As a writer of two best-selling books, people assume I’m well-off. Hailing from background which could comfortably be described as “deprived”, I came to enjoy the feeling of being regarded as successful and prosperous. But behind the scenes, I’ve struggled to keep my head above water. The truth is, over the last few years, like millions of others on this God forsaken little island, I’ve been caught in a web of financial adversity.

I am well aware that my relative privilege as an author and broadcaster may render my difficulties laughable in some people’s eyes. How could someone off the telly have the gall to complain about financial adversity, during a cost-of-living clusterfuck like the one we are living through in the UK. Of course, the key word here is “relative”. Ten years ago, my main problem was being unable to make a carry-out last until the off-licence opened at 10am. Today, keeping up with the taxman is the central dilemma of my existence.

I was caught out by a particular form of tax. The one self-employed people pay. Many years ago, Gordon Brown, in his wisdom, changed the rules around when and how this tax should be paid. When you work for yourself, your tax is not deducted at source, so you are responsible for setting aside the funds throughout the course of the year, and paying what you owe in January. Brown decided self-employed people should not only pay what they owe, but also an additional half of what they were projected to earn the following year — this is Payment on Account. It means that if your tax bill is £15,000, then you have to pay £22,500 by January’s end and then another £7,500 the following July. And if your tax bill is £30,000, you’re up for 45k, then 15k six months later.

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But what if, like me, you weren’t aware of this? What if nobody told you that this is how it works? Well, then, you’re fucked. Here’s how it goes: the tax bill comes in, plus the additional “payment on account”, and you realise you haven’t got enough to cover it. And suddenly, the first genuinely great year of your entire life morphs into a terrifying nightmare.

Now, add a random calamity such as Covid, lockdown and an economy in absolute freefall. You emerge from the first high-earning year of your life, only to discover you have the tax liability of a well-paid person, with no capacity to actually earn the money required to settle your bill. And what’s worse, every pound you do claw in is itself taxable. So basically, the money you are making to try to pay the tax becomes your next tax bill. And the more you try and earn to offset this, the harder it all gets. Yes, it’s a first-world problem, but it’s a problem nonetheless.

According to Money and Mental Health, over 1.5 million people experienced both difficult debt and mental health issues in 2023. Money and Pensions Service found that as many as 24 million people don’t feel confident managing their money. And according to the Financial Capability Survey, only a third of those people in debt receive help. One of the hardest things is not being able to talk about it. I couldn’t talk to my working-class friends or family because I feared they would resent me, given the sums I was dealing with. Plus, it seemed arrogant to complain given many of them are still living in genuine poverty. And I didn’t know anyone with money well enough to get into any real depth with them about something so personal either.

But I did consistently face the problem. This is the first difficult aspect of confronting a debt. You have to behave like a person who is in debt. You have to open the letters — they won’t go away. You have to make the calls — they’ll always track you down if you don’t. There is something about accepting the reality of the debt and not resisting nor hiding from it which makes the situation slightly more tolerable.

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The outstanding amount was, for me, a large sum, made all the greater by the punishing fines and penalties incurred. And dealing with HMRC is torture. It’s shaming, confusing and utterly humiliating. It reminded me of dealing with the DWP when I was living in supported accommodation on benefits in my early twenties.

I did eventually come to realise, though, that my pain was not caused solely by the debt but by resentment. I was suffering from the sense of injustice that after a life of having so little, I was now being punished for doing better. My stubborn refusal to fully accept that the debt was my responsibility, was making everything worse.

There was some stubborn pride rolling around in there, too. I enjoyed that people believed I was doing well. It was a tremendous buzz to be regarded as prosperous, given how much shame I had felt as a kid wearing cheap, unfashionable brands, and for how long I’d languished in my alcoholic years, letting everybody down. The pain I was experiencing was not simply the pain of being in debt, but the pain of being humbled. Not humbled the way people claim to be when they win a BAFTA. I mean truly, excruciatingly humbled. I’d fucked up big time, got ahead of myself, and paid little attention to the detail. All my life I had advocated that those with more should pay more. Well, now was time to put my money where my big socialist mouth was.

