The return of Class War. Not


10:15 am - April 25th 2009

by Dave Osler    


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I just don’t get it. How is it logically consistent to demand cuts in invalidity benefit and public sector pensions as a response to the financial crisis, yet explode in splenetic rage at the idea that the richest of the rich should pay tax at a rate slightly more in line with the bulk of the population?

Could there be just a hint of special pleading on the part of the rightwing press yesterday morning? I mean, are the cream of the punditocracy really arguing that the trouble with this country is that all those hospital porters, teachers, nurses and disabled slackers are poncing off the backbreaking grind of over-worked tax lawyers, advertising gurus, big name television presenters and financial directors?

Maybe my memory is failing me, but I do not remember these commentators getting quite so worked up about Labour’s attempt to scrap the 10p tax band a couple of years back, a move that would have caused genuine hardship for many had not a U-turn been quite so promptly executed.

Yet Alistair Darling’s budget has generated apoplexy in some quarters. The front page of the Daily Telegraph, for instance, runs the banner headline ‘Return of class war’ over a cartoon of Gordon Brown masquerading as Lenin in a Soviet propaganda poster. Yeah right, and Mandelson must be the new Bukharin.

Inside we read ‘Labour reverts to type and raids wealth creators’ while Simon Heffer bemoans ‘a savage and pointless attack on Middle England’, as if those on more than £150,000 a year – which is to say, less than one person in 100 – are somehow representative of this country. He even attempts to resurrect the discredited Reagan-era voodoo economics notion of the Laffer Curve.

Yet according to the most recent stats I have to hand, the poorest one-fifth in the UK pay 36.5% of their income in tax, while the richest one-fifth pay just 35.5%. This is not even the rightwing fantasy of flat tax; it is tilted tax, and tilted towards the better off, at that. Is there something manifestly unfair about a measure that will at best only go part of the way to equalising the taxation burden?

Let’s get some sense of perspective. Even a few years back, the Lib Dems were sufficiently bold to call for a 50p in the pound take on the rather lower threshold of £100,000 a year. How quickly the political right forgets that even during the hey-day of High Thatcherism, the top rate of income tax was 63%; despite his status as a former Trot, Alistair Darling is but a hopeless wuss by comparison to ‘Red Geoff’ Howe.

Correct me if I am being needlessly controversial here, but the basic principle underlying any left of centre take on taxation is simple enough; the more you earn, the more you owe the Inland Revenue.

The idea that the rich should hand over a higher proportion of their income than the less well off has been a mainstay of the broadly progressive outlook since Lloyd George’s people’s budget of 1909, and it is high time the principle was restored.

It is not as if the elite live on another planet. It is unacceptable for a small number of plutocrats to pay little or nothing to the public purse, while benefiting disproportionately from the things for which it pays.

Even if they do use private hospitals and independent schools, who do they think foots the bill for the tax credits that subsidise the low pay on offer to many of their employees, the roads their chauffeurs drive them along, or the streetlights outside their offices, and to give just a handful of examples?

At last the government have done something ‘vaguely Labourish’, as Matthew Engel cleverly puts it in the Financial Times this morning. Clawing back some of the spectacular giveaways doled out to the super-rich under successive governments since 1979 is entirely justifiable. Brown should have done it years ago.

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About the author
Dave Osler is a regular contributor. He is a British journalist and author, ex-punk and ex-Trot. Also at: Dave's Part
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Reader comments


1. Mike Killingworth

Dave, could you please provide a link to (or otherwise source) your stats in para 6? Are you really saying that after twelve years of a Labour government the poor are more heavily taxed than the rich?

Labour moved the tax burden towards the less well-off very quickly after 1997. They had promised not to raise income tax, but were also planning a massive expansion of the state budget. This meant new or increased taxes (“stealth taxes” as they became known) in all areas save for income itself. These tended to be regressive (nearly all of the time in fact).

