We Need to Tax the Rich to Save the Poor – Liberal Article
On the 6 January, we here in the UK celebrated High Pay Day! It was a delightful day in which we celebrated the hour CEOs earned the same as their average employee’s yearly salary, on just their third working day! However, as a result of COVID-19, the CEO’s have had to work slightly longer… they had to clock out at 5:30 pm this year, not 4:30 pm.
This comes as thousands have already lost their jobs as a result of large corporations collapsing due to COVID-19. Others have seen their hours fall as businesses close and operate at a lower capacity. Those who have been fortunate to benefit from the Government’s Coronavirus Retention Scheme and placed on furlough have seen their incomes drop by 20%. The disparities in wealth and income are stark, and won’t improve without intervention from the Government.
The rich in this country are bleeding the poor dry. A provocative statement, but hard to deny. A recent study suggested that one in five Brits now live in poverty. Prior to the onset of COVID-19 over half of those in poverty were in employment. That is more than concerning: it is evidence of rampant government failure. The Tory’s have sat idly by while the fortunes of their peers and backers balloon whilst millions struggle to make their paycheck feed their family.
Contrary to what Theresa May might have you believe, there is in fact a magic money tree; the extremely wealthy and their billion pound fortunes. The ten wealthiest people and families in the UK are worth just shy of £120 billion. To put that in perspective, it is more than 2.5 times the £50 billion pound Furlough Budget which has been extended to March 2021. The fact that the cost of paying millions of workers wages for months on end, albeit at a 20% cut, costs less than half the top 10’s total wealth is staggering.
One thing worth mentioning is the disparities in wealth distribution at the top end of the spectrum. The uber-wealthy hide amongst experienced pilots and highly trained surgeons in the top 1%, who have an income of £116,000 per year. This is a far cry from the £3.6 billion boost Sir James Dyson’s fortune leapt in 2020.
There are several things the government should do in order to correct and prevent this exploitive economy.
Firstly, they should introduce some way to limit the high pay ratio within companies. A pay ratio is the comparison of the highest salary to the lowest. There are several ways to measure it, but it is consistently above 100 for the largest British firms. This could be lessened through a straightforward cap on either salaries or the size of the ratio. Or, a more complicated reformed corporation tax could be implemented which factors in the pay ratio into the total tax bill. The prior option is no doubt a significant intervention. However, research from Autonomy and High Pay Centre points out that such interventions could result in income rises for millions. Only the top few thousandths would see a pay cut.
A reformed Corporation Tax could be more palatable. It would also force corporations to better invest in their workers. A more even income distribution would better justify the pay disparities as there are paths for progression. Any pay-structure tax would have to be accompanied by an outsourcing tax, however, to stop firms skirting this increased tax burden.
The second is a restrengthening of union and worker power by giving them representation on companies’ boards. While it might seem like a powerless representative might not achieve much on a board, their main purpose is for transparency. When board members negotiate pay scales, benefits packages, and restructuring, there should be representatives there who have a stake in the outcome of the employees, not their dividends. It might also help highlight when directors and board members let statutory commitments to pension schemes slip, while their own are secure.
The third way the government could help to mitigate the growing inequality is less bullish, but would still require significant political capital; introducing a new tax band for those with incomes above £200,000 a year. Also, a reformed capital gains and dividend tax to capture more of the wealth associated with those highest earners. But this would also have to coincide with a considerable shift in government policy which no longer facilitates rampant tax avoidance and evasion.
COVID-19 has pushed the government’s fiscal ability to its limits. But in the aftermath of this pandemic, a return to austerity will compound existing problems. Instead, the Government should work to redistribute wealth through taxation, pay scale intervention and investment in social good provision. Billionaires are a symptom of a failing system, not a successful one.
Written by Junior Liberal Writer, Daniel Jones
Point of Information
Keep Taxation and Government Regulation On a Tight Leash – A Conservative Response
It is suggested that the coronavirus pandemic has revealed the need for a radical redistribution of wealth. This is to be done via taxation and unprecedented interference with the governance of companies. We should be wary of responding to emergencies by steamrolling over rights and freedoms. The British public has already suffered heavy-handed policing and misguided lockdowns rushed through parliament. We should refrain from adding the wholesale infringement of property rights and rejection of free-market principles to the list.
HMRC already hunts down due taxes like the Ringwraiths would a Hobbit. It is no easy task. Many resist through legitimate tax avoidance while others resort to more illegal means. To paint a picture of people dutifully paying their taxes without engaging in any legal/illegal chicanery at the expense of HMRC would be ludicrous. People are already unhappy with their tax bill. Pushing further by increasing taxes on wealthier individuals would show the state clearly overstepping its boundaries. Taxation must be fair and proportionate.
The Robin Hood-esque sentiment of taking from the rich to give to the poor is notable here. However, Robin Hood should probably be considered a libertarian over a communist. It was not the rich but the Sherriff (who had extracted severe taxes on his people) whom Mr. Hood targeted.
The poor are being “bled dry” but by the taxman. 20% VAT is paid by anyone who has ever walked into a shop. Increased duties, or “sin taxes”, on alcohol, tobacco and junk food disproportionately hit the pockets of the poor. Despite this, the left appears more than happy to support such policies. The poor are also expected to pay £150 a year for their licence fee, pay road tax and subsequently fork out for the tsunami of fines that can accumulate on taxpayer-funded roads. There is an alternative to high taxes; reallocate some of the wasteful spendings the state engages in.
The use of legislation to limit the high pay ratio would be a large nail in the coffin of commercial freedom. As with many state interventions into corporate life, there will be unintended consequences. Harvard Business Review notes that CEOs may opt-in favour of automation over human labour and the slashing of other benefits to reflect salary change. To pursue further intervention and would be the very definition of insanity.
Furthermore, increasing corporation tax and unilaterally attempting to stamp out tax avoidance will make the UK less competitive. Many countries benefit from providing tax relief and it should be noted that these companies pay vast amounts in other taxes once operating in a given nation.
The fact that the combined wealth of 10 richest people in the UK is more than 2.5 times the furlough budget surely reveals the fact that the government has in fact directed a great deal of money towards people who need it. This money has already been sourced in no small part by already high taxes on high earners. The idea put forward by the article is in other words already in effect. The rich are not bleeding anyone dry. The taxman is bleeding us all dry.
Written by Guest Conservative Writer, Oliver Pike
Don’t Forget about a Wealth Tax – A Labour Response
I largely agree with Daniel’s article. A return to the austerity measures pursued post-2008 as a way to tackle the deficit would indeed be a disaster. Not just for the average Briton, but for the UK’s economic recovery as a whole. And, it is inevitable that after this pandemic, there will be an attempt to balance the books, and pay off the deficit. But one solution Daniel fails to mention is a wealth tax, as proposed by a prestigious group of economists in December.
In my view, this is the fairest way to raise revenue after this pandemic. It is estimated that a 1% tax on all wealth above a threshold of £1 million per household would raise £260 billion. Equally, a wealth tax would have a far less distortionary effect than, say, a hike in income tax, whilst raising significant revenue. Furthermore, it would serve to reduce the UK’s grotesque inequality.
There are, however, concerns of potential behavioural responses to a wealth tax, such as evasion or reduced saving. But such concerns are largely addressed by the proposal for only a one-off tax, based upon a third party valuation of assets at some point in the past. Although, taxpayers must believe that the tax is truly one-off. Given the unprecedented scale of the deficit, such a claim may not be entirely credible.
Regardless, I believe that a one-off wealth tax should be seriously considered to both reduce inequality and fix public finances.
Written by Guest Labour Writer, Brian Byrne