But while the situation was far from ideal, it was hardly an existential crisis. My family was well looked after. I could work every day if I chose to. HMRC weren’t coming through my door waving clawhammers. Of all the debts you could get yourself into, a debt with a dysfunctional government department is probably one of the cheapest and least stressful, truth be told.

I realised that, if I wanted to pay it off, I had to reframe my experience. In my early days, as a struggling writer and artist, I was extremely industrious. As a teenager, I’d record my own music, buy the blank cassette tapes, hand-draw all the covers and give them out at school. I pressed up my own CDs, handed them in to local record stores and collected the sales the next month. Indeed, my debut book was itself a by-product of my can-do attitude; being crowdfunded, the buzz I managed to generate before it was even finished led to first week sales in Scotland so strong that it wasn’t long until London publishers began sniffing around to see what all the fuss was about.

“So what happened to that guy?” I began asking myself. The success had blunted my wits. Dulled my appetite. Why was I sitting around waiting for something to happen when the situation clearly demanded two qualities I have in spades: creativity and courage? There are many difficult problems most of us will face at some stage of our lives — spiralling debt is just one of them. Once it dawned on me that I’d choose my large debt burden over a chronic health problem, a divorce, or a sudden bereavement, it freed up a little energy to do more than simply tread financial water — I began setting about the debt the way a lumberjack does the trunk of a very large tree.

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Nothing changes if nothing changes. I decided to take some risks. I announced a UK tour and invited my followers to approach me directly if they wanted to book my show. The response was overwhelming. Within a few days I had one or two shows a week scheduled from March to August. No venue too small. No location too remote. No community priced-out. If they wanted me, I would go. I then partnered with local booksellers in every town and city and shifted a fair amount of stock while on the road. This put a spring in my step. I learned that by sitting down and coming up with a plan, and staying the course as best I could, the mountain of debt needn’t be insufferable.

For years, every morning I woke up and this was on my mind. Every time I thought I was making progress, they would hammer me again with another couple thousand in charges, inflating the figure, leading to more charges and more interest. I took it all on the chin. It was demoralising, yes. But I stuck to the plan and can honestly say I did the best I could. And, a few weeks ago, with tears in my eyes, I called HMRC up to settle the outstanding amount, finally.

This morning, I’ve just spent a few hours signing and inscribing copies of my second book, writing out the corresponding envelopes, and prepping them for delivery. This is how I used to do it in the old days, before anyone knew or cared about my work. I’m not doing this out of the kindness of my heart but out of necessity. And you know what, I couldn’t be happier.

I’m not skint in the way someone who works in a low-paid job is skint. I’m not skint because I haven’t been working. I’m skint because I’ve used pretty much every penny I could get my hands on to get this monkey off my back. My sole motivation, after years of cowering beneath its awesome weight, was to finally settle this fucking debt. A debt which I accrued through a lack of financial education, and I have a feeling this story is more common than people realise.

I say this for the benefit of anyone climbing a steep financial mountain. While every circumstance is different, there are principles I think apply to most people and most problems. The first, acknowledge there is a problem and that it’s yours to solve. Second, identify and eliminate any unhelpful stories you are telling yourself about the problem. Focus on what you can do about it. And finally, come up with a plan to tackle it and stick to the plan as best you can. Don’t hide from it. Even though it often feels impossible, I promise one day, if you hang in there, you’ll wake up and that problem won’t be looming over your head anymore.

Citizens Advice can help advise if you are struggling with debt

Our exclusive poll provides an answer. For UnHerd, I surveyed three key groups in British politics — a sample of Conservative Party members who will determine the outcome of the leadership race, voters in the Red Wall who will ascertain whether the Conservatives can hold together the coalition who swept Boris Johnson into power in 2019, and a representative sample of all voters.

Our survey showed that the leadership race remains wide open. Among Conservative Party members, the slight favourite is Rishi Sunak on 18%, followed by Liz Truss on 15%, Penny Mordaunt on 13%, and Kemi Badenoch on 7%. This picture is to some extent mirrored in the Red Wall and among all voters, though the real winner among all these groups is “none of the above”.

