inequality
Badenoch’s spinning a totally fabricated yarn about the origins of the UK’s wealth
Kemi Badenoch was reported by the Guardian yesterday to have said:
It worries me when I hear people talk about wealth and success in the UK as being down to colonialism or imperialism or white privilege or whatever.
They added:
Instead, she said the Glorious Revolution of 1688 – which led to the development of the UK constitution and solidified the role of parliament – should be credited for providing the kind of economic certainty that paved the way for the Industrial Revolution.
As I said in the tweet that I issued in response:
There is nonsense, bullshit, fabrication and then whatever it is that Kemi Badenoch has to say on any subject.
If I failed to hide my contempt, I do not apologise.
I almost felt like asking on Twitter “Whatever did the Glorious Revolution do for you?“ Apart from the suppression of Catholicism, the creation of the Bank of England, the institution of the national debt, the imposition of a monarch who believed in the importance of the navy, largely as a weapon for imperialist, colonialist inspired territorial expansion, and who paved the way for the subjection of Scotland to the whim of the English, what did the Glorious Revolution do for you, after all?
The one thing I think we can say with confidence is that it did not deliver the industrial revolution.
It did however fuel demand for income to fund royal fantasies and foibles that most definitely required the exploitation of colonies in the USA, the Caribbean, West Africa and elsewhere.
So is Badenoch wrong? In my opinion, she is not just wrong, but is actively misrepresenting the truth.
Why would she do that? Partly because she does, for her own reasons, wish to deny Britain’s racist past, and present, because her denial of that racism is itself racist, in my opinion.
As significantly, she also wants to deny the role of monopoly-based rentier capitalism and exploitation as the common foundations of the wealth of this country.
She is, instead, pretending that entrepreneurial activity did deliver that wealth. But that is largely untrue. For example, those canal and coal pioneers who, if anyone did, started the industrial revolution later in the 18th century were able to do so on the basis of land ownership, wealth and property, all of which was supported by extraction of profits resulting from privilege, patronage, expropriation, rents and exploitation. Some of that undoubtedly would have been derived from colonial activity.
In that case Badenoch’s commentary does not just fail; it stinks because she is denying the truth and presenting a wholly false, politically inspired narrative that is unsupportable by evidence. But when did someone like her worry about things like that?
Tallking to AccountingWEB
AccountingWEB published this podcast interview with me yesterday.
We talk about the Taxing Wealth Report 2024 in the main, but also about my concerns about the failings of the Institute of Chartered Accountants in England and Wales.
It was a lively interview, with quite a lot of animated comment by me, if I am honest.
I have an affection for AccountingWEB. I was a contributing editor for about a decade.
Scotonomics on the Taxing Wealth Report
I was on Scotonomics last night, discussing the Taxing Wealth Report, and right at the end its relevance for Scotland.
For reasons I can’t explain the YouTube link will not embed here, but you can watch the video by clicking here.
The Inequality of Wealth: Why it Matters and How to Fix it – review
In The Inequality of Wealth: Why it Matters and How to Fix it, Liam Byrne examines the UK’s deep-seated inequality which has channelled wealth away from ordinary people (disproportionately youth and minority groups) and into the hands of the super-rich. While the solutions Byrne presents – from boosting wages to implementing an annual wealth tax – are not new, the book synthesises them into a coherent strategy for tackling this critical problem, writes Vamika Goel.
Liam Byrne launched the book at an LSE event in February 2024: watch it back on YouTube.
The Inequality of Wealth: Why it Matters and How to Fix it. Liam Byrne. Bloomsbury. 2024.
Wealth inequality, a pressing issue of our times, reinforces all other forms of inequality, from social and political to ecological inequality. In The Inequality of Wealth, Liam Byrne recognises this fact and emphasises the need to move away from a narrow focus on addressing income inequality. He reaffirms the need to deal with wealth inequality and address the issue of inequality holistically.
