Ten Years and Counting…

In 2009, we wrote The Spirit Level, based on our work as epidemiologists researching the social determinants of health and wellbeing. We showed, emphatically, that greater equality – a smaller gap between rich and poor – is the fundamental basis of a better society. The more equal of the rich, developed countries have resoundingly better physical and mental health, which is part of the reason why they weathered the storm of Covid-19 better than more unequal countries.

But economic inequality, and its intersection with inequalities related to ethnicity, gender, disability, language, religion and more, is not just a health issue. In The Spirit Level we showed that all the problems that are more common at the bottom of society, that have a social gradient, get worse with greater inequality. And that body of evidence has continued to grow in the years since, based on our own research and the work of many others across the world. In addition to shorter life expectancy, higher death rates and levels of chronic disease, increased obesity, mental illness and poor child wellbeing, more unequal societies suffer from more violence, including homicides, domestic violence, child maltreatment and bullying. Children and young people do less well in school and have lower chances of social mobility and higher rates of dropping out and teenage births. Drug and alcohol abuse, problem gambling, status consumption and consumerism also rise with inequality, while levels of trust and solidarity, and civic and cultural participation decline.

Countries that tend to do well on any one of these measures tend to do well on all of them, and the ones that perform badly do badly on most or all of them. And not only is the impact of inequality wide-ranging, differences between countries are large; and although the poor are worst affected, inequality affects almost everybody.

And that means that the UK is trailing behind the countries to which we usually compare ourselves, on that long list of problems, and that all of us – young or old, male or female, in the North or the South, rich or poor – ALL OF US, are damaged. We are each at higher individual risk, and our whole society is ground down and trapped by inequality: we, and it, fail to thrive.

We’ve used a robust framework analysis to show that this is a causal problem and we’ve done a lot of work to understand the pathways through which inequality does the damage.³ We know that tackling inequality is the central task in responding to the multiple crises we face: the climate crisis, the cost of living crisis, the North-South divide, food insecurity, the gig economy, threats to our democracy.  Inequality is at the heart of it all.

The lost decade

When The Spirit Level was published we were at first heartened by the political response to the research. Politicians across the political spectrum seemed to understand the evidence and inequality seemed to take its rightful place on the political agenda.

But what has happened in the UK since then – a decade of austerity, followed by a global pandemic, and now a cost of living crisis, means we’re just as unequal now as we were then. And every crisis that comes along seems to be another engine of increasing inequality. 

Who suffered from the Global Financial Crisis? Average real incomes declined, and that was particularly true for the youngest and lowest paid workers.  Who were most likely to be exposed to Covid, to be infected, to be really sick, to die? Death rates were twice as high in the most deprived areas of the UK as in the most affluent. And we know who is already suffering most from rising prices, rising interest rates in the cost of living crisis – those on low incomes, on benefits, families with children, especially lone parents and everyone living outside of London and the south east.

And in all three of these crises, it hasn’t simply been a matter of the poor getting poorer.  In these big existential crises, the rich have got richer, a lot richer.  In the years following the Global Financial Crisis, the world’s richest 1% increased their wealth until they owned more than the bottom half of the world’s entire population. Top investors made billions by buying up shares in failing banks, betting against housing markets that were foreclosing on the mortgages of the poor, basically “buying when there’s blood in the streets” to realize massive gains during recovery. The pay of the FTSE 100 chief executives has sky rocketed, unlike that of their workers. During the pandemic, the rich accumulated wealth, including from government procurement under emergency regulations with lowered scrutiny for corruption. Oil and gas companies have made huge profits since the energy crisis began, and their chief executives continue to be paid millions, some of them many millions.- Huge pay and benefits packages and dividends have enriched the chief executives and shareholders of the UK’s water companies despite their abysmal record on tackling leaks, pollution and investment in new reservoirs.

We need the right (left) kind of active government

The Coalition and Conservative governments have certainly been active since 2010. They have actively failed to tackle inequality; they have acted to benefit the rich and harm the rest of us. Their actions speak much louder than their hollow words on levelling up.

An Active Labour Government could do so much to transform our society from the failing, unproductive, harmful state it is in, to one that promotes and, crucially, achieves the welfare and wellbeing of all its citizens. An active government that puts wellbeing first through tackling inequality would see spin-off benefits and savings across health, education, social care, law enforcement and more.

The courage to change

Labour should take heart from the progressive preferences of British citizens. When polled, the large majority of the public are in favour of progressive policies that are too often dismissed as radical, utopian, or unfeasible by the press or the Westminster bubble.

Close to 80% of the British public believe that the gap between those on high and low incomes is “too large” and this has been a consistent trend (varying between 72-85%) over the four decades that the British Social Attitudes (BSA) survey has been running. In 2018, the BSA concluded that “the public are likely to have more of an appetite for policies aimed at addressing poverty and inequality than they did a decade ago.”

The majority of the British public want water, energy, rail, buses, Royal Mail and the NHS to be run in the public sector, and that includes the majority of Conservatives.

Recent academic research on public opinion research in “red wall” constituencies found consistently high levels of support for Universal Basic Income, even when the policy was presented to voters in terms used by its opponents. There is little evidence that voters with conservative social values – those in left behind communities in Labour’s former heartlands – won’t actually support radical social policy.

The vast majority of the public support action on climate change and they are much more worried about the costs of doing nothing than they are about the cost of tackling the problem.

The triple-win manifesto

So what should the Labour Party do?  We are not politicians, or even political scientists or policy experts.  But we do know that Labour needs a bold and compelling vision that brings people onside by painting a picture of a society that can respond to the climate emergency while at the same time transforming people’s lives for the better and creating sustainable  growth.

What follows is by no means an exhaustive list, but six triple-win active policy options include:

• Joining WEGo, the Wellbeing Economy Governments (currently Canada, Scotland, Iceland, New Zealand, Wales and Finland), a collaboration of national and regional governments promoting sharing of expertise and transferrable policy practices for building wellbeing economies.  It is growth in wellbeing that we need, not growth in GDP.
• Committing to actually tackling inequality by taxing wealth, top incomes and financial transactions
• Giving people resilience and stability through a universal basic income and a proper living wage.
• Enacting the Socioeconomic Duty of the 2010 Equality Act
• Promoting fair work and economic democracy within a Green New Deal
• Putting children and young people at the centre of policy: recommit the country to ending child poverty; end selective education and remove charitable status from private schools; properly fund the comprehensive education system; enshrine in law universal free school meals and free holiday meals for families on benefits; and close the digital divide

Labour needs to act fast and boldly, with energising urgency, to make sure that the policies needed to tackle the climate emergency are politically acceptable to the public because they can see that they are part of a transformation to a fairer, better society in which they and their children and grandchildren can flourish.

What inspired progressive political change in the past was a vision of socialism, embodying the belief that a better society is possible for all of us.  The loss of that ideal has meant political hope has dwindled for so many.  Labour must build a new vision, firmly built on the foundations of an egalitarian and sustainable society.

Kate Pickett is a social epidemiologist, co-author of ‘The Spirit Level’ and ‘The Inner Level’ and co-founder of The Equality Trust.

Richard Wilkinson is Professor Emeritus of Social Epidemiology at the University of Nottingham Medical School, Honorary Professor at University College London and Visiting Professor at the University of York.

This article is published with permission from Labour Tribune MPs. It first appeared in a collection of essays published by Labour Tribune MPs in 2022 entitled “THE CHANGE WE NEED : How a Starmer Government can Transform Britain”

Further Reading

Wilkinson RG, Pickett K. The Spirit Level: Why Equality is Better for Everyone. London: Penguin; 2010.

Pickett KE, Wilkinson RG. Income inequality and health: a causal review. Social Science & Medicine 2015;128:316-26

Wilkinson R, Pickett K. The Inner Level: How more equal societies reduce stress, restore sanity and improve everybody’s wellbeing. London: Allen Lane; 2018.

Greater Manchester Independent Inequalities Commission. The Next Level: Good Lives for All in Greater Manchester, 2020: https://www.greatermanchester-ca.gov.uk/media/4337/gmca_independent-inequalities-commission_v15.pdf

Pickett K, Wilkinson R. Post-pandemic health and wellbeing: putting equality at the heart of recovery. In: Allen P, Konzelmann SJ, Toporowski J. The Return of the State: Restructuring Britain for the Common Good. London: Agenda Publishing, 2021.