Perhaps because the contest is so short, perhaps because so many people are running, the blunt reality is that nobody yet holds a clear and commanding lead. This race could yet go in one of several directions, which underlines how precarious this moment is for the party.

What, then, do voters want the next leader to focus on? The priority, as you might expect, is the cost-of-living crisis. Britain is heading into its most difficult winter for decades, with energy prices, inflation, low growth, and sluggish productivity all combining to undermine the nation’s finances. Even though very few of the candidates are speaking to these longer-term, structural difficulties — hardly anybody has set out a convincing case for tackling our productivity problem — our data shows that many voters are keenly aware of them. And they are deeply worried.

We also find a clear and present danger for the party —one that is a leftover from the Brexit revolt. While the Conservative Party leadership hopefuls have focused almost exclusively on pressing the case for tax cuts, thought to be popular among the rank-and-file, we find a far more nuanced story.

When asked whether the next leader should increase taxes and spend more on public services, keep taxes and spending on services at the same level as they are now, or reduce taxes and spending on public services, the story is not what you might think. Many Conservative Party MPs and their supporters are far apart.

Only a minority of Conservative Party members — 33% — say we should reduce taxes and spend less on public services while a plurality — 39% — want to keep the status-quo (the rest say we should increase taxes or are unsure). Yet Red Wallers are even less supportive of slashing taxes; only 15% of them want to cut them and spend less on public services while almost half, 34%, want to keep the status quo and a further quarter want to raise taxes so we can spend more on things like health, education, and benefits.

This is consistent with the longer-term trend in Britain — and one that every Conservative must note. As the National Centre for Social Research points out, support for slashing taxes and spending less on public services is actually a very fringe position, supported by around only 5% of the country. Over the past decade, against the backdrop of austerity, public support for increasing taxes to spend more on public services rocketed, peaking at 60% in 2017 and staying above 50% in the most recent data, from 2019.

I am not saying this is the right position, just that many Conservative candidates are firmly disconnected from the position of many voters — which may yet come back to haunt them, especially in those important Red Wall seats. As much research since the 2019 general election has shown, many of these voters have always sat further to the Left on the economy and further to the Right on culture than most Conservative MPs in Westminster.

This points to the major tension now at the heart of the Conservative Party in the age of realignment: a party that is torn between its tax-cutting leadership candidates and True-Blue Tories in the shires, and its new Red Wall voters who are either comfortable with the status-quo or would even like to pay a bit more to get better public services in return.

Given the current slate of candidates it is hard, if not impossible, to see how the party resolves this tension. Many voters, it appears, want a leadership candidate who is not on the ballot sheet; one who is willing to intervene a little more to fix what they see as a rigged economic system, while also maintaining a tough line on Brexit, crime, and reducing immigration. A Blue Labour or Red Tory candidate would go down very well in a poll among these voters.

Another myth that is blown apart by our polling is the idea, fashionable after Brexit, that British politics would soon swing back to focus heavily and exclusively on the economy. But this is not supported by our polling.

Conservative Party members do not only want to talk about the economy but also, in descending order, immigration and asylum, health, tax, Brexit, and free speech/cancel culture. For Red Wallers, too, while the cost of living tops the agenda, it is followed by health, immigration, taxes, and levelling-up, while among all voters their priorities after the cost-of-living crisis are healthcare, immigration, taxes, climate change, and Brexit.

In short, many people want to talk about issues that are glaringly absent in the campaign so far. Do candidates want to retain mass immigration? How will they reform the NHS and social care? How can levelling up become a serious and sustained strategy for driving growth and productivity? All have been conspicuously quiet so far.

The relative prominence of Brexit, immigration and, to a lesser extent, free speech and cancel culture really matters; these concerns all point to the continuing power of the “cultural dimension” in British politics which, increasingly, is cutting across the old tribal loyalties.

So, too, does growing public anxiety about the rising prominence of “woke” ideology. Several candidates — most notably Kemi Badenoch and Suella Braverman — are actively campaigning against it, however, with Badenoch warning against “identity politics” and taking aim at what she argues are supposedly impartial, yet woke civil servants, and Braverman pitching herself as the “anti-woke” candidate.