The book adopts a multi-pronged approach to addressing wealth inequality in the UK. It is divided into three parts. The first part discusses the extent of wealth inequality and how it affects democracy and damages meritocracy. The second part discusses the emergence of neoliberalism which has promoted unequal distribution of resources, while the third part proposes corrective measures to reverse wealth inequality.
According to Forbes, the world’s billionaires have doubled from 1001 to 2640 during 2010 and 2022, adding around £7.1 trillion to their combined wealth.
The first chapter reflects on the exorbitant surge in wealth globally during the past decade, primarily enjoyed by the world’s super-rich. According to Forbes, the world’s billionaires have doubled from 1001 to 2640 during 2010 and 2022, adding around £7.1 trillion to their combined wealth. In the UK, wealth disparity has risen, with the top 10 per cent holding about half of the wealth while the bottom 50 per cent held only 5 per cent in Great Britain in 2018-20, as per the Wealth and Assets Survey. Byrne claims that this inequality has only been exacerbated in recent years. Despite adverse negative shocks like the COVID-19 pandemic, austerity, and Brexit, about £87 billion has been added to UK billionaire’s wealth during 2021 and 2023.
The book highlights that youth have borne the brunt of this widening wealth disparity. According to data from Office of National Statistics (ONS), those aged between twenty and forty, hold only eight per cent of Britain’s total wealth. In contrast, people aged between fifty-five and seventy-five owned over half of Britain’s total wealth in 2018-20. Their prospects of wealth accumulation have further declined with a squeeze in wages and booming asset prices as a result of quantitative easing. Byrne contends that this has made Britain an “inheritocracy” wherein a person’s parental wealth, social connections and the ability to access good education are more important determinants of wealth than hard work and talent.
Those aged between twenty and forty, hold only eight per cent of Britain’s total wealth.
The second part of the book explores the spread of the idea of neoliberalism since the 1980s, that helped sustain and flourish wealth inequality. Neoliberalism promoted the idea of market supremacism and reduced the role of the state. The later chapters in this section engage in depth with rent-seeking behaviour by corporates and the increase in market concentration via mergers and acquisitions.
The third part of the book proposes corrective measures needed to reverse wealth inequality. The book contends that the starting point of arresting wealth disparity is to boost labour incomes by creating well-paying, knowledge-intensive jobs. Byrne does not elucidate as to what he means by these knowledge-intensive jobs. Usually, knowledge-intensive jobs are those in financial services, high-tech manufacturing, health, telecommunications, and education. Byrne argues that earnings in knowledge-intensive jobs are about 30 per cent higher than average pay. However, these jobs accounted for only about a fifth of all jobs and a quarter of economic output in 2021. Hence, promoting such jobs will significantly raise workers’ earnings.
The author maintains that knowledge-intensive jobs can be generated by giving impetus to state-backed research and development (R&D) spending and innovation. He draws attention to low growth in R&D spending in UK at per cent between 2000 and 2020, when global R&D spending has more than tripled to £1.9 trillion. However, there are some fundamental concerns regarding the effectiveness of such reforms in curbing inequality and ensuring social mobility.
People of Black African ethnicity are disproportionately employed in caring, leisure and other service-based occupations. They also hold about eight times less wealth than their white counterparts.
First, knowledge-intensive jobs are highly capital-intensive and high R&D spending may not generate enough jobs or may make some existing jobs redundant. The author has not substantiated his claim with any empirical evidence. Second, it’s possible that innovation spending and jobs perpetuate the existing social and regional inequalities. In the UK, about half of all knowledge-intensive jobs are generated in just two regions: London and the South East. To address regional disparities, Byrne suggests setting up regional banks, training skills and integration at the regional level, and promoting Research and Development (R&D) in small and medium enterprises (SMEs) via tax credits and innovation vouchers. However, no mechanism is laid out with which to tackle social inequality. People of Black African ethnicity are disproportionately employed in caring, leisure and other service-based occupations. They also hold about eight times less wealth than their white counterparts. It seems likely that new knowledge-intensive jobs would disproportionately benefit people of white ethnicity from wealthy backgrounds with connections and access to good education.