Wilkinson R. If it doesn’t work for people, it won’t work for the planet. Club of Rome, 2021: https://www.clubofrome.org/blog-post/wilkinson-inequality-sustainability/

Reed H, Lansley S, Johnson M, Johnson E & Pickett KE. Tackling Poverty: the power of a universal basic income, London: Compass, 2022. Available at: https://www.compassonline.org.uk/publications/tackling-poverty-the-power-of-a-universal-basic-income/

Johnson M, Nettle D, Johnson E, Reed H & Pickett KE. Winning the vote with a universal basic income: Evidence from the ‘red wall’. London, Compass, 2022.

Picture credit: flickr

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We are living in an age of chronic uncertainty, in which crises pile into one another, plunging millions of people deeper into insecurity, impoverishment, stress and ill-health. There was the financial crash of 2008, a decade of austerity, a series of six pandemics culminating in Covid, with more to follow, and now the ‘cost-of-living’ crisis as inflation mounts, possibly reaching an incredible 20% by the winter.

Nassim Taleb coined the term ‘black swans’ to designate shocks that were rare, unpredictable and had devastating consequences. Now, they are not rare. But they are uncertain in terms of when, where and why they occur and who will be adversely affected. As such, you and I cannot be confident that we will not be among the victims.

There is something else too. It looks as if a large proportion of the population will be affected. It is predicted, for example, that 45 million people in Britain will be suffering from fuel-related hardship this coming winter, bringing more deaths and ill-health. Natural disasters could hit numerous communities, and being in a job is far from a guarantee of escaping poverty or economic insecurity.

Three deductions should flow from this bleak scenario. First, feasible economic growth will not overcome the threats. Second, old policies are not valid for tackling the new crises. Third, we need to build societal resilience, a new income distribution system and a new social protection system. ‘Targeting’ on a minority would be futile and inequitable.

The post-war welfare state was built on a presumption of Full Employment of men in full-time jobs earning family wages, in which there was a need for compensation for ‘contingency risks’ or ‘temporary interruptions of earnings power’. It was always sexist. But the essence was ex post compensation. This is inappropriate today where the core challenge is chronic uncertainty, for which one cannot devise a social insurance system. What is needed is an ex ante protection system, one which gives everybody guaranteed basic security.

But our politicians are failing to appreciate the nature of the challenge and are resorting to yesterday’s answers to yesterday’s problems. First, the Conservative leadership contenders and the Labour leadership are making overriding commitments to maximising economic growth. Keir Starmer says that the Labour motif for the next General Election will be ‘Growth, Growth and Growth’, and that he will only consider policy proposals from the Shadow Cabinet if they promote growth. Meanwhile, an adviser to several Tory Chancellors says the next Conservative Prime Minister will commit to an ‘absolute priority of maximising growth’.

A phrase that comes to mind is the one used by Michael Gove to characterise Liz Truss: they are taking a holiday from reality. Both the Conservatives and Labour are misdiagnosing the nature of the recurrent crises. Both are chasing the mirage of high GDP growth, wishing away the awful ecological implications. Starmer says the free market has failed. But we do not have a free market. It is rentier capitalism, in which most income flows to the owners of property – financial, physical and ‘intellectual’. Economic growth has to be unrealistically high for the precariat and other low-income groups to gain anything. This is why real wages have stagnated over the past three decades, and why earnings have lagged GDP growth, the difference made up by rising debt.

The income distribution system has broken down. Across all OECD countries, financialisation has accelerated, and is fuelling inflation for its benefit. In the UK, financial assets of financial institutions have risen to over 1,000% of GDP, with most finance used for speculative activity rather than for productive investment.

A rising share of income is going to capital, and more is going in rent, in excess profits. Within the shrinking share going to labour, more has gone to the top, again in forms of rent. The value of wealth has risen sharply relative to income, while wealth inequality is much greater than income inequality.

All the time, the precariat grows. What should exercise progressive politicians is that for a growing proportion of the population income instability and insecurity have grown by more than is revealed by trends in average real wages. A result is that millions of people are living on the edge of unsustainable debt. People lack income resilience. Desirable as that is, raising the minimum wage will not solve that, and nor will trying to be King Canute in banning flexible labour relations.

So what are our politicians proposing in this context of chronic uncertainty, a broken income distribution system and a daunting ecological crisis? What marks all of what they are offering is ad hoc window dressing that seems deliberately intended to avoid the reality that we have a transformation crisis on our hands. Tax cuts would benefit the relatively secure, price freezes would cost the public finances and distort markets, raising the minimum wage would bypass the precariat and those outside the labour market, and targeting more benefits to those receiving Universal Credit would merely bolster an unspeakably punitive and inequitable scheme.

It brings to mind what William Beveridge wrote in supporting his 1942 Report that led to the post-1945 welfare state. ‘It’s a time for revolutions, not for patching.’ So far, our mainstream politicians seem to lack the backbone. The strategy should be one of dismantling rentier capitalism and recycling rental incomes to everybody. Above all, in the foreseeable future of chronic economic, social and ecological uncertainty, the base of social protection should be the provision of ex ante security. People – all of us – must know that, whatever the shock, we will have the wherewithal on which to survive and recover.

This is when politicians should be looking at ways of introducing a basic income for every usual resident. It would not replace all existing benefits, and would have to involve supplements for those with special needs. It would have to start at a modest level, but would be paid to each man and woman, equally and individually, without means-testing or behavioural conditionality. Legal migrants would have to wait for a period, which does not mean they should not be assisted by other means. And to overcome the objection that it should not be paid to the rich, tax rates could be adjusted to make them more progressive.

Before coming to how to pay for it, I want to emphasise the reasons for wanting a basic income for all. The fundamental justification is moral or ethical.

First, it is a matter of common justice. Our income owes far more to the contributions of all our ancestors than to anything we do ourselves. Even Warren Buffet admits that. But as we cannot know whose ancestors created more or less, we should all have an equal ‘dividend’ on the public wealth. After all, if we allow the private inheritance of private wealth, there should be a public equivalent. The Pope has come round to that rationale for his support for basic income. It is also a matter of ecological justice, since the rich cause most of the pollution while the poor pay most of the costs, primarily in diminished health. A basic income would be a form of compensation.

Second, it would enhance personal freedom, including community freedom. Although paid individually, that would not make it individualistic. Experiments have shown that when everybody has basic income, that induces stronger feelings of social solidarity, altruism and tolerance.

Third, it would enhance basic security, in a way that means-tested, conditional benefits cannot possibly do. Politicians seem reluctant to offer ordinary people basic security, which they would always want for themselves and their families. Insecurity corrodes intelligence and induces stress and loss of the capacity to make rational decisions. We are experiencing a pandemic of stress and rising morbidity. None of the existing policy proposals would reduce that.

Finally, there are instrumental reasons. Experiments with basic income around the world have shown it results in improved mental health, less stress, better physical health, more work, not less, and enhanced social and economic status of women and people with disabilities.   

Basic income is not a panacea, but it should be part of a transformational strategy, complemented by putting public utilities, most notably water, back in public hands and by rent and energy price controls. There must also be fiscal reform that would help in the fight against the ecological decay while helping to overcome chronic uncertainty. Progressives should accept that taxes on income and consumption should be raised, because they are relatively low in this country and because more revenue is needed to pay for our public services, and in particular reverse the privatisation of our precious health service.

The call for Universal Basic Services is state paternalism and would not help with the nature of the crisis. People need financial resources to overcome the economic uncertainty and lack of resilience. No government can know the particular needs of particular people, and so subsidising some services would be both arbitrary and distortionary.

However, in addition to higher taxes on income to pay for services, we should think of ‘the commons’, that is, all that inherently belongs to every citizen of the UK, beginning with the land, air, water and sea, and the minerals and energy underneath. Over the centuries, they have been taken from us illegitimately, without us or our ancestors being compensated. This includes all the land that has been ‘enclosed’, the forest and public spaces that are being ‘privatised’, the seabed that is being auctioned off, and the oil and gas sold for windfall gains given away in tax cuts for the wealthy.

This line of reasoning leads to the proposal that levies should be put on elements of the commons that we have lost, with the revenue put into a Commons Capital Fund, which would be charged with making ecologically sustainable investments, from which ‘common dividends’ would be paid out equally to every resident citizen.