While the issue of identity politics is often dismissed among the Twitterati as a fringe culture war issue, and some don’t have a clear idea of what exactly “woke” pertains to, it is still important not to dismiss it. After all, we frequently poll voters about things such as the economy, productivity, levelling-up, knowing they tend to have very different views about what these things are.

When we told Conservative party members and voters that some leadership candidates were “promising to oppose woke ideology, on the basis that they argue it undermines free speech”, we found widespread support for this position. Our findings suggest that the free speech campaigns do cut through.

Nearly three-quarters of Conservative Party members, 69%, said they strongly or somewhat agreed with “the need to oppose woke ideology”, as did 40% of Red Wallers (versus 16% who disagreed), and 36% of all voters (versus 22% who disagreed). The perceived need to oppose wokeness is especially strong among pensioners (52%). This, to me, points to the beginning, not the end, of a growing debate about what this ideology means for British schools, universities, how we make sense of our history, and, ultimately, who we are.

This was all brought home to me at an event held by the Centre for Policy Studies, in the heart of Westminster, this week, where many of the party’s current and former advisors were agonising over the future of the party and conservatism more generally.

There appeared a broad consensus in the room that while the Conservative Party might still be holding the largest majority since the days of Margaret Thatcher it has nonetheless become clearly disconnected from many of the key groups that made this possible to begin with — whether on tax, the lack of attention to the big challenges facing Britain, or a growing public appetite to debate the ongoing effects of immigration, Net Zero policies, and culture.

This is certainly supported by our polling which suggests, clearly, that unless the next leader can repair and reboot the party’s relationship with the people who put it into power less than three years ago then it may not remain in power for very long at all.

Some parts of the tax system, like business rates, were looking fragile even before the crisis. The effects of loading the tax burden on shops and restaurants, while allowing the online retailers to get off lightly, can be seen in towns and cities across the country. Lockdown means that the issue can no longer be dodged. We either go for wholesale reform or say goodbye to the high street.

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It’s been reported that the Treasury is working on plans for an online sales tax — something I argued for back in 2017. Even better, it looks like serious consideration is being given to a “capital values tax.” This would replace business rates and would be a tax on the value of land (plus the buildings built upon it). Furthermore, it would be payable by the owner not the tenant.

You may be thinking that sounds rather like a Land Value Tax (something else I’m rather keen on) and you’d be right. So if Rishi Sunak introduces it, we’d be facing a truly remarkable moment in British politics: the first step toward a seemingly impossible political philosophy — Tory Georgism.

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Georgism is an economic theory named after Henry George (1839-1897) — an American economist and journalist. He lived through a time of unprecedented economic change — the transformation of the United States from agricultural backwater (and, in the southern states, slave society) into an industrial giant. He will have seen small settlements grow into mighty cities, walked in the shadow of the first skyscrapers and travelled on trans-continental railroads.

What he  also  witnessed, however, is landlords getting rich from the value created by all that development. Not that they had to lift a finger to make it happen — they just had to own property in the right places and rake in the rents. Putting that injustice right was his life’s work.

George was not a socialist. He supported free trade and free enterprise. People should keep the value they created, he believed. But by merely owning land, landlords don’t create value — they simply exploit their monopolies on the physical space that people need to live and work.

He saw all of this as a sickness at the heart of the capitalism, but one that had a cure: a tax system based on land values. The more a piece of land is worth, the more tax the owner would pay on it.

That way, value that would otherwise be extracted by private landlords would benefit the whole community — both by providing the state with revenue and by replacing taxes on income and consumption — i.e. useful activities that create supply and demand in the economy.

Taxing the value of land has further advantages. For a start, it disincentivises speculation and the use of land as a mere piggy bank. It also prompts land owners to make the most productive use of their land or sell it on to someone else who can. That’s why land value taxation has supporters on the Right as well as on the Left. Indeed the free market economist Milton Friedman called it the “least bad tax”. While a tax on income discourages work and a tax on dividends discourages investment, a tax on land does not discourage land. All of it will still be there no matter how hard you tax it. It’s one asset that can’t be moved to a tax haven.

