Squeeze the rich until the pips squeak? Not under New Labour

By David Byrne

The prime beneficiaries of the combination of the weakening of workers' capacities for industrial action, a macro-economic programme which benefits finance capital and producer services at the expense of manufacturing, and massive reductions in higher rates of income taxation and taxation of wealth (the essence of the programme begun under Thatcher and continued under Blair) have been the best off 5 per cent of the UK population - best off in terms both of income and accumulated wealth.

For example, in the 1979 distribution, the income of the middle person in the richest tenth of the population was 4.1 times the income of the middle person in the poorest tenth; by 1990/91, the ratio was 6.6 ... One may also consider how much of the overall income growth over the same period was shared by the different income groups. Of the 35.2 percent growth in overall average income, 29 percent was accounted for by the income growth of the richest twentieth, 40.5 percent by the income growth for the richest tenth, and 60 percent by the richest fifth - but none at all by the poorest fifth. (1)

Brown's budgets have done something to redress the position of those poor households with dependent children but they have done so primarily by tax credits at the expense of middle income households. In 2002 he turned attention to "paying for the social services" - the actual title of an infamous Fabian pamphlet of 1969 written by that old rogue Richard Crossman. In this Crossman laid out his position - one replicated by Brown 33 years later:

... a truly democratic society cannot be achieved without shifting the
balance between private and public consumption in order to provide as
of right to every citizen those essential services which for far too long
remained the privileges of a small economic class. That the working
class can achieve this shift painlessly by taxing the rich in order to pay
for the social services is a fallacy which Herbert Morrison did his fair
share towards exploding. However much you increase the taxes on
unearned income or wealth it will still remain true that a major part of
the cost of an adequate system of social services will have to be raised
by reducing or postponing the spending power of those at work. (2)

Crossman's dodge around this was to pay for social services by raising national insurance - a tax levied only on incomes derived from employment and so exempting incomes derived from wealth. I drew attention to this in an article a couple of years ago - god forbid that some treasury policy wonk picked up on that but I guess they have a little box in that august institution which contains gems of this sort held against the day they might become useful. The 1 per cent extra on all employee NI contributions coupled with 1 per cent on all earners above the current top threshold will yield £4 billion per annum from all employment-derived incomes. How might this money have been got otherwise? Let me quote myself:

Let us look at what taxation might yield. Even the Fabian Commission
on Taxation under the Chairmanship of that egregious bellwether Plant
felt able to propose an increase in the higher level of taxation on
incomes over £100,000 to 50 per cent and noted that this would yield
additional revenues of £2.9 billion a year. If the rate was increased to
60 per cent, the current highest European rate (egalitarian Denmark),
then the yield would be twice this and a tax of 50 per cent on incomes
between £50,000 and £100,000 would yield a good deal more.
Regrettably the Fabian Commission did not model this violent and
radical proposal through a micro-simulation but we can safely say it
would yield at least £10 billion p.a. and almost certainly a lot more.

Almost certainly this revision to income taxation taken alone, and without a systematic legal and administrative assault on tax avoidance which should certainly be its concomitant, would yield additional revenue of about £15 billion which would be a four per cent increase in public revenues and enable spending on health to be increased by a quarter. (3)

So the most affluent might have been taxed to raise on an annual basis nearly four times as much as Brown's proposed additional expenditure on health. I think the question anyone on the left in the UK today has to ask is why have they not been?

References

1. Jenkins, (1999) Trends in UK Income Distribution, Working Paper, Institute for Social and Economic Research.

2. Crosland, A, (1969) Paying for the Social Services, Fabian Society.

3. Byrne, D, (2001) "Class, tax and spending: problems for the left in postindustrial politics", Capital and Class 75, pp. 157-66

David Byrne is a Reader in Sociology and Social Policy at the University of Durham and the author of Social Exclusion, Open University Press, 1999.

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