The initial base for paying for a basic income would be conversion of the personal income tax allowance, which benefits higher-income earners and contradicts the view that in a good society everybody should be a taxpayer. If the revenue from that were put into the Fund, it would provide enough for £48 a week for every adult. Then add a 1% wealth tax, justifiable because wealth has risen from three times GDP to seven times, wealth inequality is much greater than income inequality and over 60% of wealth is inherited, unearned. A 1% wealth tax would be sufficient to pay a modest basic income. And more revenue could be raised by rolling back on many of the 1,190 subsidies and tax breaks given mostly to wealthy people. A modest Land Value Tax, based on size and value of land, is also justifiable on common justice grounds, especially as the value of land has grown from an already high 39% of non-financial assets in 1995 to 56% in 2020.

Then add a Carbon Tax, vital if we are to reduce greenhouse gas emissions and global warming, but which will only be politically popular and feasible if all the revenue from it is recycled as part of Common Dividends. Other levies into the Fund could include a Frequent Flyer Levy and a Dirty Fuel Levy on all those cruise liners and container ships that keep their engines going all the time they are in port, poisoning the atmosphere and causing widespread throat cancer.   

Here we have the basis of an income distribution system suited to the era, with supplements for all those with extra needs. It is an approach that would open up a vista of multiple forms of work, unpaid as well as paid, putting care at its centre. It would be an era in which basic security was regarded as a fundamental right, and it would be one in personal freedom would be enhanced while precarity would be reduced, the precarity that comes from dependency on a discretionary state and undignified charity. At this moment of omni-crisis, we need to march in that direction.            

Postscript:

In their response to the cost-of-living crisis, the New Economics Foundation proposes ‘free basic energy’ for all households. Besides penalising those outside households, this presumes that all households’ poverty and insecurity is due to high energy prices. For many that will be so, but for some other factors may be more important.

It would also raise moral hazards. Some people may not need the full free allocation, but would be inclined to waste what they did not need, because it was free. The amount given free would have to be based on some ‘average’ household. But many are in non-average households, or are outside them more, for whom the free allocation would be too little or exceed our basic need.

Some people might prefer to cut energy use a little if given the choice of spending on food, debt reduction or extra clothing. Better to enable them to make the choice that suits their particular needs.

The NEF also propose to top-up Universal Credit and legacy benefits. But we know these do not reach many of the poor, due to sanctions, the humiliating application process and long delays. What about the millions in need who would be excluded? Much better than relying on paternalistic measures and behaviour-conditioned targeted benefits would be a basic income, with supplements for those with special needs, coupled with a modest wealth tax and land value tax. 

Guy Standing is a Professorial Research Associate, SOAS University of London and a council member of the Progressive Economy Forum. His new book is The Blue Commons: Rescuing the Economy of the Sea, published by Pelican. He is a technical adviser to the basic income pilot being conducted by the Government of Wales.  

photo credit flickr

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Overshadowed by the appalling news from Ukraine, Chancellor Rishi Sunak presented the annual Mais Lecture in London a couple of weeks ago. Traditionally used by Chancellors (and, sometimes, Shadow Chancellors) as a space to fill out the detail of their economic plans, and (they hope) give the impression of some depth of thought behind them, this was, as other commentators have pointed, out a comparatively rare insight into Sunak’s mind a few weeks of what will be, for him, another Spring Statement severely rattled by external events.

Battered by the pandemic, and subject to the whims of a once all-powerful Prime Minister, Sunak has spent two years in office cranking up government spending whilst offering variations of St Augustine’s prayer: “Lord, make me fiscally conservative, but not yet!” Mais Lecture was no different in this respect, once again promising the faithful that he would soon, very soon, start cutting taxes.

And of course you have to read the whole thing through a potential Conservative Party leadership battle. It helps to read British politics in general through the prism of a never-ending Tory leadership contest: like other semi-democracies, squabbles amongst factions in the ruling party matter far more than debates between the ruling party and the tolerated opposition – whatever the likelihood of any actual changes at the top.

But with Liz Truss letting her Tory MMT tendencies be known early on, judiciously making sure news of her indifference to deficits was leaked to the Times just ahead of Tory Party Conference last year, Sunak had to establish some clear blue water on the question of spending. Truss wants to cut taxes, regardless of the impact on government borrowing. Sunak “firmly believes” in low taxes but is “disheartened… by the flippant claim” that taxes pay for themselves. Tut tut. Once again, low taxes, but not yet.

What’s more striking is, as per usual, what Sunak doesn’t talk about. For a decade Tories noisily insisted that the government debt and the government’s deficit were the most important problem in the world, and that all other government spending could be sacrificed to shrinking both. Former Chancellor George Osborne used his own Mais Lecture to spell out the argument for immediate action on government spending, back in 2010. Osborne offered a cogent and closely-argued case for finding the poorest and most vulnerable in society and fiscally waterboarding them for a decade.

Never mind that the gurus he cited, Kenneth Rogoff and Carmen Reinhart, turned out to have made a spreadsheet error in their calculations on the impact of government debt on growth which rendered their most eye-catching claims useless. And never mind, too, that by the time he left office, Osborne had overseen the longest decline in living standards since the dawn of industrial capitalism, even as the government debt burden continued to rise. What matters here is the intellectual framing of the discussion around the role of government in the economy as entirely negative: that government, with its shocking debts and yawning deficits, was little more than a deadweight on a long-suffering private sector, yearning to be free.  Aided and abetted by a compliant media, who didn’t know better, and the Institute of Fiscal Studies, who should’ve known better, the economic illiteracy of the story mattered less than its political purpose in justifying the reshaping of the British economy back around the interests of its financial system in the years after the 2008 crisis.

So tightly were austerity’s mind-forged manacles that it took the triple shock of Brexit, Jeremy Corbyn and covid to break them. Brexit gave us a Tory Prime Minister who wanted to talk about the “burning injustices” of the economy. Corbyn, in turbulent years after the 2017 election, gave us a different Tory Prime Minister who consistently increased spending. And covid has given us a Tory Chancellor who scarcely references the government debt.

The contrast between Osborne and Sunak, then, is stark. The current Chancellor reflects a new consensus, apparent across the business press in recent months, that government spending in the future is going to be higher: on (his words) “health, pensions and social care” for an ageing population; on the “legacy of covid” in annual vaccination programmes, antivirals, and testing; on education; on government infrastructure investment, praised by Sunak; and of course on the military, where demands have been raised for a 25% increase in the current budget.

This isn’t the austerity economics of the 2010s. It is a higher-spending, bigger-state Toryism that means, come 2024, the difference between the two main parties’ spending plans – widening in elections 2015 onwards – is likely to be substantially reduced. Reduced, too, will be their rhetoric on the fundamentals of the economy: both accept a significantly increased role for government investment, including on renewable energy; both accept the need for  intervention in the economy to address inequality, beyond using the tax system alone (aka “Levelling Up”); both accept the idea that intervention can address the productivity problem. And both have decided to foreground economic growth as the key to a successful economy.

Market morality

It’s here that Sunak gets interesting, once we get past the boil-in-a-bag Treasury policy prescriptions for growth. Sunak wants to cut taxes on investment by businesses, invest more in “adult skills”, and spend more on R&D – so far, so familiar, although Sunak at least throws in the possibility of scooping up “entrepreneurs and highly skilled people” from all over the world, post-Brexit.

Instead it is when Sunak tells us about his desire to create a “new culture of enterprise” that we should be paying more attention. Sunak’s carefully-curated public image has been of a man somewhat wary of big ideas and book-reading (“all my favourite books are fiction”), but it is to Adam Smith he turns to make the link between culture and economic growth: not via the Wealth of Nations, but its forerunner, the Theory of Moral Sentiments: that a free market not only ensures outcomes that are economically efficient, but that markets themselves are grounded in morality, Sunak here referencing the late Jonathan Sacks’ own Mais Lecture. The process of market interaction itself (says Sunak) shapes morals and therefore culture. “Moral responsibility,” he claims “can only come from being exposed to the consequences – whether good or bad – of our own actions.”

This isn’t a conventional, libertarian-inclined defence of the free market, often associated with the Wealth of Nations, in which freely-transacting individuals are magically guided by the “invisible hand” to produce the best possible outcome for society. This “invisible hand”makes no claims about the morality of your choices, simply that everyone’s preferences will be met best if we allow it do work its mysterious magic. Sunak says this is reading Smith wrong: “Smiths account of the market economy, is not as some have suggested a values free construct which rationalised social choice.”

