We should be talking about poverty, not inequality
Last week I had the pleasure of attending a debate hosted by The Spectator, the motion for which was “Politicians should leave the wealthy alone – they already contribute more than their fair share.” It was, as one might expect for such an emotive topic, a lively debate.
You can see parts of the debate online – including one I’d particularly draw your attention to, from Toby Young.
As Toby alludes to, the concept of ‘inequality’ has become the focal point around which almost all economic discussion seems to move. Ever since Thomas Piketty, the closest the world has to a rock star economist, captured the zeitgeist with his book Capital last summer, tackling the gap between the wealthiest and the poorest has become almost a sine qua non in politics. The arguments put forward by those opposing the motion at the debate were almost entirely couched in those terms – how could anybody ‘defend’ the rich, they ask, when one could ‘defend’ the poor instead.
This is unhelpful. It occurred to me as I sat in that room that I could reduce inequality at a stroke by clicking my fingers and halving everybody’s income – a policy which, I would suggest, may not have been universally popular.
This obsession with inequality distracts us from what we should be attacking – absolute poverty.
Rather than attempting to reduce the income of those at the top with punitive taxes – a too-high additional tax rate, a ‘Mansion’ Tax, and so forth – we should be focussing on reducing poverty. That means relieving the tax burden on those on the lowest incomes, ensuring not just that work is properly rewarded but that the marginal tax rates on those moving off the benefit system and into work are not so crushingly high that getting a job is disincentivised (the editor of The Spectator, Fraser Nelson, has written very persuasively indeed on this topic). It means getting rid of middle-class welfare (from child benefit for couples on £90,000 joint incomes to dishing out the Winter Fuel Allowance to pensioners) and allowing the poor to keep more money in their pockets through reducing cost-of-living taxes like Fuel Duty, and scrapping the green subsidies that forces up energy bills for families.
It means breaking the cycle of dependency that has strangled too many of our communities, leaving not just material poverty but -even worse - a poverty of aspiration.
Our analysis last year showed that the poorest ten per cent of earners see some 47 per cent of their income taken in taxation. That seems to me a more sensible starting point of the debate.
A constant discussion of inequality leads us all too often to policies which attempt to 'bring it down' not by lifting all boats on a rising tide, but by hitting those at the top. The dangers of that are broadly obvious but a stroll around west London make them even more plain – the area becoming more French by the day, as those hit by some of President Hollande’s more populist policies have decided to take their families, their capital, and their spending power overseas.
According to the latest figures, the top 1 per cent of taxpayers contributed 27 per cent of all Income Tax collected. The top 5 per cent contributed 47 per cent. When politicians talk about those with the broadest shoulders bearing the greatest burden, it is worth remembering that even the strongest backs can only bear so much weight.
Our laser-like focus on inequality will do nothing for the poorest. Pounding the rich might generate some headlines, but it won’t lead to the kind of strong economy that can create jobs for the poorest, and, if tax revenues fall as a result of too-high taxes disincentivising living or investing in Britain, would leave our public services without necessary funding. That’s not a prescription to reduce poverty – that’s a policy to enshrine it. It’s time we changed the terms of the debate.
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