I don’t know the figures, but in later years this will have been offset by the tax credit system. One of the problems with tax credits is the astonishingly high marginal tax rates now faced by the country’s lowest earners. The other main problems are their sheer inefficiency and the control the government is now able to exert over it’s “client state”. “Locking-in Poverty” might be an apt slogan.

Removing the 10p tax band was a disgrace as it was explicitly designed to increase income tax, thus breaking a promise, but in a secretive manner. The price of this secrecy was to be paid by lower earners. It is true that opposition parties and the media woke up to this ridiculously late, a full year having passed, but this doesn’t absolve Mr Brown or Labour.

After 12 years, are there still people who believe Gordon Brown does anything for anyone other than himself?

“How is it logically consistent to demand cuts in invalidity benefit and public sector pensions as a response to the financial crisis, yet explode in splenetic rage at the idea that the richest of the rich should pay tax at a rate slightly more in line with the bulk of the population?”

Because there’s a risk the 50p rate could lead to a drop in revenue due to people shifting their money around or leaving the country. Those dependent on benefit or state pensions are not in a position to do this. It’s a practical rather than a moral argument.

Excellent post. What next! is basically right in his explanation. The other dimension – as i said on aanother thread – is that labour’s moral taxes have hit the working class particularly hard.

I don’t see, exactly, how the Laffer curve is ‘discredited.’ Presumably you agree that if taxes were at 100% tax revenue would be 0, because no one would work. Likewise, if taxes were at 0% the revenue would be 0. So presumably there is a point in between the two where tax revenues are maximized, right? Tax rises simply do not necessarily translate into a rise in tax revenue, as, for example, the Lawson Tax Cuts (http://www.spectator.co.uk/coffeehouse/2177136/why-nigel-lawson-was-the-most-redistributive-chancellor-of-the-exchequer.thtml) show.

The Laffer curve is certainly not discredited, in fact quite the reverse as TrenchFoot points out. Brown knows this too: he’s despicable not stupid.

There is an awful truth lurking here that the left needs to confront. Thatcher was not an evil nutter hell-bent on destroying and then, perhaps, eating the working-class. Her electoral success was down to her appeal amongst lower-earners and the opportunities created for them (council house sales, wider share ownership and so on). Her very high support amongst trades union members is particularly telling.

The Labour government, on the other hand, has reduced social mobility and poverty traps abound.

To pre-empt the usual name-calling, the above is a simple statement of what’s happened.

The left may hate the right, but the working-class certainly doesn’t. Either the left-wing needs to re-position itself as the voice of the better-off, or it needs to try and understand how real people actually feel.

Well I’m afraid that the IFS is guilty of “voodoo” then, as they seem to believe that the 50% rate will be neutral at best.

The very language of this post suggests that class war is alive and well.

You probably don’t really care whether it’s likely to raise revenue or not.

Pathetic.

Oh – as you obviously haven’t looked into things very carefully – the removal of the personal allowance does create a marginal rate of 63% for income between 100 and 113k.

Happy now?

@8: I’m not sure that factual accuracy was a priority. The 10p tax u-turn was not “promptly executed”. It had been announced the previous year. Brown knew very well what the result would be, though this was denied later (a plea of stupidity if there was one surely?)

And Geoff Howe inherited very high tax rates from the previous labour government.

Etc, etc etc.

A new question for Mr Osler: why should public sector workers be entitled to better pensions than those in the private sector?

10. bluepillnation

@5

I’d say the spectacular collapse of the financial system with the richest 0.1% getting to keep their ill-gotten gains, aided by the laissez-faire policies of the Bush Administration, while the rest of us pay for it, is proof positive that the Laffer Curve and the supply-side theories that grew out of it were nothing more than an unsophisticated con.

@2

How else would you have kept Murdoch on-side? They did the best they could with the limits they were given.

11. bluepillnation

@6
I believe the super-rich saw the working-class people who believed in the Laffer Curve as “useful idiots”.. Part of the con was in convincing the less well off that they could be owners too. The mortgage crisis we’re seeing now is proof positive that it was a shell game.