But this argument for market morality is also not quite that of Sacks’ original Mais lecture, which was a slightly more conventional take on how free markets, desirable as they for producing economic growth and productive cooperation, also require stable social institutions: family, religious organisations, community groups, and so on. We get on with our social interactions, the market sorts out that section of them we call the economy, and the greatest happiness of the greatest number is ensured. We learn our morals and “habits of cooperation” in “the domain of families, congregations, communities, neighbourhood groups and voluntary organisations”.

The invisible hand of Sunak, on the other hand, has a decidedly morally interventionist streak. We will have better moral characters if we allow a market-type process of rewards and punishments to shape them, facing the “consequences… of our own actions”. Happily, the shaping of our characters in turn shapes a culture which then creates the conditions for economic growth through the “universal and laudable desire to better the condition of ourselves and those we love”. A free market fosters an “enterprise culture” which will, in turn, make Britain more receptive to economic growth delivered by a succession of terrific new technologies, lead by Artificial Intelligence (as always).

Note the firm limits to “laudable” bettering here, and what it should be aiming for; and whilst Sunak identifies the need for government to provide some minimum level of support where needed, the boundaries for government action are constrained. Whereas Sacks suggests that economic growth, engendered by the free market, is just one part of a what makes a good society, and that this culture provides the necessary foundations of the market, Sunak’s rather darker argument is that the desirable culture is one that produces growth, and that market outcomes themselves are crucial to shaping that culture.

Sunak may talk up economic growth. He suggests he is an optimist on its future. But if the growth pessimists he cites are right, we left with only the moral claims. What he establishes here looks more like the moral and intellectual framework for a low-growth and significantly more authoritarian version of capitalism.

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The policy is uniquely flawed, with multiple faults. Of course, if government throws over £60 billion of subsidies to a minority of firms and workers, that will be popular with the recipients. But a scheme should be judged by what it does for the many, not the few, and for its opportunity cost.

The government’s furlough scheme was possibly the most regressive social policy in modern history. Recall that it paid 80% of the wage of those earning up to £3,000 a month. So, it meant that somebody earning £3,000 received £2,400 only if they did no labour, whereas somebody earning £800 a month received £640. So, a high-wage earner received nearly four times as much as a low-income one. And for a low-income earner losing £160 would make it less likely they could service debts or pay the rent, risking homelessness and abject impoverishment. Under the scheme, those laid off or without employment contracts obtained nothing, as did those on Universal Credit or legacy benefits. My grandmother would have described this as ‘nutty as a fruitcake’.

If the Left believes in policies that reduce inequality and that increase economic security for everybody, the CRCS should be regarded with contempt. Perhaps, 11 million people gained income from it or the equally regressive scheme for the self-employed. That means only a minority of the labour force benefited, or a much smaller minority of the population. One could understand the IMF backing such a policy, because it props up capitalism. But why should the Labour Party, the TUC and progressive commentators do so? Surely, they cannot be indifferent to inequality

The inequities are also extensive. Suppose you worked in a firm struggling to survive and had your earnings cut by 30%. You were penalised relative to those furloughed, who only lost 20%. In which economics textbook or ideology would that be regarded as fair? The scheme was also unfair to those who lost jobs, who obtained much less in benefits, simply due to bad luck.

There is also something Labour and others should take up. With benefits for the unemployed and others in poverty, the government imposes strict conditions on those wanting help, or sanctions them by denying them benefits. In the case of help to firms, they do not apply any behavioural conditions. That is double standards.

So, for example, under the furlough scheme Donald Trump received over £3 million for furloughed staff on his luxury golf resorts, but his managers laid off hundreds of staff anyway. Trump is a multi-billionaire and surely could have afforded to cover the wages. No whiff of means-testing for corporations. Major multinationals making billions of pounds in profits gained from the furlough scheme, while the near destitute had to prove destitution before obtaining a pittance.   

Furlough schemes generate huge moral hazards. They pay people not to do what they might wish to do, creating a new ‘poverty trap’. If you did some labour, you would probably lose more than you would gain. And they pay high earners on condition they do not work, while welfare claimants receive a pittance only if they do everything possible to find work. How does that make sense?  

Immoral hazards are worse. When the CJRS was introduced, I predicted in the Financial Times that it would be subject to massive fraud. Even the head of HM Revenue and Customs said so. Sure enough, an early survey found that one in three on the scheme was actually working. Another survey suggested the figure was much higher. Later, the HMRC estimated that over £6 billion had been paid to organised criminals or fraudsters. In one case, a man was caught having invented a huge number of employees and fake national insurance cards, having received millions of pounds under the scheme. He was surely not alone. And, as is well known, high earners were more able to ‘work from home’ while receiving furlough support than low earners, further contributing to the scheme’s regressive character.

Belatedly, the HMRC set up a taskforce of 1,265 staff to try to combat fraud; there have been over 26,500 investigations so far, representing a waste of resources that could have gone to the impoverished queuing at food banks. Most who cheated will go undetected, because adequate evidence will be hard to obtain or not merit the cost of investigation. Confronted by the evidence, the government had the temerity to say the priority had been ‘to get money to those who need it as fast as possible’. That was not what the policy was intended to do. It gave nothing to those most in need. But what was meant was that the likelihood of fraud was tolerated in the interest of speed. It is surely amoral to support a policy that is prone to massive fraud. Any furlough scheme would have that feature. Yet progressive commentators seem indifferent to fraud.

Then there are the economic effects. If you pay people not to work at all, it encourages inactivity rather than merely reduced production and short-time working. Furlough schemes depress production more than it would otherwise be. And they prop up ‘zombie firms’. In the past two years, the bankruptcy rate has declined during what was a major recession. A German bank estimated that 2.5 million jobs covered by the UK’s furlough scheme were ‘zombie jobs’, i.e., were unviable anyhow. Sunak implicitly recognised that by introducing a ‘job retention bonus’ of £1,000 if firms kept employees once the subsidy ended.

Furlough schemes also discourage firms from restructuring in the face of the pandemic. They also deter labour mobility. If somebody is offered 80% to do nothing, why move to a firm in which they might earn 70% of what they were receiving? And there is bound to be ‘deadweight’ – paying for employees who would have been covered by their firm. The CEO of Bet365, who received £300 million in 2019, could easily have paid laid-off employees.  

In sum, a minority do well, but furlough schemes worsen inequality, are inequitable and contribute to economic inefficiency. Above all, by diverting funds from providing universal basic security they erode the societal resilience so vital in an era of pandemics. No progressive should support them. A new furlough scheme would ‘certainly make no sense’.

Guy Standing is author of The Corruption of Capitalism: Why Rentiers thrive and Work does not pay (2021). He is Professorial Research Associate, SOAS University of London, and a council member of the Progressive Economy Forum.      

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PEF Council member Prof. Stephany Griffiths-Jones is a member of Chilean President Gabriel Boric’s group of economic advisors. With Boric winning a resounding victory in the Chilean Presidential elections, we reproduce here a translation of Stephany’s recent interview for CTIX magazine Chile. Conducted before the second round of the election, Stephany discusses the left’s economic programme for the country, and the challenges a new President is likely to face.

Interview conducted by Andy Robinson. Original (in Spanish).

Stephany Griffith-Jones, one of the most eloquent promoters of the role of the state and public banks in the equitable development of South American economies, joined a group of advisers to Gabriel Boric, Chile’s presidential candidate, before the start of his second round campaign for the Presidency. The decision to appoint Griffith-Jones – a professor at the University of Sussex and collaborator with Nobel Laureate Joseph Stiglitz at Columbia University in New York – is proof that Boric build on not only ideas from the 2019 protest movement, but also experts close to Concertación and Nueva Mayoría, who led the centre-left governments of Chile’s slow transition from dictatorship.

It is also proof that, at the age of 35, Boric is aware of the importance of working with experienced economists such as Griffith Jones, Born in Prague in 1947, great-niece of Franz Kafka, and whose family emigrated to Chile the following year, we spoke about Boric’s dilemmas in needing to both respond to the demand for change in Chile, and to stabilise the economy.

