £3,000 is not enough to pay for him to live. So the problem is not that the one person receives £1million a year it is that the other only receives £3,000. Any policy aimed at curing this problem must find a way to increase the poor man's income.

If making the rich man poorer would achieve this, all well and good, but I see no evidence that that happens to any appreciable extent or that it would happen to a more meaningful extent if the wealthy man were taxed substantially more than he is at the moment. Instead money is taken from the wealthy, laundered through the great black hole known as HM Revenue & Customs - during which process a lot disappears in administrative costs - and is then deposited in the government's spending fund. The spending fund includes some measures for improving the income of the least well-off through payment of benefits, but none of them does anything other than take a few people who would be below the poverty line and put them above the poverty line, it does not make them appreciably wealthier and nor could it ever do so.

A modest increase in marginal tax rates for the wealthy might increase government income a little, although it will also increase incentives to avoid (legally) and evade (illegally) the additional tax. Even if it does lead to an increase in income, because there are so few at the top and so many at the bottom it cannot do anything substantive to solve the perceived problem.

One then has to build into the equation that those who bleat about inequality are generally in favour of government spending money. They believe, erroneously in my view, that government has magic powers and can improve life for all if only it spends enough money. This causes the spending fund to be under permanent pressure to spend more on this, more on that and more on everything. Putting more cash in the pockets of the low earners is just one item on the list. As revenues increase political pressures to give some to favoured groups come into play. We cannot assume that additional taxes on the wealthy would ever be reserved wholly to pay more to the poorest, but even if that were the case how much would they get?

Paying an extra £1 a week to all those claiming "out of work" benefits and tax credits would cost in excess of £350million a year. In other words, for every £350million in additional revenue from increasing tax on the rich the most that could be achieved for those at the bottom of the pile is an extra £1 a week. Let's say the rich are absolutely hammered for additional tax and an extra £1.5billion is raised from them, assuming no extra administrative costs the poorest people would receive enough to buy a packet of cheap cigarettes.

I do not suggest for one moment that an additional £4 or £5 a week would not be most welcome for those struggling to make ends meet, of course it would because every penny helps. But it only happens once, the same tax rates next year will not allow for a further £4 to be paid but they might allow the increase of £4 to remain in place. All that can be achieved by even the most grandiose attack on inequality of income through tax is a tiny increase in the incomes of those at the bottom. It is such a small amount that it does not get anywhere near curing the problem.

Perhaps this is one reason why the left is so keen to complain about inequality. They know that if they argued for more equality rather than against inequality they would have to explain how it can be achieved through tax and the plain fact is that it cannot. Their current approach requires only that they point out the gap between rich and poor, for them that is enough in itself to justify taxing the rich. It is gesture politics of the pettiest and most ineffective kind, they claim to give the poor hope when the measure they promote cannot possibly deliver anything but a tiny sum. To my mind it is a cruel approach to a difficult and important problem.


goooooood girl said...

Good good good......

Anonymous said...

Its not gesture but power politics? Every person who gains a quid or two has the potential to be a bought voter. That from a politicians' point of view is very sound politics. It maybe dressed up in ideology but its about power.