By Kate Pickett and Richard Wilkinson
To end austerity and make the economy work better for the whole country requires transforming the tax system. It is time for the UK to have a grown-up, national conversation about tax, to gain support for a radical tax regime that will allow it to end austerity, adequately fund public services and reduce inequality. And we need tax records to be publicly available. It’s time to end the British coyness about money.
We have written extensively, in our books The Spirit Level and The Inner Level, about the damage caused by income inequality to population health and social cohesion, and the need to reduce inequality as part of a transition to a sustainable economy that maximises well-being rather than GDP. But the UK already has a policy framework and (theoretical) commitment to reducing income inequality, as this is in the United Nations Sustainable Development Goals. The UK signed up to those goals – and people must hold the government to account on its progress. But that progress will take time and austerity must end now.
We have also written about the need to embed greater equality into our culture of work through enhancing economic democracy – by which we mean everything from employee representation on company boards to more employee-owned businesses. As well as enhancing productivity, there is ample evidence that greater economic democracy reduces pay differentials within companies, so reducing pre-tax income inequality.
Embedding economic democracy into UK workplaces would be a robust way to create a more equal society. It would make it more resilient to changes of government than policies of redistribution designed to reduce income inequality through taxing and then giving out benefits. But again, this takes time.
So, our top policy for ending austerity (and which will also tackle inequality) has to be action on taxes. The immense damage being caused by austerity – rising mortality rates, the end of gains in life expectancy, the phenomenal and inexcusable increases in food insecurity and hunger, housing insecurity and homelessness – demands urgent and radical change.
We can’t afford incremental change when babies are dying and old people are stuck in hospital to despair and die, as if there is not enough money for health and social care. The UK is the fifth-largest economy in the world and so of course it can choose to provide excellent public services and a generous social security safety net if it wants to. All it has to do is stop allowing the richest to continue to extract disproportionate income and wealth by taxing them properly.
We’re sometimes told that if we raise top tax rates, the talented elite will leave and those remaining will be the poorer because they are the wealth makers. In fact, there is evidence that business executives who are paid less than the average produce more value for shareholders than executives who are paid more. And the global financial crisis belies the idea that those at the top have special expertise, experience (or moral values) that will protect the country’s economic well-being. Under their watch, a toxic mix of greed, deregulation and fiendishly complex financial instruments are widely blamed for the 2007-08 crash.
So let those who will depart, go. If the country’s social policy is aimed at creating the greatest good for the greatest number of people, then increasing top tax rates is a no-brainer. But a national conversation is needed to think about what – and who – we want to tax more, what – or whom – we want to tax less, and what we want to do with an increased public purse. In the US, politicians including Alexandria Ocasio-Cortez are dramatically changing the public debate by calling for a 70% top tax rate to fund a Green New Deal. That’s exactly the kind of proposal the UK needs to be debating.
The financial journalist, Katrin Marcal, writing in the Financial Times newspaper about Sweden’s system of making all tax records public, made the point that:
the salaries of BBC presenters such as Gary Lineker or John Humphrys are not strictly private matters – they are part of a larger pattern in which the average pay gap between men and women in the UK is 18%.
The same is true for the pay gap between rich and poor. It creates such profound problems that tax transparency can only be in the public interest. Knowledge about earnings and contributions could underpin that national conversation about how the country wants to tax and how it wants to spend. It could also go a long way toward curbing aggressive tax avoidance. Tackling this, along with tax evasion, must also form part of any new tax strategy by the government.
In five years’ time the UK could create profound improvements in its quality of life. It could have a better-funded NHS and more money available for preventive health interventions. It could have more children’s centres and public libraries, and better equipped primary and secondary schools. It could choose to invest in improved public transport and green energy, mend its railways and create beautiful parks and cityscapes.
It could provide properly-funded social care for its ageing population and have more money for research and development. It could probably afford all of these things. Britain simply needs to get its tax policy lined up with its vision of a good society.
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