It seems that Gabriel Boric is facing a problem. He is a candidate for change, a movement that has taken to the streets of Santiago to protest the neo-liberal model. But if he wins, he will come to power in a difficult budget situation that leaves little room for progressive budget policy…

Yes. At the moment the budgetary situation is very difficult. The fiscal deficit is already at 13% of GDP… Piñera went from one extreme to another in his response to the pandemic. He did nothing at first, and a lot of low-income people were in real trouble. This is where the first withdrawals from pension funds were introduced, to help low-income people in great difficulty. [Chile’s Congress authorised raids on the country’s privatised pension funds during covid, turning them into a “piggy-bank”, with about $50bn or 25% of their value withdrawn to date.] But then, in 2021, Piñera went to the other extreme. He gave generous support, perhaps too much, to many, even people who were not so poor. And consumption skyrocketed. Chilean GDP will grow this year between 11% and 12%. The economy is totally overheated.

What should be done?

Boric has committed himself to significantly reducing the budget deficit in one year and respecting the budget already approved by Parliament. It is a sign of his moderation. In the coming years, he wants to raise taxes gradually and increase the collection of existing taxes – higher direct taxes, and lower indirect taxes. Indirect taxes, such as value added tax, account for more than 50% of Chile’s total tax revenue, well above the OECD average. There is also a commitment to combat tax evasion, which in Chile is twice the OECD average, but this requires more tax inspectors.

The problem is more general. Latin America is experiencing a moment of polarization. It is necessary to break a model that was very unpopular, but the economic reality of countries like Brazil or Chile leaves very little space, and both Lula and Boric have moved closer to the centre.

Yes, at first many people thought that Boric would be too radical. But now perhaps the greatest fear is that he can not do enough.

Despite this, he is portrayed as radical in many media …

It’s true. The media talk about far right and far left. We must reject this false dichotomy, because Boric is a Social Democrat. [Right-wing candidate Jose Antonio] Kast is an extremist. In economics, he is quite radical; to reduce taxes when the deficit is 13% of GDP is downright daring. In politics, he is even more extreme. One of his deputies said that women should never have had the right to vote. Unbelievable. Kast proposed restricting the right to abortion, even for women who were raped, and forgiving Pinochet-era torturers.

But Boric is a European-style Social Democrat. I met him first at a conference to discuss the Scandinavian model of government. He has been more on the left, but he is aware of the current budget problems and is very open to discussions with all sides. That said, he is very committed to the need for redistribution.

Given the polarity and rejection of the system, do you think it can be a double-edged sword to enjoy the support of the main political figures from Concertación?

No. That’s very positive for Boric. Leftists will vote for him anyway. The problem is attracting the votes of most of those in the middle. Although the most important thing is to attract young people who demonstrate, but sometimes do not vote. Participation in the first round was very low. In the past, the center and the left always won when they merged. It can be expected to be the same this time. Boric acknowledged the contribution of the Christian Democrats (PDC) and it was a very good move. He met Ricardo Lagos [centre-left president from 2000 to 2006] and Michelle Bachelet [centre-left President from 2006 to 2010, and from 2014 to 2018]. They were wonderful to him. Much of the center and left have already joined the campaign. And the Christian Democrats support him even though they say they would not enter government with him. It is also true that the fact that Kast is percieved as disastrous made the reunion easier.

It is strange to compare the victory of the left in the Constituent Assembly with the results of November in the parliamentary elections. How did this happen?

Yes, 78% of voters voted [on 25 October 2020] in favor of a new constitution. Voting in the Constituent Assembly [over 15 and 16 May 2021] was a great victory for the left. But then, just a year after the referendum, the same voters voted for a parliament that was divided between left and right. There is therefore a lack of consistency. If Boric wins, he will have problems with Congress, which will likely try to block proposals such as the budget and tax reform.

Will there be more leeway afterwards?

I think so, after the first year. Boric and his supporters are very committed to the ecological transition. Chile is lucky because it has lithium, which is essential for batteries, and copper, which is essential for the energy transition. In addition, there is great potential for further development of solar and wind energy. It is necessary to give priority to certain sectors for that transition, supporting their development, and Kast does not understand this. Development banks must be mobilized for the green transition. And financial regulation can be used to incentivize commercial bank loans to companies with low-carbon investments.

Public investment is key. For example, Boric wants to invest heavily in building an extensive rail network. Then there is hydrogen. Hydrogen can be produced sustainably in Chile because there are many ways to generate renewable energy. We can use green hydrogen in mining to have green copper.

Is there not a risk that the energy transition will create demand for metals and lead to more extraction and dependence on the export of raw materials?

The idea would be to move up the value chain. Manufacture batteries, incorporate more technology and knowledge. Scandinavian economies, which in the past were like Chile, dependent on exports of raw materials such as wood, managed to move up the value chain and develop rapidly. So it is necessary, for example, to produced more refined copper, to manufacture higher value-added cables.

Why would the left do it better than the right?

Because public investment and the development bank are essential for the green transition, and then catalyzing private investment in this sector is key. Kast doesn’t understand this. He caricatures the state as a dark and negative force, but those are the ideas of the past.

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For three hundred years, care work and care labour have been woefully trivialised or ignored by economists. One is inclined to think this is partly due to the domination of the subject by men until recently. But it is also true that the subject is incredibly complex, partly because the very idea of ‘care’ is vague, with a multitude of meanings. Sue Himmelweit’s valuable foray steers clear of the many conceptual issues, but correctly highlights the proper objective of ‘enhancing the capabilities of those with care needs’. To reduce the risk of excessive paternalism, one should extend that to include ‘enhancing freedoms’.

I have no disagreement with Sue’s essay and merely want to comment on two additional aspects. Before doing so, I want to endorse her disgust at the permitted involvement of private equity capital in the British social care structure. The recent example of one foreign fund acquiring a chain of 450 mental care homes, loading the firm with debt while creaming off large profits, declaring ‘bankruptcy’ and then selling out to another foreign private equity body should have been enough to prompt political demands for reform and legislation to ban such action. Instead, it was one of numerous acts of rentier capitalism that have flourished in what has become the Covid era.

It is a disgraceful indictment of the social care system that the three biggest care home ‘chains’ are all owned by private equity – HC-One, Four Seasons and Care UK. As this termite form of privatisation has spread, amidst local council budget cuts during the austerity decade, over 400,000 fewer elderly are receiving social care due to restricted public budgets. Over 60% of people in care residences are ‘self-funded’, and on average they are paying much more than the costs incurred on residents funded by local councils, the latter much more often to be receiving a cut-price, low-quality residence. To declare ‘care residences’ homes is a misnomer.         

The other preliminary point I would like to make is that in a market economy dominated by rentier capitalism, there will always be a care deficit, due to a partially contrived demand for care linked to the constant extension of the commodification of care, the existence of an oligopsony market for most care services, and the resultant suppression of care worker wages.  

The two general issues that prompt this comment are, first, the need for Voice Regulation and second, the need for a radical restructuring of the Care Funding System. Both must respect the objective of enhancing capabilities and freedoms, as well as be an integral part of a progressive economic strategy.

Voice Regulation

All types of care recipients and care providers are vulnerable to several forms of oppression and exploitation, in most cases including ‘self-exploitation’. It would be naïve to suppose that care is simply a ‘gift relationship’ motivated by altruism, and it would be wrong to depict care as only involving two parties. Significant third parties are typically overlooked, and yet in certain non-rare cases they can be the most exploited and oppressed of all.

Because of the emotional nature of care, the complex character of care work and labour, and the intangible trade-offs between quantity, quality and costs of care, a good social care system cannot rely on statutory regulation alone or market forces. Rather, a progressive care system requires respect for a fundamental principle of guild socialism: There should be as many forms of representation as there are interests to represent.

A properly progressive government would make sure that adequate financial and institutional resources be made available to ensure that care recipients, their representatives, care providers and social workers and agencies linking providers and recipients all had equally strong Voice bodies to bargain and to defend the interests of those involved in care relationships. This is manifestly not the case today. Given the vulnerabilities of all those in the provision and receipt of care, one cannot overemphasise the need for Voice regulation.

Care Funding

What structure of funding for care would be optimal? The problems with answering this question are legion, and most have been well-rehearsed in the literature on care. Among the difficulties are determining the ‘need’ for care and determining what type and intensity of care is needed. After all, need for care is partly subjective, a matter of character and a matter of manipulated attitudes. Contrary to popular imagery, about half of the public budget on social care goes on working-age adults, not children or the frail elderly.