@9
Because as a rule they get paid less to start with, and the opportunities for advancement are fewer.

Bluepill – you will find that average public sector pay overtook private sector a couple of years ago

And I doubt that the IFS are “useful idiots”

13. bluepillnation

@12
Then shame on the private sector for using globalisation to screw their staff out of a fair wage while their executives pull in obscene bonuses year on year.

The IFS are as the CPS, MigrationWatch and Policy Exchange – a Tory party propaganda arm. They’re more about creating and galvanising the “useful idiots” than “useful idiots” themselves.

Isn’t it the case that about 50% of income tax is raised from the top 10% or so richest people?

If the rich think their tax is becoming overly onerous, aren’t we going to lose some of that 50%?

15. bluepillnation

Given that executive pay has risen over 200% from 1990 whereas the average worker’s pay has risen 4.3% in the same time, I’d say that if they have no right to complain about fixing the problem they helped create.

This financial crisis was created by the executive class claiming that their performance was what drove growth, when the truth was that the “growth” was a Ponzi scheme underwritten by unsustainable rises in house prices. The money that they paid themselves simply didn’t in reality exist until it was paid into their personal offshore accounts.

“the poorest one-fifth in the UK pay 36.5% of their income in tax, while the richest one-fifth pay just 35.5%.”

What’sNext is mostly correct, it was the move to indirect taxation which caused much ofthat. But not all. High income earners have a greater propensity to save….you know, that thing we have to have if the next generation of shiny new machines are going to get built for the next generation to use….capital that is…..than do the poor.

The money is therefore not spent on things which attract those indirect taxes.

17. Katy Newton

Even if they do use private hospitals and independent schools, who do they think foots the bill for the tax credits that subsidise the low pay on offer to many of their employees, the roads their chauffeurs drive them along, or the streetlights outside their offices, and to give just a handful of examples?

You think people on £150K a year can afford chauffeurs? What planet are you on? Do you think they all wear top hats and monocles too?

18. bluepillnation

@17
As a chauffeur’s son I guarantee you they can as long as they don’t make lifestyle choices that mean their outgoings exceed a certain amount. Of course, a chauffeur is one of those lifestyle choices, but there we go…

5 – “I don’t see, exactly, how the Laffer curve is ‘discredited.’ Presumably you agree that if taxes were at 100% tax revenue would be 0, because no one would work. Likewise, if taxes were at 0% the revenue would be 0. So presumably there is a point in between the two where tax revenues are maximized, right?”

The biggest problem with this is that no one knows what the point where tax revenues are maximised actually is.

The IFS, for example, did a report on the effect of the 50% rate which the reports’ authors described as ‘very tentative’ and ‘preliminary’, and which gave estimates ranging from the tax take raising revenue to losing revenue (depending on assumptions about the taxable income elasticity).

http://duncanseconomicblog.wordpress.com/2009/04/22/50-againthe-ifs/

“The biggest problem with this is that no one knows what the point where tax revenues are maximised actually is.”

It’s a lot more than that. Each and every tax will top out at a different rate. There are also thoughts that the same taxes will top out diferently in different societies.

For the first, for example, we tax returns to capital lessthan we do returns to labour. For we acknoweldge that capital is both more mobile than labour and also potentially it can be consumed rather than invested. Thus the elasticity of supply is different. For the second it’s not exactly a wild surmise that those making up a small more communitarian state like Sweden will happily pay higher rates than a larger less communitatrian one like the UK. It’s a surmise, yes, but not a wild one.

21. TrenchFoot

10: I’d say the spectacular collapse of the financial system with the richest 0.1% getting to keep their ill-gotten gains, aided by the laissez-faire policies of the Bush Administration, while the rest of us pay for it, is proof positive that the Laffer Curve and the supply-side theories that grew out of it were nothing more than an unsophisticated con.