But if land value taxation is such a good idea then why aren’t land value taxes more common? And to the extent that we have property-based taxes at all, why are they in the form of policies like the UK’s Council Tax and Uniform Business Rates — which are payable by the occupier not the owner and which are imperfectly linked to the actual land value?

Well, there are technical challenges to overcome — not least the accurate, ongoing valuation of land — but for Georgists the real answer is the ever-present influence of the “landed interest”. Landlords are just about the oldest and most influential of all lobby groups. Politicians who may not have the time for active business interests, often have ‘passive’ investments in property and are thus easily swayed against land value taxes. 

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Moreover, British Georgists sometimes identify the landed interests specifically with Toryism. Over the centuries, it can be argued that the Tories — as the party of farming, the countryside and the “gentry” — have acted to protect these interests over those of the urban population and commerce. It’s not nearly so simple as that, of course — but nor is it completely untrue. Successive Tory — and, later, Conservative — governments have given landlords an easy ride.

However, this aspect of Toryism isn’t entirely about grubby self-interest. There’s a moral case for the dignity of ownership, especially home ownership. Why shouldn’t Britons be able to call a piece of this Blessed Plot their very own? Why shouldn’t their homes, and their possessions contained within, be theirs to keep — paid for out of taxed income, but then free from the depredations of the tax man?

Ownership rights are the foundation of liberty — and one only has to look at countries where people have no secure title to their land to see how important these rights are. While socialists would like to make us all tenants of the state, conservatives (and many liberals too) believe that what separates us from totalitarianism (self-reliance, family life, basic privacy) begins at home.

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Unfortunately, though, the Tories have a record of over-extending this moral case to provide cover for the exploitative ownership of other people’s homes (and workplaces) and of land that has little to do with home life, but which is important to the common good. It is, for instance, truly astonishing that 20 years into the 21st century, we still don’t have a complete register of exactly who owns exactly what land.

Digital mapping technology means this is entirely feasible. We have the Land Registry of course, but the information that it provides is incomplete and expensive to access — and, as recently as 2016, the Tories under David Cameron and George Osborne were planning on privatising it! This may have been an Osbornite policy, but a less Georgist measure could hardly be imagined.

Thankfully, we’ve moved on from that low point. Indeed, if Rishi Sunak really is about to introduce land value taxation then that would be a jaw-dropping turnaround.

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But given eveything I’ve said, isn’t Tory Georgism the ultimate contradiction in terms? One might as well announce a policy of violent pacifism or isolationist expansionism or universalist exceptionalism. It makes about as much sense as a square circle. 

But, then again, the world is full of oxymoronic ideologies. We’ve already got capitalist communism (China), authoritarian liberalism (the woke Left) and plutocratic populism (Trump). I realise those examples aren’t exactly encouraging, but Tory Georgism is the oxymoron we need right now.

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Indeed, the Tories need Georgism and the Georgists need Toryism. 

The Government is in the tightest of financial spots. It has to rebuild the tax base, without raining down further blows on a traumatised economy. Hikes to income and consumption taxes would hurt the recovery — as would a further round of austerity. But a Georgist taxation policy would only hit non-productive activities that funnel wealth away from ordinary consumers into the pockets of the rich (who spend a lower proportion of their money than the rest of us). Both economically and politically, there is no better way to raise money right now.

Of course, that would require the Government to put in place a proper system for valuing land and identifying its owners — but then that’s what it needs to do anyway if it’s serious about solving the housing crisis — another vital part of any credible recovery plan. 

The reason why the Georgists need the Tories is simple: they haven’t had much success selling Georgism on their own. There are no mainstream Georgist political parties. After all, Britain’s landlord-friendly policies can’t be blamed on the Conservatives alone. We’ve had Labour governments too, but they didn’t bring transparency to land ownership or stop lucky farmers from winning the planning system lottery. 

If anyone can sell Georgism to a wary public, then it’s the Tories. The majority of the population are home owners and a lot of the rest hope to become home owners. They will resist land value taxation if they suspect it will be used to effectively confiscate their houses, slice-by-slice. A Land Value Tax will only be politically viable if tax-free thresholds are hardwired into the system to respect the right of home ownership — and also to protect small businesses that own their own premises. And, needless to say, the assets of charities and community organisation should also be sacrosanct. 