The choice of funding mechanism depends partly on the type of care one is considering. Take the starting point in life, infant care. Breastfeeding is the most important form of care that can be given to anybody in their infancy. Human milk is more important for an infant’s development than other milk, and breastfeeding protects women from later cancer problems. Yet enabling mothers to breastfeed is rarely regarded as a matter of care policy, even though credible estimates indicate that the social cost of premature weaning is huge. And it turns out that the amount of breastfeeding care varies enormously according to the welfare system.

In the USA, with its residual welfare system, in a baby’s first month only 77% of mothers breastfeed, compared with 99% in Norway; by the sixth month, only 47% of American mothers are breastfeeding, compared with 80% in Norway. This difference largely reflects the existence of statutory maternity leave in one country and its absence in the other combined with pressure to return to labour market activity.

This is a special type of care. More generally, a primary objective should be a financial system that maximises the opportunity for ‘self-care’, that is, to enable as many of us as possible to care for ourselves as much as possible in a way that we would like. In this regard, successive British governments have failed dramatically, even though the move to Direct Payments in the 1990s and the Care Act of 2014 were touted as moving in that direction. The latest round of reform announced in September does not confront this issue. A new means-tested scheme is to be introduced, to be funded by a lurch to hypothecated taxation, which should alarm progressives, since it ratchets up the utilitarian nature of social policy.

One problem with state aid for care is that most forms of care are fraught with moral hazards and immoral hazards. If desirable care is that which enhances capabilities and freedoms, how do the potential forms of financing rank? The options (not necessarily alternatives) seem to be subsidised institutional care (homes, etc), subsidised care workers, direct payments to non-wage unpaid carers (e.g., ‘wages for housework’), care vouchers (permitting the recipient or a surrogate to buy pre-specified commodities or services), care budgets (as in ‘personal healthcare budgets’ introduced in 2014), and care grants based on estimated needs and the costs of meeting them.

A problem with most of those options is that, while they automatically discriminate against other options, they raise moral hazards. For instance, if residential care is subsidised, to the extent that the price is lowered, that will give an incentive to place frail relatives ‘out of the way’ in an environment they would probably wish to avoid. It would also implicitly penalise families who continue to provide care themselves or who pay for some other form of care.

The last-mentioned of the policy options, care grants, has the virtue of trying to give all those in need of care an equal resource base from which to make ‘free’ choices. But it would still be paternalistic and would penalise those who provide unpaid care, typically women, and could leave in place one moral hazard that is a disgraceful feature of the current benefit system – that of determining ‘ability to work’ as a test of eligibility for the benefit or service, as in being able to walk unaided for 30 metres, which penalises anybody who makes the effort to be able to do so.

Most forms of care support provided by the British government are means-tested, and most are consequently made conditional on behavioural tests. As such, they generate poverty traps and have high exclusion errors. More problems lie ahead. Under the government’s announced reforms, people will be required to approach their local council to request a need assessment, which will lead to a lot of discretionary judgements. It can be predicted that financial pressure on councils in areas of fewer resources will limit eligibility. There will be no levelling up in care.     

Ultimately, the most attractive option for a progressive economy is to move towards an income distribution system in which every individual has a modest basic income with supplements for those deemed to have extra costs of living, such as those associated with disability, frailty or age. If this encouraged more people to care for themselves more, that would reduce pressure on the commodified care system. And if some wished to compensate family members for their care, the care recipient or surrogate would have the means of doing so. Of course, that would no replace the need for a public social care system, but it would help empower people in negotiating their way through the care economy.

It would be the least paternalistic mechanism and would be a barrier to the constant extension in the  commodification of care. That would not remove the need for strong Voice mechanisms, but it would help turn care into the emancipatory form of work that it could and should be.   

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LONDON – Amid all the talk of when and how to end or reverse quantitative easing (QE), one question is almost never discussed: Why have central banks’ massive doses of bond purchases in Europe and the United States since 2009 had so little effect on the general price level?0

Between 2009 and 2019, the Bank of England injected £425 billion ($588 billion) – about 22.5% of the United Kingdom’s 2012 GDP – into the UK economy. This was aimed at pushing up inflation to the BOE’s mandated medium-term target of 2%, from a low of just 1.1% in 2009. But after ten years of QE, inflation was below its 2009 level, despite the fact that house and stock-market prices were booming, and GDP growth had not recovered to its pre-crisis trend rate.

Since the start of the COVID-19 pandemic in March 2020, the BOE has bought an additional £450 billion worth of UK government bonds, bringing the total to £875 billion, or 40% of current GDP. The effects on inflation and output of this second round of QE are yet to be felt, but asset prices have again increased markedly.

A plausible generalization is that increasing the quantity of money through QE gives a big temporary boost to the prices of housing and financial securities, thus greatly benefiting the holders of these assets. A small proportion of this increased wealth trickles through to the real economy, but most of it simply circulates within the financial system.

The standard Keynesian argument, derived from John Maynard Keynes’s General Theory, is that any economic collapse, whatever its cause, leads to a large increase in cash hoarding. Money flows into reserves, and saving goes up, while spending goes down. This is why Keynes argued that economic stimulus following a collapse should be carried out by fiscal rather than monetary policy. Government has to be the “spender of last resort” to ensure that new money is used on production instead of being hoarded.

But in his Treatise on Money, Keynes provided a more realistic account based on the “speculative demand for money.” During a sharp economic downturn, he argued, money is not necessarily hoarded, but flows from “industrial” to “financial” circulation. Money in industrial circulation supports the normal processes of producing output, but in financial circulation it is used for “the business of holding and exchanging existing titles to wealth, including stock exchange and money market transactions.” A depression is marked by a transfer of money from industrial to financial circulation – from investment to speculation.

So, the reason why QE has had hardly any effect on the general price level may be that a large part of the new money has fueled asset speculation, thus creating financial bubbles, while prices and output as a whole remained stable.

One implication of this is that QE generates its own boom-and-bust cycles. Unlike orthodox Keynesians, who believed that crises were brought on by some external shock, the economist Hyman Minsky thought that the economic system could generate shocks through its own internal dynamics. Bank lending, Minsky argued, goes through three degenerative stages, which he dubbed hedge, speculation, and Ponzi. At first, the borrower’s income needs to be sufficient to repay both the principal and interest on a loan. Then, it needs to be high enough to meet only the interest payments. And in the final stage, finance simply becomes a gamble that asset prices will rise enough to cover the lending. When the inevitable reversal of asset prices produces a crash, the increase in paper wealth vanishes, dragging down the real economy in its wake.

Minsky would thus view QE as an example of state-created financial instability. Today, there are already clear signs of mortgage-market excesses. UK house prices increased by 10.2% in the year to March 2021, the highest rate of growth since August 2007, while indices of overvaluation in the US housing market are “flashing bright red.” And an econometric study (so far unpublished) by Sandhya Krishnan of the Desai Academy of Economics in Mumbai shows no relationship between asset prices and goods prices in the UK and the US between 2000 and 2016.

So, it is hardly surprising that, in its February 2021 forecast, the BOE’s Monetary Policy Committee estimated that there was a one-third chance of UK inflation falling below 0% or rising above 4% in the next few years. This relatively wide range partly reflects uncertainty about the future course of the pandemic, but also a more basic uncertainty about the effects of QE itself.

In Margaret Atwood’s futuristic 2003 novel Oryx and Crake, HelthWyzer, a drug development center that manufactures premium-brand vitamin pills, inserts a virus randomly into its pills, hoping to profit from the sale of both the pills and the antidote it has developed for the virus. The best type of diseases “from a business point of view,” explains Crake, a mad scientist, “would be those that cause lingering illness […] the patient would either get well or die just before all of his or her money runs out. It’s a fine calculation.”

With QE, we have invented a wonder drug that cures the macroeconomic diseases it causes. That is why questions about the timing of its withdrawal are such “fine calculations.”

But the antidote is staring us in the face. First, governments must abandon the fiction that central banks create money independently from government. Second, they must themselves spend the money created at their behest. For example, governments should not hoard the furlough funds that are set to be withdrawn as economic activity picks up, but instead use them to create public-sector jobs.

Doing this will bring about a recovery without creating financial instability. It is the only way to wean ourselves off our decade-long addiction to QE.