This is what I like to call argument by free association. Repeating a list of things that you don’t like and that have something (maybe) to do with the Laffer Curve is not exactly my idea of a refutation. And there was nothing laissez-faire about the Bush administration – hint: there’s nothing remotely laissez-faire about increasing the size and scope of government and bailing out big business with taxpayers’ money.

19: The biggest problem with this is that no one knows what the point where tax revenues are maximised actually is.

I agree with you, of course, but this is not exactly a point against the concept of a Laffer Curve, it just shows that we don’t know what exactly what it looks like at this moment in time. Which means that all we can do is look at the evidence, scanty as it may be, and nothing I’ve read suggests that we’re on the left hand side.

As the Laffer Curve is all over the bleeding internet at the moment can someone do a curve for all the different tax brackets?

Or do we just look at it as a single feature that applies to all? If so that doesn’t seem at all logical to me – one size never fits all.

23. WhatNext?!

The new 50% rate appears to have been designed to set a trap for Cameron. After all, why now? It could have been introduced at any time: Brown has had 12 years and three big majorities, as well as an increasingly wealthy elite.

After someone pays more than 45% in tax and NI there is considerable thought paid to the following
1. Is it worth worth working any harder to earn more money?
2. Looking at ways to minimse the tax bill is financially more rewarding than workng harder to earn more money.

Consequently, the money raised starts to decline. In addition , highly trained scientists and engineers become tempted to work overseas. Someone who has higher degrees from the top 4-5 universities is chartered and has 7-10 years experience can easily obtain work overseas. Perhaps one of the reasons for our decline in engineering and technology is that from the 1940-1980s some of our best technical people worked overseas , largely in the USA.

What the Left has not addressed is the large increase in bureaucras, administrators and froms of employment ( see guardian advert s) which do not acually increase the quality of public services. The MOD has spent £1.2B on refurbishments yet there are insufficient helicopters and armoured vehicles in Afghanistan. The Regional Development Agencies and many humanities courses in the ex-polys could be closed down without adversely impacting on the quality of public services. A £1 spent at Imperial College does far more for the UK than £1 spent at Thames Valley University!
The Left needs to consider value for money when considering public expenditure. It is time that government detailed all those who are employed by the state: their job description, pay, pension, sick leave enitlement, days taken sick, holidays , any other perks. Government has to prove every single person employed by the state provides value for money.

Public sector pensions wil have to be scaled back.

15.bluepillnation. The crisis in the USA housing market started when organisations such as ACORN forced banks to lend money to people who had no income and no jobs under threat of class actions. In the UK , Northern Rock , RBS and HBOS caused the problems in the banking sector, not Lloyds, HSBC , Barclays and Standard Chartered . Lloyds were criticised for the conservative lending policies a few years ago. Northern Rock was based in the Labour stronghld of NE England and RBS and HBOS were Scottish banks whom Brown and Salmond favoured . Brown took banking regulation away from The Bank of England much to the fury of Eddie George. Brown destroyed baning regulation and then from 2002 , spent far more money than was coming into the government coffers.

There could be massive cut backs in non-essential government employees but Brown would not do this as it impact would on Labour Party supporters.

@Dave

“I mean, are the cream of the punditocracy really arguing that the trouble with this country is that all those hospital porters, teachers, nurses and disabled slackers are poncing off the backbreaking grind of over-worked tax lawyers, advertising gurus, big name television presenters and financial directors?”

I think there is something in what you say. However, the resentment on the public sector goes deeper than this. It is shop workers, cleaners, call centre workers etc who are seeing a pay freeze and a paltry stakeholder pension who are getting really pissed off with the continued rise in public sector pay and guaranteed pensions. The growth in the state affects the least well-off in the private sector far more than it does the wealthy.

Can someone clarify, I’m unclear: does cutting back on public sector pensions mean actually reducing the pensions which people are now receiving, or changing the pension terms of those still working in the public sector but not yet retired?

27. WhatNext?!

Current payments are a contractual entitlement so could not be affected. Future terms need to be altered so that they’re in line with the private sector.