Another measure specified to boost labour incomes is to shift towards a system that adequately rewards workers for their services, that is, a system of “civic capitalism”, as coined by Colin Hay. Byrne alleges that one step to ensure this is to create an in-built mechanism that ensures workers’ savings are channelled into companies that adopt sustainable and labour-friendly practices. One of the ways to achieve this is to require the National Employment Savings Trust (NEST) sets up guidelines and benchmarks for social and environmental goals for the companies in which it invests. In this way, Byrne has adopted an indirect approach to workers’ welfare, as opposed to a direct approach through promoting trade unionisation among workers, which in the UK has fallen from 32.4 per cent in 1995 to 22.3 per cent in 2022 . This would enhance workers’ bargaining power to increase their wages and secure better benefits and security.
Apart from boosting workers’ wages, Byrne underscores the need to create wealth for all, ie, a wealth-owning democracy. Inspired by Michael Sherraden’s idea of “asset-based welfare” and Individual Development Accounts, Byrne proposes to create a Universal Savings Account that enables every individual to accumulate both pension and human capital. He advocates that a Universal Savings Account can be created by merging Auto-enrolment pension accounts, Lifetime Individual Savings Accounts (LISAs) and the Help to Save scheme. Re-iterating the proposals from the pioneering studies by the Institute of Fiscal Studies and the Resolution Foundation, Byrne proposes to expand the coverage of the auto-enrolment pension scheme to low-income earners, the self-employed and youth aged between 16 and 18, to increase savings rates and to reduce withdrawal limits from the pension fund.
In the last chapter, Byrne emphasises the enlargement of net household wealth relative to GDP from 435 per cent in 2000 to about 700 per cent by 2017, without any commensurate change in wealth-related taxes to GDP share. This has created a problem of unequal taxation across income groups, which, he states, must be rectified. To do this, he endorses Arun Advani, Alex Cobham and James Meade’s proposals of introducing an annual wealth tax.
Byrne attempts to encapsulate an existing range of ideas for reform pertaining to diverse domains like state-backed institutions, corporate law restructuring, social security and tax reforms.
Overall, the book presents a coherent strategy to reverse wealth disparity and build a wealth-owning democracy through a guiding principle of delivering social justice and promoting equality. The remedies for reversing wealth inequality offered in the book are not new; rather, Byrne attempts to encapsulate an existing range of ideas for reform pertaining to diverse domains like state-backed institutions, corporate law restructuring, social security and tax reforms. The pathway for the acceptance and adoption of all these reforms is no mean feat; it would entail a shift from a narrow focus on profit-maximisation towards holistic attempts to adequately reward workers for their services and improve their wellbeing.
Note: This post gives the views of the author, and not the position of the LSE Review of Books blog, or of the London School of Economics and Political Science.
Image credit: Cagkan Sayin on Shutterstock.
The dividing line between those with just enough income and those who have sufficient to fund the increase in their wealth
I was intrigued by a comment made by a person posting on this blog yesterday who claimed to be named Colin. His claim was that he was not wealthy but he would, nonetheless, reduce his work effort if his tax rate was increased as a consequence of tax relief on his pension contributions being reduced.
Colin did, inadvertently, provide an obvious definition of the divide between having sufficient income to live on, and having that level of income which supports the accumulation of wealth.
If those with sufficient, or less, income suffer a reduction in their take-home pay then their obvious reaction is to increase their work effort to recover the sum lost, or their absolute standard of living will decline, potentially at very real actual cost to the wellbeing of themselves and their families.
In contrast, a person with sufficient income to sustain their wealth can respond to a reduction in their income if it is, for example, caused by an increase in their tax rate by then voluntarily reducing their work effort, creating a further potential reduction in their wellbeing over and above that already created by the tax increase. In other words, they can afford to choose to reduce their financial well-being without actually prejudicing the ability of themselves or their family to meet their needs. As a consequence, it follows that they must have income in excess of that required to meet need. That provides a clear indication that they have income that supports their increase in wealth, and not their current requirements.