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Above all, Georgists need protecting from the utopian tendencies of the Left. In the long-term, a thoroughly Georgist taxation policy may deliver a fairer, greener and more prosperous society. But getting from here to there won’t be easy. Implementation needs to happen step-by-step, taking care to obtain popular consent at every stage — as well as dealing with all the practical complexities.

So forget the fantasy politics. If we get Georgism at all it won’t be in a sudden burst of ideological purity. It will be through piecemeal, painful progress — one least bad option at a time.

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Yes, I know the heart bleeds – but there really is a global shortage of places for the seriously rich to put their Earthly riches. There just aren’t enough alternatives to the bog standard option of the bank account.

Indeed, interest rates wouldn’t be at record lows around the world if there weren’t a global glut of cash.

Writing for Axios, Dion Rabouin notes that US companies have “record cash holdings of close to $3 trillion”. Wealthy individuals aren’t doing too badly either:

“The top 1% of U.S. households are holding a record $303.9 billion of cash, a quantum leap from the under $15 billion they held just before the financial crisis.”

Of course, most of us would love to have this ‘problem’. And, in a way, we do. Though the non-wealthy have little or no share in the global money glut, our lives are affected by what happens to it.

Those charged with managing extreme wealth are channeling the cash into places where it can do more harm than good – for instance, the property market where it inflates house prices and rental values. Then there’s the practice of share buyback – in which cash-rich companies buy up their own stock:

“Companies made a record $1.1 trillion in stock buybacks in 2018 and are on track to surpass that number this year.”

Buybacks increase demand and reduce supply, thus pushing up share prices – already inflated by the effects of quantitative easing. The executives can say they’ve ‘added value’ and are rewarded accordingly – not least in the form of ‘tax efficient’ stock options.

Admittedly, the company wouldn’t have the cash for the buybacks if it wasn’t profitable in the first place – but that’s not difficult when you can borrow money at rock bottom rates (QE again), buy up the competition and exploit a monopoly position. The company’s soaring market capitalisation means that the banks are happy to keep lending it money… and so on and on it goes, generating further surpluses of cash for the fortunate few.

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Obviously, none of this is good for the long-term health of the economy – and, for most of us, it’s of no short-term benefit either. What, then, can we do about it? Taxation is an obvious weapon, but the thing about enormous piles of cash under professional management in a borderless world is that they don’t sit still waiting to be punitively taxed.

A slightly different approach is to use tax to disincentivise some of the less desirable uses of the money glut. Property-based assets are an obvious target, because it’s not like we’ll end up with less land if we scare away the speculators. Targeting share buybacks is trickier. While we might want to discourage this and other forms of ‘financial engineering’, we also want to encourage equity investment in productive enterprise – and the finance industry is full of people who can disguise the former as the latter.

Ideally, we’d have such an enterprising, innovative economy that there’d be ample opportunities to invest in growth-generating industries. Established companies would be so threatened by new competitors that they’d invest their profits in business development instead of the complacency of share buybacks. It would also be good to have more rich people with the brains, balls and heart to invest their money imaginatively, courageously and philanthropically. That’d mop up the money glut.

Needless to say, these happy scenarios depend on culture change – which, if it happens at all, is a long-term process. So, in the meantime, is there anything that the state can do to attract excess capital into socially-useful investments?

Visionary public funding programmes of the kind that gave the internet its start are great – but, again, it’s a long-term process. Fortunately, there are some quicker wins to be had – areas where strategic state-led investment can unlock avenues for productive private investment.

Consider the decades of under-investment in the economic infrastructure of our cities beyond London. Addressing key weaknesses – like the state of our non-Londoncentric public transport system – does not require futuristic technologies, but tried-and-tested upgrades that more productive local economies already have.

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The challenge for government – including local government – is to become a credible enabler of private sector investment opportunities. That means an end to the imprudence of politically-driven mega-projects like HS2 and Hinkley point, and a pivot to smaller, less complicated, productivity improvements.