Robert Skidelsky

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PEF Council members recently discussed, via email, the government’s plans for social care and its financing. We were unanimous in agreeing on the bad design of the scheme, on the absence of real funding and reform for social care. And we also agreed on the need for a significant shift in the balance of taxation towards wealth. The points of contention are around how the latter should take place and a macroeconomics that might help explain why.

Stewart Lansley

The case for financing social care through wealth is overwhelming. There are two broad options: first, the 2010 Burnham Plan, which means all those needing care would keep their home and a charge made at death. Alternatively, an annual property charge of say 1% pa up to say a maximum of 5%. Both of these could be paid into a social care fund, as argued in Remodelling Capitalism.

The last two decades have seen a great surge in asset values and unearned wealth (what John Stuart Mill called “getting rich in your sleep”), notably in property. The total value of personal wealth in the UK in 2018 was £14.6 tr of which property is £5tr and financial wealth £2.2tr – so a hypothetical one per cent tax on all property and financial wealth would yield £70bn a year, and just on property would be £50bn per year. Any such tax should be charged on assets above a certain level, which would then yield less than the estimates given here.

Yet the tax take from wealth is tiny, with the UK tax system disproportionately dependent on taxing income. In 2015/6, the combined revenue from existing capital taxes – stamp duty on property transactions and shares, capital gains and inheritance tax but excluding council tax – raised about £27bn a year, some 3.9% of all tax revenue.  This accounts for less than one per cent of total private asset holdings.

The case for higher taxation on personal and corporate wealth is being widely recognized. Before the 2017 November budget, the National Institute of Economic and Social Research proposed an annual tax on net wealth (assets minus liabilities) above £700,000 (including residential property) to replace three existing capital taxes on inheritance tax, capital gains and dividends. A tax set at 2 per cent would raise £72 billion (gross).

The scheme would may have been unpopular in 2010, but might be much more popular now given that the public accept that we need to find a way of paying for social care and are unconvinced by Johnson’s plan. This is surely an area where KS should be out with all guns blazing!

Danny Dorling

I was one of the people earlier suggesting taxing wealth would be difficult. I don’t think I explained myself well. It is not the taxing of wealth that is difficult, that is easy. Ireland showed how it could be done on property with a progressive property tax where the percentage taken rose according to the value of property. They did it in an extremely short amount of time when forced to by the Troika in the Eurozone crisis at the start of the last decade. When that process began, they had no “gazetteer” – no universal register of properties – let alone any decent sets of valuations.

The best systems of wealth taxation make paying the tax annually part of the way you claim and maintain a record of your ownership of property. You can chose not to pay the wealth tax if you wish to gift that wealth to the state. You can also argue that your property is worth less than the valuation of the state. However, when you then come to sell that property, you may find that buyers don’t wish to pay more than you have said it is worth. Wealth taxes should also decrease the value of property which would not be a bad thing. So my concern is not with the idea of wealth taxes.

My concern is with suggesting it – and suggesting introducing a wealth tax to pay for the NHS/Social Care, without suggesting all the other mitigations you would do at the very same time that would make it appear plausible to many people.

But so many mitigations are needed that you end up needing a whole manifesto to explain them. I’ll give just one example. A large group of people in their 40s and 50s who have managed to get a mortgage now talk of their home as their pension. Their various precarious jobs have meant they have no decent pension, and although they may now be being auto enrolled into a pension. It is not one where they can envisage a future of being able to “keep the thermostat on 17 in their old age” as it was recently put to me by one home owner (still paying off their mortgage, and with the annual average income of the UK). What they plan to do is sell their home when they retire, downsize and use part of the savings to (among other things) pay the gas bill in winter.

If we suggest a wealth tax, taxing away a slice of what they see as their savings every year without also suggesting how pensions will be improved, then in the mind of someone in that position your policy will condemn them to an old age of being cold. Gas and electric bills have just risen very quickly so these bills are on peoples’ minds at the moment. In effect, for them a wealth tax is an annual tax on their future pension. And quite a low pension at that.

I think this is one of the dangers of talking about raising a new tax to pay for one thing, when all the others things are not considered.

My preference is to keep taxing and spending separate, not hypothecated. So talk about rebalancing the tax system to make it fairer – with the emphasis always on fairness. And I would bring the overall level up to what is normal in Germany (almost identical to what Labour promised in their 2019 manifesto). Talk about bringing in taxes on wealth solely for the purpose of increasing fairness, not to pay for a particular policy, but also partly to allow other less fair taxes to be reduced, and partly to allow overall public spending to be at normal European levels.

On spending, we shouldn’t talk too much about the amounts of money in each sector, but much more about what it is you actually want to see. Something that is very good need not be very expensive. The Finns spend less as a share of GDP on their school than we do on ours, but their schools are much better. In contrast, we spend an enormous amount on our now almost entirely privatised universities, but we don’t see that as a tax. In the USA, they have the highest spending on health care in the world – and in general poor health.

I’ll stop there, but hope it helps explain my worry about suggestions of introducing a wealth tax to pay for health and social care.

Josh Ryan-Collins

I agree governments should not hypothecate (and I’m amazed HMT broke its own golden rule on that in this case) both because it can lead to less politically popular services getting neglected but also because it embeds the idea that we can’t pay for stuff unless we raise the money first which is simply not the case in sovereign currency issuing nations.

Having said this, the Tories have hypothecated and they have just implemented the biggest tax rise in living memory indicating (perhaps) a seismic shift towards the centre on economic policy. This threatens Labour in quite a serious way if they can’t differentiate themselves effectively.  The way to differentiate is to focus less on the amount of tax needed and for what (as you say Danny and Sue) but on how that tax should be raised and from whom in a way that is both socially just and economically sensible.

It is not sensible to be withdrawing purchasing power from workers and businesses when the economy remains fragile. But the even bigger issue is that tax needs to be seen as a key tool via which issues like inequality and falling productivity can be addressed via pushing against economic rents and favouring investment and wages.  This NIC tax hike broadly does the opposite. If you make your money from rental income, interest fees or capital gains, don’t pay a penny more, in contrast to workers and firms. The chart below from Resolution Foundation shows how crazy the situation is:

Will Hutton

I am all for taxing capital and am in violent agreement that too much capital taxation has been allowed to atrophy: no revaluation of residential property since 1991 so that council tax yields a fraction of the old rates, de facto semi-voluntary inheritance tax, too low capital gains tax, etc. During the 1945-50 Labour government tax on estates ran at 10 per cent of all tax revenues. There is huge scope to increase capital taxes, and as Josh has argued, property is immovable.

Stephany Griffith-Jones

I agree with Will on practically all points – including the extraordinary absence of  a revaluation of residential property since 1991, which includes periods when Labour was in power! An effective and fairly high inheritance tax is very desirable, as one of the structural problems is perpetuation of wealth concentration via inheritance.

Stewart Lansley

Just on Danny’s points:

1. ONS wealth figures are net wealth and any wealth tax on residential property would be net of mortgage debt, so Danny’s examples would not be affected. 

2. Yes, we must do more to make the existing taxation of income fairer, for example by reform of National Insurance system, but this would not be enough on its own to create a more equal society. 

3. As I argued in Return of the State, we are close to the limits of income taxation, So if we want to raise funds for improving social provision we need to turn to  asset-redistribution, though this would require taking public with us. Wealth is much more unequally distributed than income –  Top fifth hold 64 % of personal net wealth and 80% of financial wealth – and unless we tackle that we will not be able to reduce inequality and poverty on a sustainable basis.  It’s perfectly possible to design a wealth tax system that is concentrated on top wealth holders. 

Geoff Tily 

The TUC have argued that reforming Capital Gains Tax is a much fairer way to fund social care than hiking workers’ and businesses’ national insurance contributions.  But like President Biden’s notion of “work not wealth”, I want to make a broader macro argument that the interests of wealth and of labour are fundamentally opposed.  

My Keynes Betrayed was concerned with restoring Keynes’s conclusion that the long-term rate of interest must be set permanently low. Since I have been at the TUC, it occurs to me that this rate should interpreted more broadly as the return to capital/wealth and should be compared with the return to labour. Keynes’s conclusion that “we must avoid [dear money] … as we would hell-fire” (Collected Works XXI, p. 389) then means that we orient the system to the interests of wealth at our peril.    