Of course the point at which this occurs will vary between people, but the fact that this divide so obviously exists and that those who have income that supports wealth are unaware of the fact, is in itself interesting, and a potential basis for policy creation.
Why does the average higher rate tax payer get more subsidy for their pension savings each year than anyone on Universal Credit is paid?
I published this video on TikTok this morning.
As I noted on Twitter:
Why does the average higher rate tax payer get more subsidy for their pension savings each year than anyone on Universal Credit is paid and many old age pensioners get per annum? What is the sense in that? And where is the fairness?
The transcript is as follows:
People who are wealthy in the UK get benefits of, on average, at least £8, 000 a year. Why is that? And why is that fair?
Now let's be clear what I'm talking about. The benefits that the wealthiest people in the UK get on average, and I stress that ‘on average’ point, relate to the pension contributions that they make to their pension funds every year.
The total cost of the tax subsidy to those who are wealthy in terms of the pension contributions that they make amounts to at least £38 billion a year. At the time that I was doing the data and in the year that that information relates to, there were around 4. 4 million higher rate taxpayers - there are more now, but the data on tax relief costs will have gone up as well - that's an average of over £8,000 pounds a year for each and every one of them.
Now, of course, some of them don't pay anything into a pension and some of them pay a great deal more than average into a pension. But we're still in the situation that they get benefits of more than £8,000 a year each on average.
Compare that to a person who's on the old estate pension scheme. This year, they're going to get around £8,800 a year in pension.
Compare that to a person who's on the new state pension scheme, which applies to younger state pensioners. They get £11, 500 a year.
Compare it also to a person who's on Universal Credit. A single person who's on Universal Credit and is over the age of 25; they get around £4,800 a year.
So why are we giving such an enormous amount of money to the wealthy to subsidise their pensions when there are people who are living in poverty in the UK who have such small amounts to live on?
It makes literally no sense at all. So, I've made a straightforward recommendation in the Taxing Wealth Report, and that is that the tax relief on the contributions that the wealthy make to their pensions should be reduced to the basic rate of tax. At present, they get that tax relief at either the 40 percent tax rate or even the 45 percent tax rate if they are earning over £125,000 a year.
If we reduce that to the 20 percent tax rate, which the 85 plus percent people in the UK pay in terms of income tax, then we would save £12. 5 billion a year of the cost of subsidising the savings of the wealthy. And that will be enough to give every single old age pensioner in this country an extra £1,000 of income a year.
Now, which is better? That we subsidise the wealthy, or we give those who are in need a bigger pension? I think the answer is glaringly obvious. It's even obvious for the economy as a whole. Because those pensioners would spend that money and give a massive boost to the economy, literally lift growth, and deliver a better outcome for everybody in society, including the wealthy, because we'd all be better off because of their spending.
This current structure of giving subsidies, benefits if you like, to the wealthy for their pensions does not make sense. We have to create a fairer, better and more honest and accountable system where people know just how skewed our society's system of benefits is towards those with wealth. It's unfair. It has to end. And I'm suggesting to you that you should be asking your politicians about how they will deliver better outcomes for us all.
There is more on this in the Taxing Wealth Report 2024, here.
Financial education of young people is failing. The Institute of Chartered Accountants in England and Wales has the funds available to address this issue, but is refusing to do so.
As the FT reports this morning:
Last summer I asked the Institute of Chartered Accountants in England and Wales to invest in financial education for young people. The suggestion was that:
Around £100 million to be spent over ten years to provide education for young people in the financial skills that they will need when they either leave home or enter the world of work, including:
- The basics of tax and how it impacts them.
- Types of employment and self-employment
- How banking works.
- Saving, borrowing, interest rates and related issues.
- Renting and mortgages.
- How to avoid being conned and online security.
- How and when to ask for help, and who from.
Issues like budgeting would have been part of this at a more basic level because none of the rest makes sense without it.
The ICAEW said there was no demand for this; others were doing it, and they did not have the resources. All those claims were obviously wrong.
They still have £148 million of revenues from fines paid by firms that failed the public over the last decade sitting on their balance sheet, and as far as we currently know, they are all available to use for this purpose, which would advance the reputation of accounting considerably and, therefore, be within the scope of its public purpose as defined by its Royal Charter.