The fact that so much potential has been left locked-up for so long is an indictment of our over-centralised political system and our lopsided national economy. But that can be changed – indeed, it is being changed as local communities are re-empowered and the foundations of a modern industrial policy are put in place.

A new prime minister has an opportunity to shift this work into a higher gear.

To answer the second question first, MMT matters because it’s starting to trickle down from academia into serious politics. The theory is finding supporters on the ascendant Left-wing of the US Democratic Party. Indeed, some see it as the means by which a progressive administration might fund the Green New Deal (which carries a ten trillion dollar price tag).

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As for the first question, it might be helpful to draw a parallel between economics and physics. The theories of the two disciplines can be expressed in the form of complicated equations. Physics theory has a much firmer foundation in reality than economic theory, but in both cases one can rearrange the maths and re-chop the logic to arrive at bold new interpretations. MMT is to economics what general relativity, quantum mechanics and string theory are to physics – a fundamental reordering of the theoretical framework.

In conventional economic policy, governments raise money through taxation and borrowing (or by turning on the real and metaphorical printing presses). They then spend that money. However, Modern Monetary Theorists say that’s the wrong way of looking at it. Because a sovereign nation ultimately creates its own currency, it need never default on any debt denominated in that currency. It can, therefore, create all the money it needs – the only limit is the risk of inflation (caused by too much money chasing the finite productive capacity of the real world economy). The purpose of taxation in MMT is not to raise revenue, but to control inflation – i.e. by taking away the ability of individuals and organisations to place demands on the economy’s productive capacity.

This is how Matt Breunig sums it up in a piece for the People’s Policy Project:

“What MMT advocates do is assert that actually all government spending is funded by money creation. Taxes and borrowing may look like ways the government gets cash to spend, but in fact all they do is delete money.”

Though MMT supporters tend to be on the Left, so are the theory’s most vociferous opponents – of which Breunig is one:

“…it has become clear to me that the bulk of MMT discourse is not really about what the best policy instruments are for maintaining price stability and debt stability, but rather about using word games to make people believe that the US can have Northern European levels of government spending without Northern European levels of taxation…

“The real point of MMT seems to be to deploy misleading rhetoric with the goal of deceiving people about the necessity of taxes in a social democratic system.”

Of course, there’s always a distinction to be drawn between ideas in their pure form and the grubbier uses that they’re put to. In this respect, conventional Left-wing economics (or Right-wing economics, for that matter) is no less unsullied than MMT. For instance the most prominent calls for higher taxation to fund higher spending have focused on squeezing the super-wealthy. This conveniently distracts from the fact that Scandinavian-style welfare states depend on a heavily-taxed middle class.

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By Peter Franklin

So let’s leave the politics aside, and ask whether MMT has any merit as a way of looking at economic policy. I believe that it might just do, since we live in a world where some goods and services are becoming ‘post-scarce‘. As an example of what this means, consider the case of software: once an app has been developed, the cost of producing more copies of it is negligible – it is demand that is constrained, not supply. Technologies like artificial intelligence and robotics have the potential to shift more and more of the economy into a state of effectively inexhaustible productive capacity.

As I’ve noted previously, a decade of extremely loose monetary policy has notably failed to unleash inflation, suggesting an increasingly flexible supply-side response to the demand we throw at it. Indeed, given demographic trends, it’s the demand-side we should be more worried about. In the most aged societies, like Japan, the struggle is to stop deflation, not inflation.

If this is the direction in which we’re headed, the rise of MMT, if nothing else, prompts us to reconsider some basic assumptions.

For instance, in all advanced economies there is a fiscal authority (typically a finance ministry) that controls the level of public debt through fiscal policy like taxation, borrowing and expenditure; then there is a monetary authority (typically a central bank) that controls the price level (i.e. inflation) through monetary policies like interest rates, quantitative easing and money creation in general.

The revolutionary implication of MMT is that this should be the other way round – the central bank providing the government with money it needs (simply by creating it), while the finance ministry manages inflation through its powers over taxation and expenditure.

Unlike the generalised impact of interest rates, tax and investment based interventions can be targeted at particular sources of inflationary pressure. For instance, if land prices are shooting up then an appropriate response might be the imposition of land value taxation to dissuade speculators (plus more funding for the regeneration of derelict sites).

