Thursday, April 20, 2006


Class, New Labour and Taxation Rates

Left of centre commentator, Neal Lawson recently dilated on New Labour and class. He argued that Blairism's abandonment of the class war of Old Labour and acceptance of 'globalisation' had cast us all in thrall to the narrow elite which controlled the world's newly formed capitalist constellations. The concomitant of this has been the preservation of inequality at Thatcherite levels and the freezing of social mobility. A 'reward' has been Francis Maude saying 'one of the great achievments of New Labour is to have taken the class out of politics'.

We have to acknowledge that inequality has not changed since the end of the eighties, despite massive handouts by Gordon Brown. But, capitalism, as we know, produces winners and losers and in the globalised world, these pressures have hugely increased. To have arrested growing inequality in these circumstances is therefore no mean achievement. Having said that we can all see the increased polarity with a new uber class of super-rich and an underclass of cheap- often imported- underlabourers to do the dirty jobs.

It is this extension of our class profile which is worrying and which New Labour ought to address. The mega- salaries handed out to top executives now demeans our national life and replicates practice in the USA where inequality is nothing short of obscene. Such grossly unfair handouts are a constant insult to those who do more socially useful tasks for minimal reward. Maybe seventies style tax rates of 98 per cent were far too punitive but some increase in higher tax rates would at least be a sign that the government now disapproves of this tendency rather than 'being intensely relaxed about people becoming filthy rich' as Mandelson infamously said of New Labour shortly after it had been elected.

New Labour has not really taken the class out of British politics, just as John Major's 1990 aspiration to the same end remained unfulfilled. But just because the concept has been ignored and stuffed out of sight to avoid embarrassment, does not mean it has gone away or is any less relevant now than it was under 'Old' Labour.

One major reason why I am enthusiastic about 'New Labour' is that 'it' ('they/we'?) are interested in practical politics as much as, or more than, theoretical politics.

I know from the experience of my elderly in-laws who worked hard but couldn't afford to pay for a pension (they squandered their money on frivolities like food) that this Labour government dramatically improved their share of the national cake. Forty pounds a week extra pension credit may not seem like much to some but it meant that for the first time in their long lives they had money left over each month to save for luxuries such as presents for their grandchildren.

Excuse my name-dropping but I spoke to Tony Blair about high rate taxes before the last election (I've now used up my personal allocation of his time!). I asked him why he didn't support the LibDem's 50p tax proposal for higher earners. His answer was straightforward, he didn't think it would raise much more money and he thought it would send the wrong signals to the entrepreneurs on whom much of our economic success depends.

He's right. I know from my own working life that many senior executives can, in effect, chose where they get paid. Even a relatively lowly manager such as I could have had some of his salary paid in pretty well any European or North American country. For directors even more opportunities exist.

As you say, in our globalised world, even stabilising the situation is a fine achievement. I know such pragmatism won't satisfy the 'simple solutions' brigade but it sure beats the only real alternative, viz a Tory government......
Why is inequality in the UK, as measured by the Gini Co-efficient, so much higher than in other comparable European countries (France, Germany, Sweden, Denmark, Norway, the Netherands, Ireland, etc), and higher than in Canada and Japan (though not as high as the USA)? Aren't they also subject to the pressures of globalisation? The World Economic Forum's Global Competitiveness Report places many of these countries ahead of the UK (Sweden, Denmark, Norway, Japan, the Netherlands) and Canada and Germany are virtually on a par.
Politaholic's question is a good one. I think that part of the answer is that many European CEOs and the like choose to base themselves in the UK because our income tax rates are lower. If we put them up they'd go elsewhere. But we also have a larger proportion of our population that benefits from historic wealth (ie stuff inherited from robber barons, King's cronies and suchlike of a few centuries back) than many of the other countries he mentions do. There is a stronger case for putting up inheritance tax (which the Tories would abolish) than there is for putting up income tax. But it is still fraught with problems, these are powerful people.....
Good points Hughesey and Politaholic. I'm more interested in reining in supersalaries than in drawling tax from them and accept increased taxes for the rich might not give much of a yield. But giving shareholders the chance to balk at high salaries seems to have stalled as far as my undderstanding of the DTI's actions are concerned. So tax seems to be the only way- short of revolution(that's a mischievous aside by the way, as I've never favoured that route).
Agree our low tax rates and the 'domicile' loop hole explains some of our Gini Coefficient rating, but it's also the case that US board members on British companies- I'm thinking of Giardino(is that the right name? sounds too much like a member of the Mafia) on board of privatised British Gas- have helped spread the culture of massive salaries over the Atlantic. The really depressing aspect of all this is that if Labour are this tolerant of rampant inequality, what's it going to be like if the soddin Tories ever get in?
"what's it going to be like if the soddin Tories ever get in?" - I'm cursed with a good memory (I can even remember the Suez crisis) and I know just what it'll be like if they get back in - which is one reason why I tramp the streets urging people to vote Labour!

btw I'm not sure that Labour tolerate these obscene salaries so much as realise that there's little they can do about them without bringing the whole house of cards down. The powers of a government in a country like ours are sadly more limited than most people appear to realise. I liked the John Lewis principal whereby the most highly paid person wasn't allowed to earn more per hour than twenty (or was it forty?) times the lowest. Don't know if they still stick to this rule and it's a nice quirk that such a 'worker's co-operative' sells mostly to the wealthy upper middle classes. If applied more widely there'd be some poorer CEOs or wealthier cleaners about...
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