They did not, however, want to undertake that public role or accept that responsibility to society.
Now do you see why I wanted to quit? How can you want to be a member of an organisation whose business model is to enrich itself and its members at cost to society at large because of the failure of some of those members to undertake their work to a proper professional standard that meets public need?
Modern Political Parties are Cartels
This is excellent from journalist and self-styled ‘Moet Marxist’, Grace Blakeley: Have to say that I much agree. The Labour Party is, I fear, since Corbyn, certainly not democratic and when you look at the people that Labour are ‘consulting’ on their policies, it really does look as though they are asking the people with... Read more
The Taxing Wealth Report and tax justice
I posted this video on YouTube this morning:
The transcript is as follows:
Right at the very heart of the Taxing Wealth Report is the idea of tax justice.
Fairness matters when it comes to taxation. People should be treated equally when they are in equal situations, and people who are wealthy should contribute more to society than those who have less income and wealth. Those ideas are absolutely fundamental to the concepts of tax justice, and they are fundamental to the ideas within the Taxing Wealth Report.
Let me explain those in a little more detail. When we're talking about people in a similar situation in the sense that they have the same overall level of income then we are discussing horizontal tax equity when we discuss their tax affairs. It should, in my opinion, be the case that whatever the source of a person's income they should pay the same amount of tax.
In other words, if a person earns their income from working, or if they get their income from rent or dividends or interest, or if they make their income from capital gains, which are the profits that people make on the sale of assets, they should still pay the same amount of tax, whatever that source might be.
That is not what happens in the UK at present. We are a very long way, in fact, from that happening here in the UK. That’s because of the allowances and reliefs and exemptions that are within the tax system mean that those who work for a living pay the most tax on their income and that those who live off capital gains, that is, the wealthy who can sell assets to realise money on which they can then live, pay the least amount of tax.
We saw that very vividly in 2024 when Rishi Sunak published his tax return for the year 2022/23 and his overall rate of tax was just 22% or so. If the recommendations in the Taxing Wealth Report had been in place and had been applied to his tax return, he would have paid tax at well over 50%. Now, let me explain why these inequalities arise, very briefly, and why the Taxing Wealth Report tackles them.
The inequalities are quite easy to explain. Capital gains tax is charged at roughly half the rate of income tax, and that's ridiculous. There is no reason why a person who makes money from profiteering should pay tax at half the rate of somebody who has to work for a living. That's crazy. It's wrong.
But there's another bias within the tax system which heavily favours those with wealth. And that is that income from interest and from dividends and from rents only results in the payment of income tax. But when a person works for a living, they also pay national insurance. In fact, not only do they pay national insurance, but their employer pays national insurance as well, at a much higher rate than the employee does now.
So, the consequence is that earnings from employment are much more heavily taxed than anything else. So, in the Taxing Wealth Report, I recommend that the rate of tax paid on capital gains should be the income tax rate, and I suggest that income from rents and dividends and interest and capital gains should all be subject to what is called an investment income surcharge.
That is an extra tax equivalent to national insurance at an approximate rate which combines both the employee's contribution and the employer's contribution, so that the person who gets income from those sources has to also makes a fair contribution to the overall costs of running our society, and makes a fair contribution to the way in which the government must operate if we are all to live in an appropriate fashion.
That is the way to create horizontal tax equity. And there's one other change as well. And that is, that people in the UK should all get tax allowances at the same rate. So, people who make a contribution to their pension should get tax relief at the basic rate of income tax, I suggest, whatever their overall level of income. That means that the 85 percent of the UK who only pay the basic rate of income tax should get the same rate of tax relief as a person who earns a million pounds. Pension contributions should only get tax relief at this lower rate, as should donations to charity also only get tax relief at that rate, because it's totally unfair that the wealthy are subsidized when it comes to their donations to charity or their contributions to their pension fund in a way that those on lower incomes are not. Those allowances create bias. That’s unreasonable because it destroys horizontal tax equity.
