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June 28, 2022 - 10:30am
Is Boris Johnson’s promise to level-up the land a hopeless dream? A new report from the Resolution Foundation looks at the differences between the poorest and richest local authority areas. A key finding is that “income gaps between places are enduring: the differences we observe in 1997 explain 80 percent of the variation in average local authority income per person 22 years on.”
One conclusion that could be drawn from this is that regional inequalities are so deeply ingrained that there’s nothing much government can do about them. But there’s an alternative interpretation — which is that the persistent geographical divide is proof that the policy framework is fundamentally flawed — and that radical change is in order.
So which of these arguments is correct? It helps to realise that though income inequality is stubbornly persistent, the underlying causes are changing.
Income is not just about wages. Other sources include investment income and social security payments. The report distinguishes between these components and finds some very interesting patterns. In particular, the authors, Lindsay Judge and Charlie McCurdy, find that investment income is an increasingly important factor. They calculate that the contribution it makes to geographical inequality has “almost doubled (up by 93 percent) since 1997.”
In other words, the investment income surge is happening in the richest parts of the country. As the old saying goes, “money comes to money” — and, specifically, it is coming to London, where the wealthy have enjoyed a bonanza from nice little earners like shares and property.
Note that this isn’t just “market forces” at work. More than a decade of government intervention — for example ultra-low interest rates and quantitative easing — has inflated the value of assets owned by the rich.
That said, the tax system has worked in the opposite direction — helping to reduce geographical and other inequalities. Furthermore, this offsetting effect has increased since 2010, contrary to what some might expect of Tory taxation policy.
However, if the Government really wants to reduce geographical inequalities — then it should go further and deliberately shift the tax burden onto investment income. Property-based income would be an especially suitable target.
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SubscribeThere wouldn’t have been a boom in BTL if successive governments hadn’t encouraged and facilitated it, starting with poor pensions policies, ludicrously low interest rates, sloppy loose lending criteria on the part of the banks who never seem to learn their lesson (same goes for the Treasury and the BofE), and an apparent indifference if not positive encouragement to foreigners to buy massive amounts of UK and particularly London real estate. If anyone should be clobbered it shouldn’t be small scale landlords with one or two rental properties but for example those including foreign landlords with 100s and 1000s of properties. The Tories are however cowards and so often prefer to hit the little people rather than the big players.
PS I am not a landlord of any property.
Investment income?… and where does investment income come from? It comes from investing i.e. the injection of cash capital into businesses that employ people, that provide goods and services, that others earn from and are employed by. Investment also supplies government lending, and pension and savings.
I am astounded that anyone with a scintilla of intelligence and the mathematic nous of even a 7 year old can actually, with a straight face suggest that more taxes, that are already subject to massive waste, inneficiency and overspend, administered by those with no commercial incentive, and which 40 per cent is wasted ( MoD, NHS, roadbuilds) somehow benefits society, aside from the fact, as I have said so often, that taxation revenue comes in Lsd and NOT percentage, so a smaller percentage of a larger gross sum is a plus.
I was astounded by this piece. The Tories attack on private landlords is ridiculous, and doesn’t hide their failure to control the demand for property during their 12 years in power, their failure to increase supply, and their failure to stop asset price inflation by stopping the insane negative interest rates. The Tories appear to be utterly clueless with no sense of property rights, freedom of contract, and zero understanding of economics and business. What this country needs is Thatcherite supply side reforms, not a disastrous mixture of tax, spend, borrow, a la 60s and 70s.
It is too early to be able to measure the impact the Remote Working revolution has had on regional inequality. High earners moving away from London and the Home Counties will spread wealth in thousands of ways in the provinces and may well lead to a rebalancing of wealth, amenities and infrastructure between regions.
My own view is the Levelling Up will happen without much government intervention for this very reason.
I generally disagree with the pieces by this author, and this is yet another example. He makes me question why I bothered renewing my subscription.
because to hear this myopic leftie mathematically illiterate communist nirvhana drivel is essential so that it can be displayed to all as precisely that!
I think the complete opposite- author has different point of view from all the others on here and in the comments. Unherd I found was gave me insight initially into a different perspective, however it is now completely predictable; I can predict the views on the issues of the day in this mag. for that reason I will also cancel my subscription soon.
Please tell me , what exactly is “rich” in terms of this article? I am by no means rich as in wealth, but I have my own home ( bought with an eye watering mortgage) and every single thing I have I worked for. The harder I worked the luckier I got. Funny that.
A rational reform of the whole tax system (which won’t happen) would increase the revenue share coming from land ownership (such as council tax) and reduce the share from income.