It means changing future terms.
Many public sector schemes allow full pension at 60 for goodness sake.

@Whatnext “It is true that opposition parties and the media woke up to this ridiculously late,”

Speak for yourself. I noticed on Budget Day 2007, so did Vince Cable and so, for that matter, did the tax expert at the BBC. Even George bloody Osborne noticed – look at the Hansard. The year following that was the year I learned to hate Labour. The publicity exercise they pulled off was magnificent – I mean, literally no-one listened to us, in the House, in the media or in the blogosphere, people I spoke to about it simply refused to believe that it was true. And the papers were stuffed full of commentators either totally ignoring the issue or claiming that it wasn’t really a problem. It was disgraceful.

What I find absolutely ridiculous is people like Simon Heffer in the Telegraph or the Daily Mail branding the 1.5% top-earning elite “Britain’s top talent”. Like this article says, “We can only presume they’re referring to the top bankers or the same ‘risk-taking’ entrepeneurs who took risks with other people’s cash”…

“Future terms need to be altered so that they’re in line with the private sector.”

The terms of my pension are shit and yours should be the same. Can I suggest that a paradigm shift here? Public sector pensions should not be reduced, private sector pensions should be increased. Just because your pension shit doesn’t mean that everyones pension must be shit.

Here is anton vowel on that public vs private sector pay issue.

http://tinyurl.com/dgoy6q

@David O’Keefe

“The terms of my pension are shit and yours should be the same. Can I suggest that a paradigm shift here? Public sector pensions should not be reduced, private sector pensions should be increased. Just because your pension shit doesn’t mean that everyones pension must be shit.”

The difference is that the guaranteed public sector pension comes from public funds, but my private pension come from my own earnings (woth perhaps a bit of an employer contribution), but with no guarantee. Do you know how I can get a public sector equivalent that is guaranteed and at no extra cost to me than the amount I pay now? Id love to know.

33. WhatNext?!

@ Alix
I noticed also, what I couldn’t understand was the general silence on the issue. This didn’t become an issue until it was about to come into force a year later.

34. bluepillnation

@32
But given that public sector wages also come from public funds, with the same stuff deducted from them as your private sector wages, you’re setting up a straw man there. Public sector workers “earn” more than they take home, just as you and I do – it’s just that their terms are pre-negotiated whereas yours and mine are set by the market. For the last decade or so we’ve been in the stronger position and they’ve been the ones penny-pinched ruthlessly.

If we’re doomed to repeat positive and negative financial cycles for the next couple of decades, I think it’d be dreadfully unfair to give public sector workers the thin end of the wedge during both the positive and negative parts of the cycle.

@bluepillnation

That isn’t true. Private sector pay at or below the national average hasn’t risen any faster than public sector pay. The figures are distorted by the high board level pay. The average admin person in the private sector really doesn’t earn any more than in the public, but still has to pay more to finance their pension, is highly unlikely to ever be able to retire at 60 and these days cannot event get access to a final salary scheme, unlike their public sector counterparts.

Comparing senior private sector management pay & conditions with average public sector ones is comparing apples and oranges.

36. Mike Killingworth

[35] Aha! The scales fall from my eyes… what’s wrong with the public sector? The pay differential between the workers and the bosses is way too small.

Those who think that the private sector can provide services more efficiently must surely agree…

21 – “this is not exactly a point against the concept of a Laffer Curve, it just shows that we don’t know what exactly what it looks like at this moment in time. Which means that all we can do is look at the evidence, scanty as it may be, and nothing I’ve read suggests that we’re on the left hand side.”

Do you have any links for that?

Surely the main evidence which would support the idea that we are on the ‘left hand side’ of the Laffer Curve (i.e. that raising taxes creates extra government revenue, rather than reducing it) is that when in the past couple of years taxes have been reduced, revenue has fallen (e.g. income tax cut to 20p, VAT cut to 15%) and where taxes have risen, revenue has increased (e.g. abolition of the 10p rate on income tax). The Conservatives argued for reducing inheritance tax, but they predicted a fall in revenue as a result of this.