Then there is the concept of vertical tax equity. Vertical tax equity means that we should have a progressive tax system. It's quite simple. Those on low income clearly should be taxed less than those on high income. And the economic logic is quite straightforward.
If you pay a person on low income, an additional pound, they will value it much more than if you pay an additional pound to somebody who earns a hundred thousand a year or a million pounds a year. I think that's pretty obvious. The person on low income will actually notice the difference. The person on high income frankly just won't care whether they've got an extra pound or not.
Therefore, the person on a high income can afford to give away more of their income to pay tax and still be relatively as well off and suffer no more harm to their economic well-being than the person on low income, who should pay much less tax because the relative cost to them of tax paid is much higher given that every pound is worth a lot more to them.
Now again, this is a basic concept of fairness. But we don't have such a system in the UK at present. In fact, those who are on the lowest incomes in the UK pay the highest overall rates of tax. And right across the middle bands of income, the rate of tax is pretty much flat. There's very little difference in the overall rate of tax paid by people who are earning £25,000 a year and people are earning £60,000 a year.
But when it comes to the highest rates of income, when we take into consideration overall increases in financial wellbeing in a year, which combines their capital gains with their incomes to look at how much their overall wealth has increased - which is an entirely fair thing to do in accounting terms - then they pay much lower rates of tax than anybody else in the country as a whole.
In fact, if those on the lowest levels of income pay around 44% of their income in tax - not income tax by the way, but taxes like VAT or the BBC license fee or council tax and so on - and when we compare their situation of paying this extraordinary rate of tax of 44% to the situation of those who are on the highest levels of income, they only pay just over 20%, as we saw Rishi Sunak do. His overall rate of tax was just over 22%. Now, what that means is that we have a completely regressive tax system in the UK. In other words, the system works exactly the opposite way from that which it should if we were to deliver tax justice, and real fairness.
We have vertical inequity rather than vertical tax equity. The Taxing Wealth Report recognises that, and it tackles those issues because it says everybody should make their contribution to society in a fair way. We aren't doing that. The Taxing Wealth Report basically tries to knock off the rough edges within the tax system, which creates this unfairness and bias towards wealth, and seeks to restore a situation where the tax system is biased towards the person on ordinary levels of income.
That's most people in the UK, of course. I'm not being disparaging by saying ordinary. I just mean average. And the bias in the tax system should be in their favour, not in favour of wealth. That's what the Taxing Wealth Report tries to achieve with the recommendations it makes. And I think as a result, it represents fairness, it represents tax justice, and it represents what a government interested in the fair treatment of people in this country should be doing.
Book Launch: Ben Spies-Butcher, ‘Politics, Inequality and the Australian Welfare State After Liberalisation’
UPDATE: THIS EVENT HAS BEEN CANCELLED AND WILL BE RESCHEDULED. STAY TUNED!
Join Ben Spies-Butcher, Frank Stilwell and Gabrielle Meagher to launch Ben’s new book, Politics, Inequality and the Australian Welfare State After Liberalisation.
Where: New Britannia Hotel, 103 Cleveland St, Darlington
When: Wednesday 17th April, 5.30 for 6pm-7.30pm
About Politics, Inequality and the Australian Welfare State After Liberalisation by Assoc Prof Ben Spies-Butcher
Neoliberalism has made Australia less equal and our welfare system more brutal. But it has also changed the politics of inequality. Using examples from health to housing, unemployment to universities, this book identifies opportunities to make a more equal Australia. Published by Anthem Studies in Australian Politics, Economics and Society. More information and to purchase the book visit: https://anthempress.com/the-politics-of-the-australian-welfare-state-after-liberalisation-hb
Catering: Drinks and food available from the venue.
Getting there: 8 mins walk from Redfern Station, or 6 mins from Broadway. On the 352 bus route. Some timed car parking available.
The post Book Launch: Ben Spies-Butcher, ‘Politics, Inequality and the Australian Welfare State After Liberalisation’ appeared first on Progress in Political Economy (PPE).