How do you tax people using massively inflated asset prices when their incomes couldn’t afford those taxes? You couldn’t without a Poll Tax rebellion. Tax simplification however is definitely overdue as successive chancellors of the exchequer have undone Nigel Lawson’s excellent work.
One way is to extend capital gains tax to the proceeds of the sales of taxpayers’ residential properties. But it’s politically impossible to implement.
Possibly. The real issues are governments which have inflicted ultra low interest rates for decades, massively increased demand for property as the population has increased massively both relatively and in absolute numbers in the 25 years since 1997 compared to the preceding 35 odd years, and complete failure to build new homes.
Agreed. All political parties are in thrall to the ageing, home-owning middle classes who have this unique power to veto new building on the land they can see from their homes.
One could argue (which is contrary to what I commented today on Mary Harrington’s article) that the massive expansion of universities is actually a tax incentive to “level up” the nations and regions.
Regional cities (and sometimes even large towns) now have thousands of new, bright(ish) young people descend on them every year to take degree courses. Many choose to stay in the area once they graduate and add to the economic and cultural vibrancy of these areas.
Though many of the courses they take have little benefit for the student intellectually or economically, they do bring fresh blood into otherwise deteriorating parts of the country.
Maybe that is why the government is loathe to scale back university growth. And maybe they are right and it is worth the money (and the Woke menace).
Higher education expansion as regional policy ! Hadn’t occurred to me before. Stealth regional policy ?
But how many young people really do stay on where they study ? I would be interested to see the statistics on this.
That said, I just can’t see this being sustainable. We are currently accumulating massive student loan debts which will default and fall back on the taxpayer. Then all we will have done is accumulated more debt for our children and grandchildren whilst collectively living beyond our means today.
I’ve always taken the view that if you want to do something, you do it directly. There must be better, more direct and more cost effective ways of helping left behind areas than giving them fake universities.
I entirely agree with this article. Property taxes in the UK are far too low, especially for large houses in the South West. I live in one and I should pay double what I am charged.
If you feel you are not being taxed enough, you can always make a donation to the Exchequer or move to a small property the taxation on which might more closely reflect what it should be relative to the property itself. We somewhat altruistically sold our large property, mind, consonant with the then worthy mantra that owners of larger properties should trade down some time ago. It was a mistake.
Yup – go after investment income – and property…
…and watch all of that investment go straight offshore.
I’ve got a couple of small buy-to-lets. If Mr Gove’s deluded policy plans make me sell them, that cash won’t be invested in this country any more.
So instead of housing two young families at low rents for 8 years, (and being taxed and spending the income in the UK), this government and this country will get sweet FA. And somewhere like the Cayman Islands will be just a bit better off…
That’s how it really works – out there in the real world. So take your pick, Mr Gove (and Mr Franklin).
Where’s it going to go? If landlords decide they don’t want to pay the new taxes then they’re welcome to sell their properties to some hard working youngster to use as a family home. If enough sell we may see house prices drop back down to reasonable levels
You can read this article as being either sloppy or daft. The author has barely read the summary of the study and has then written a headline that has almost nothing to do with the content of the study. Further, the study itself is pretty tendentious.
Two remarks: (a) The study refers to increasing inequality in investment and self-employment income. Under the income definition used by the study the imputed return on owner-occupied housing is a part of investment income but is far from all of it. So differential trends in house prices (particularly in London) underpin the claim. What the study and the author are really claiming is that a heavy tax on wealth including housing is required. Best of luck in selling that idea as it has failed almost every time it has been tried!
(b) The definition of income which underpins the study is both contentious and wrong-headed because it muddles up wealth/assets and income flows. Box 1 refers to a cash measure of income but in reality it incorporates a large component of non-cash “income” – see the inclusion of imputed income from housing, pension funds and insurance policies. Simultaneously, it includes pensions, mortgage payments, etc. The whole thing is an economic dog’s breakfast. Unfortunately, this is typical of Resolution Foundation which put out a large amount of economic nonsense.
There is a legitimate argument for this and I do agree with Micheal Gove’s recent reforms to buy to let properties, which ultimately are designed to force a certain proportion of landlords out of a over inflated market but when in comes to shares, the market is far more international and would likely suffer from flight of capital if taxes became uncompetitive in comparison to competitors. There is also the question of how much of the asset bubble will self correct once interest rates normalise (if they ever do). Rising rates combined with increased taxes on investment could swing the pendulum too far in the opposite direction causing more harm than good.
I have responded to your first point in the main
thread.