The below chart shows a measure of the real (inflation-adjusted) long-term interest on US corporate debt, going beyond the normal comparisons of rates on government bonds. Even this doesn’t capture well the experience since the global financial crisis, but plainly we know full well what has happened to the broader return to wealth versus the return to labour over the past decade. (I suspect US investment grade corporate debt has simply become increasingly regarded as retreating from risk – and this goes right back to dot.com bubble.) “Dear money” can be seen coming in rapidly from 1979 (in parallel to the ‘Volcker shock’), and interest rates were sustained some way above the post-war levels (and back to the 1920s).  

US real interest rate

Josh’s chart from the Resolution Foundation is a nice one, not least because the timing of the key dislocation matches well the restoration of dear money on the above. Above all, this rise in returns to assets is a consequence, not a cause, of dear money.

Previously I had argued (following the General Theory chapter 22) that macroeconomic disarray comes in through overinvestment, but now I like a broader over-production/under-consumption (or rather, under-compensation) approach (it’s trade union friendly, has recently been revived by Matthew Klein and Michael Pettis [though Stuart Lansley had done so nearly a decade sooner], and is likely to be more correct!). Rather than spending to compensate for the underspending of labour, the wealthy speculate and so exacerbate over-production. This leads to unsustainable private debt, and ultimately meltdown; the fear here is Quantitative Easing has simply kicked the can down the road, with the risk of meltdown appearing later.    

Tax on the wealthy can be part of the solution (as in the opening of the final chapter of General Theory), but to restore the balance to labour requires wholesale macroeconomic change that operates on a global basis. Hence my recent argument that ‘internationalism begins at home’.  

We were convened in the first instance as a group inspired by Keynes, so I hope colleagues engage with this argument. On my view, it’s how Attlee, Dalton, Gaitskell, Bevin, Blum and FDR understood the world, helped them successfully to win office, and to begin to make real change.    

Jan Toporowski

The real con trick in the government’s proposals is the claim that this is a solution to the social care crisis, when the funding for that is being explicitly postponed until the difficulties in the NHS have been overcome. So the social care funding is conditional on that same funding being enough to overcome NHS difficulties, a most unlikely prospect. The electoral con is the message that the residual of working people on proper contracts will get in their payslips that their money is going to be spent by the government not once but twice to solve both health crises.

Guy Standing

One cannot sensibly discuss how to pay for social care without a systematic view of what care entails, which encompasses its messy definition, who should receive it, who should receive money being spent on it, how they should receive it, and so on. Once one opens the Pandora’s box one should realise that any hypothecated approach, as implied in what the Tories are doing, makes no sense whatsoever. Hypothecated taxation opens the door to the worst features of utilitarianism, 

The Government’s tax and NI rise is doubly regressive, since it lowers the earning of most paid carers at a time when their income and morale are abysmally low. If a government does not alter the structure of the so-called ‘social care industry’, the primary beneficiaries of pouring more money into it will be the private equity interests (mostly foreign capital) which are plundering money being spent on social care. Removing private equity should be a top priority. And any funding scheme that relies on means-testing will accentuate what is a highly regressive scheme, not reduce it.

More generally, there must be a huge shift in taxation from earned incomes to wealth of all kinds and to incursions into the commons, which means much increased eco-taxation. Ironically, incomes are nowadays the least taxable, with the UK being a rank outlier in the very high extent of tax evasion by high-income earners. But changing the incidence of taxation should be the secondary concern to the need to restructure the care sector. The social care crisis is a structural one, not primarily a fiscal one. Perhaps a Royal Commission should be set up to devise a proper plan for an integrated, universally-based system.

Sue Himmelweit

I agree strongly with Danny about not muddling up comments on taxing and with those on spending. But I don’t think that means that Labour should comment soley on alternative forms of taxation.

The first thing that has to be said about the so-called plan for social care is that it isn’t one, that it won’t be doing anything to improve provision nor even get back to the already failing system that we had in 2010. As the party that stands for protecting the vulnerable by collective provision this must be Labour’s first call. If they are commenting on a policy on social care, their first comment should be on social care and the need for it to be adequately funded (in the sense of enough spent on it), not on different forms of taxation. This should be true of PEF too!

Labour should also make clear that we could benefit from an overhaul of the tax system, so that it taxes, at the very least, gains in wealth. Reforming CGT so that is charged at the same rates as income tax with no specific tax allowance (except to exempt gains too small to count) would be a first step. And I would also like to see inheritance tax replaced by a receipts tax covering all ways of receiving wealth, also taxed at income tax rates (with some allowance for spreading a windfall over a few years). This way all ways of gaining wealth would be taxed at a reasonably high rate. This to me seems easier and more logical than taxing wealth itself at a low rate.

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I’ve written elsewhere on what a poor way the National Insurance Contribution (NICs) rise would be to fund the contribution cap, amounting to a perverse redistribution from mainly younger and poorer workers to at least some better off elderly. Almost any tax alternative currently on the table – from increasing income taxes, with its broader base, to Capital Gains Tax increases, to introducing a proper, progressive wealth tax – would be fairer and preferable.

That the NICs rise currently polls ahead of other options is a tribute to the framing of NICs (and the polling question asked!) more than anything else: it isn’t called a tax, and there’s still a firmly held belief that NICs payments go into a grand national pot that people can draw from later. This was the original intention of the system, dating back to the 1944 Beveridge Report and beyond, in which “national insurance” would act as a genuine, contributory insurance system, providing for those who had paid in during times of need. It has never really functioned like that: the Treasury, as its wont, has always treated NICs payments as just another flow of tax payments (with some slight complications).

But the seeming popularity of NICs rises is likely to prove fragile if the case against them is made, and – crucially – if the case for an alternative is clearly presented. Labour have now indicated that they will oppose the hike, but to clinch the argument they will need to present an alternative. Otherwise, it really will look like the party is just moaning about the world: you can’t look like an alternative government if you don’t have alternative policies. And if they can bite the bullet on wealth taxes for social care – in whatever form here – it can force open the argument about wealth and taxation more generally: a must if the party is to go into the next election with something approaching a serious, long-term programme to solve Britain’s chronic economic problems. And wealth taxes, as the polling evidence keeps showing us, are popular. (Unsurprisingly: by definition, almost none of us are in the top 1%…)

Party Conference

Labour Party Conference, returning to Brighton at the end of the month after a two-year covid-induced pause, will be the biggest opportunity the party and its new leadership has had to date to present its case. You don’t often get a free hit at the following day’s front page headlines as the Opposition, but that’s what Conference can offer, Keir Starmer has offered some rather broad hints about his own speech, and of course it’s the leader’s closing address that gets the bulk of the media attention. But Shadow Chancellor Rachel Reeves’ own speech is going to be worth keeping an eye on. She has already marked out a few key commitments, including a strikingly anti-neoliberal Mariana Mazzucato-style policy to support domestic supply chains and jobs. This was particularly noteworthy: the first time that I can recall Labour offering a genuinely post-Brexit policy under Starmer’s leadership. Now that we have left the EU, there is a seam there to be mined – with a bit of policy imagination.

But the challenge for Reeves and her team in three weeks’ time will be to not only throw in some headline-grabbing policy announcements – essential for the front pages – but to start to create a convincing story about what sort of economy the next Labour government wants to shape. Credibility doesn’t come from parroting the economically illiterate nonsense that clutters Westminster political reporting; it’ll come from having a clear, simple story that potentially millions of people can grasp and understand. The Tories’ NICs hike has given Labour a free gift, the chance to show they are the party that will look after your pay packet. Tax the wealthy, not the workers has a certain ring to it.

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In less than six months since his inauguration as US President, Joe Biden’s administration has staked out a new agenda for US policymaking, breaking with the previous four decades of Republican and Democratic domestic economic policy to focus deliberate government action on job creation, addressing racial equality, environmental goals, and rebuilding American manufacturing industry. A dramatic expansion in trade union rights, pushing back on four decades of draconian restrictions on workplace organising has been pledged, and over $6tr of public spending is lined up, to be funded mainly by taxes on the richest Americans and the biggest corporations.

The UK equivalent for the whole programme (using share of 2020 GDP as the baseline) would be £560bn: £170bn for immediate coronavirus relief; £240bn for investment and business support; £150bn for welfare and education.

Surprising many with the scale and scope of its ambitions, the Biden Administration’s domestic economic programme has raised the bar for progressive governments across the world. This briefing breaks down the emerging details of the programme for a UK audience and lays out the main political conclusions.

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