In other words, it seems reasonable to conclude (at the very least) that basic rate income tax, VAT and inheritance tax are all ‘on the left hand side’ of the Laffer Curve (supposing such a thing actually exists).

“In other words, it seems reasonable to conclude (at the very least) that basic rate income tax, VAT and inheritance tax are all ‘on the left hand side’ of the Laffer Curve (supposing such a thing actually exists).”

We do need to distinguish between long and short term effects but yes, I’d say that you’re probably right in the short term.

On basic rate income tax though I have a feeling that changing the personal allowance could lead to rises in revenue in the longer term. For there are at least a couple of million people (figure from the budget itself) who are in the tax/benefit trap and facing marginal tax rates/benefit withdrawal rates of over 60%. That (gut feel, not empirical evidence) looks like the right hand side of the curve to me.

39. bluepillnation

@36
It amazes me how easy it is to boil private-sector propaganda down to “it is only right and proper that the majority should make do with less”

@35
Mike K pretty much sums it all up. Your beef should be with the private sector bosses demarcating most of the trough to themselves, not the public sector workers who aren’t in any better position than their private-sector counterparts.

@39

Oh – I agree. Capitalism itself is the problem here for the private sector. But unless we want totalitarianism, a society that accepts global capitalism (as all parties in ours does) has to accept that will happen. I think. The solution is a rejection of capitalism without an oppressive state – something no party offers.

The problem is that resentment will build amongst the majority of low-paid workers who do not get the benefits that the public sector does as their wages are squeezed (justified no doubt by the negative-rate RPI) and there is still no compulsion for employers to provide contributions to a guaranteed final income pension scheme. The public sector just shrugging their shoulders and telling low paid private sector employees “tough luck, mate” is not going to help one bit.

I think the public sector does at least need to accept that perks such as retiring at 60 need to be reformed. When life expectancy was in the late 60’s that was a reasonable and just age. Now it is in the 80’s it just seems wasteful.

41. bluepillnation

@40
The problem with your last paragraph is that the private sector already treats shop-floor workers approaching the end of their 40s as expensive dinosaurs ripe for redundancy, especially when they can hire new graduates to fill the role at a fraction of the cost. By increasing the mandatory retirement age in the current climate, all you’re doing is extending the gap between when the private sector puts us out to pasture and when we can collect state benefits, meagre though they are.

It breaks my heart seeing older people who should have a decent retirement working minimum wage jobs running checkouts and sweeping up at McDonalds just to make ends meet.

All I am suggesting is that there shoudl be parity in retirement age between the public and private. You seem to be saying, “the public sector needs these really good benefits because the private sector is so crappy”. I’m not sure I follow that logic.

43. bluepillnation

@42
No, I’m saying that the private sector frequently discards workers well below mandatory retirement age, so the point is moot. If you agree with me that the private sector is skewed far too heavily in favour of the comfortable, how is it then logical that public sector workers (many of whom work longer hours than their private sector counterparts) should suffer just for the sake of wage-slave solidarity?


Reactions: Twitter, blogs
  1. Liberal Conspiracy

    New post: The return of Class War. Not http://www.liberalconspiracy.org/2009/04/25/the-return-of-class-war-not/

  2. shane dillon

    New post: The return of Class War. Not http://www.liberalconspiracy.org/2009/04/25/the-return-of-class-war-not/ (via @libcon).

  3. Kathy Gilbert

    Liberal Conspiracy » The return of Class War. Not | creating a new … http://tinyurl.com/dz597v

  4. Liberal Conspiracy

    New post: The return of Class War. Not http://www.liberalconspiracy.org/2009/04/25/the-return-of-class-war-not/

  5. shane dillon

    New post: The return of Class War. Not http://www.liberalconspiracy.org/2009/04/25/the-return-of-class-war-not/ (via @libcon).

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