Monday, April 02, 2007


Taxing Rich Only Way to Compensate for Effects of Globalization

Recent figures on poverty and inequality form the Office of National Statistics and the Institute for Fiscal Studies make sobering reading for this Labour government as Larry Elliot writes in today's Guardian. As my picture suggests, the rich are getting richer and the poor poorer- the opposite of Labour's basic mission since it formed in 1901. Elliot notes the slow down in income growth: from 3.1% 1997-2001, to 1.7% 2001-5; and 1.3% since then. Elliot warns that 'A squeeze on real incomes leads to political disaffection'. Such warnings are strengthened by the fact that during the past two years growth has been at the top end of the scale while the bottom quintile has actually pegged back a shade in the face of government pay restraint, cheap overseas products and the inflow of low wage workers from overseas. As Elliot observes:

Globalisation is used by those at the top to explain both why they should be paid more (talent is mobile in the modern world) and why their workers should be paid less (the disciplines of the borderless world).

Poverty is calculated at 60% of median income- the level which bisects income distribution- meaning that with the latter at £362 per week the former is £217 but 1.5 million hover above that, only £10 a week better off. The problem is about to become more severe. To achieve his object of halving child poverty by 2010 Brown will have to bite the bullet, says Elliot, and tax the rich more severely. He suggests increasing the top tax rate by 1% over the next three years would raise the necessary £4bn to achieve his poverty reduction goal.

Since 1997 Brown has redistributed income substantially. The two poorest tenths of the population have benefited by 12% while the richest tenth have lost out to the tune of 6%. But the rich are still doing very well out of New Labour and can clearly afford to pay more. Tax increases are never popular even when the rich minority are being squeezed but to any doubters I'd say this: if the Conservatives get in in 2009, instead of inching ahead, inequalities will soar and the redistributive achievements of this often unfairly slated government will soon be destroyed.

The Economist weighs in this week with its own analysis[page 40- I can't afford to subscribe to the online version]. It sums up Blair's 1997 strategy as: 'The rich can get as rich as thy like, so long as the poor are getting better-off too.' It concludes that the position of the poor has deteriorated to the extent that taxes may have to be looked at again: 'The 20 year old settlement that Mr Blair so eloquently summed up is now looking increasingly shaky.'

A rare time to defend Nu Labor. So what if the gap has got bigger. The more important thing is that the poor have got richer. Their real living standards have improved. The truth is that most of "the poor" in Britain are not that poor, and most of those deserve to be a damned sight poorer than they actually are. Not like in other countries, where some people really are desperately poor and have no hope. I actually feel sorry for them, not poor people in Britain.

I don't ever hear the poor(if there are any of those in Britain any more, and I doubt it) complaining about the "gap in wealth", rather I hear them complain of their poor absolute living standards.
If taxing the rich is such a fine idea how is it that all three mainstream parties in the UK and most in Europe have rejected it as part of their strategy?
I certainly wouldn't want to rule out - for ever - a policy of soaking the rich, I'm just wary of the idea that it's impossible to make a substantial difference to the poor without going that far. Where would we go from there, if the problem were not solved forever? The sums we're raising and spending as a government are vaster than we could have hoped for in the wilderness of the 1990s, and yet the poor are only "less poor" than they were. Sure, taxes can rise, and loopholes can be closed, but they can't be answers to the fundamental problem...
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