måndag 10 september 2007

Cutting the pay gap

"Nearly 85% of Britons want a smaller gap between rich and poor, with just 34% believing Britain became fairer under Tony Blair, according to a poll of 3,000 voters conducted by YouGov for the Fabian Society. It found only 2% believed much progress had been made in narrowing the gap between rich and poor in the past 10 years. The poll is one of the best indicators of the public mood as Gordon Brown makes his strategic choices for the spending review. The findings show the public believes it is possible to reduce the gap between poor and rich significantly without damaging the economy, but there is support only for targeted tax increases. Nearly 80% thought taxes could be raised on big company profits and 67% supported a rise in the top rate to 50% for those earning over £100,000 a year."

The widening gap between rich and poor in Britain is obviously something that a lot of people are worried about, but the statistics about wanting higher taxes on big company profits and people earning over £100,000 a year sounds as if it has come from asking people leading questions.

The depressing thing is that a respected body like the Fabian Society cannot break away from the old assumptions that amount to nothing more than "Soak the Rich". Even within the accepted framework of thought, they could, for instance have asked questions like "do you think that tax thresholds should be raised so that poor people pay less tax?" Or "do you think that VAT should be cut?"

The problem with asking any such questions is that almost nobody bothers to think through the ultimate effects of what they are being asked to give an opinion on.

"Soaking the rich" is a notion based on emotion, principally that of envy. It is a bad starting point. It ignores the fact that people become rich in many different ways. If people have earned their wealth from hard work and the application of their intelligence, why should they not keep all of it? I have become quite rich because many years ago I bought a house, an ex-slum, in a town which subsequently became fashionable and was at the receiving end of a lot of public investment. I am just small fry but in Britain the way to become seriously rich is not through hard work and the application of intelligence, but through playing the property market, with the help of some good luck. Sadly, the think tankers who work for the Fabian Society and similar bodies are unable to grasp the fact that there are different routes to becoming rich, some of them legitimate and others merely parasitic.

The end result of soaking the rich is that they just arrange their affairs to avoid their tax liabilities. The tax system is full of loopholes - it is, indeed, a construction of loopholes, like a string bag. "The Rich" can well afford to pay for the advice needed to escape the net. Companies can do even better. They set up operations in different countries and with clever internal accounting the profits magically pop up where tax rates are lowest.

It is depressing that the people who could shift the terms of public debate can do no better than keep on recycling the same tired old concepts and ways of looking at the world. And why is this? Think tanks are a popular place for freshly qualified graduates to work and they have the pick of the bunch. But most of them have never even had a Saturday job at a market stall and know nothing about the way the economy works on the ground. And they will have have been taught by the most brilliant of the previous generation who have gone straight into the world of academia and also know nothing about the way the economy works on the ground. Yet this is the source of the body of "knowledge" on which governments base their policies.

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