In an economy where some forms of supply are becoming superabundant, but others remain constrained (and thus become opportunities for speculators and monopolists), using a scalpel, not a cosh, to tackle inflation makes evermore sense.

One doesn’t have to agree with where MMT came from, or its use and abuse in contemporary politics, to see its relevance to a changing future.

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Why 'enough' is the most dangerous word in economics

By Peter Franklin

What’s less appreciated is that the world’s transport networks have undergone a similar revolution. Thanks to common standards, they’ve become increasingly inter-operable, boosting global trade. The containerisation of shipping and freight has proved especially important – something that Ruth Davidson wrote about in her UnHerd launch essay:

“Before containerisation, loading cargo cost $5.86 per ton and only 1.3 tons could be loaded per hour. Today, cargo can be loaded at a rate of 10,000 tons per hour and at a cost of just $0.16 per ton.

“90% of all purchased goods are now shipped inside a container and 90% of the world’s nations have at least one container port.”

Obviously the parallels between the internet and transport aren’t exact. The internet is pretty much instantaneous, but can only move information, while neither of those things is true of the global transportation system. However, in other ways, the similarities between the two global networks are growing – indeed, they are gradually merging into one another.

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By Ruth Davison

For instance, containerisation didn’t just streamline shipping in a physical sense, it also did it electronically, establishing globally-shared systems for recording and tracking goods as they travel around the planet. The growing automation of both the physical and informational components means that within decades the global transport network will become a robotic extension of the internet, able to see and move physical objects as precisely as the internet currently does with bits of data. Our transport networks and the internet will become one.

Who is best-placed to dominate this emerging super-network?

I’d look to those companies whose operations and expertise already cut across the still distinct spheres of electronic communication and physical transport. One company in particular comes to mind: Amazon.

Writing for Bloomberg, Shira Ovide urges us to keep an eye on the most expansive of the tech giants:

“We shouldn’t lose sight of Amazon’s interest in transportation and logistics — moving physical goods by land, sea and air, organizing that transportation, storing merchandise or delivering it to the right place. PwC has said this is a roughly $5 trillion annual market, which fits with Amazon’s love of attacking massive pools of spending.”

Here are just some of the things that Amazon has been up to lately:

“Amazon and General Motors Co. are discussing an investment in an electric truck company. Amazon was among a group of recent investors in autonomous vehicle startup Aurora Innovation Inc. Last month, Amazon said it would test package deliveries by small robots in a Seattle-area neighborhood.”

For all of the prototyping, it will be years, perhaps decades, before driverless vehicles and delivery drones go mainstream – and there’s no guarantee that Amazon and its partners will win the technological race. So a more immediate test of the company’s ambitions concerns its existing capabilities.

Amazon is a vertically integrated company, with massive investments at almost every stage in the online retail value chain. It has a history of using those strengths as a base from which to expand horizontally to create parallel businesses. Ovide gives the example of Amazon Web Services (AWS):

“The company had already built data centers and servers to support its online store. Turning this into a service for others required different technology and a lot of work, but the initiative let any company rent Amazon-caliber computing horsepower. “

In previous UnPacked columns I’ve looked at another example – Amazon’s plans to expand from online to real world retail via its fully automated Amazon Go stores.

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Given this track record, will Amazon use it mastery of logistics and deliveries to expand into territory currently held by companies like FedEx and UPS?

“The huge volume of existing packages — about 2 billion a year in the U.S., Cowen & Co. estimates — helps Amazon learn the delivery routes that hit the most homes. It’s already paying for those routes. How much harder and more expensive would it be to layer on more deliveries to those routes from other companies?”

Perhaps the question is not how much more expensive would it be for Amazon to deliver other packages, but whether they can do it more cheaply than the established companies. If they can, and if Amazon were willing to act on such an advantage, then governments would be faced with a dilemma: to allow consumers to enjoy the immediate benefits or to prevent this over-mighty giant from becoming even more powerful.

The pattern thus far is of governments giving Amazon what it wants. Take US taxation policy, for instance. It was recently reported that the company made a profit of $11.2 billion, but paid nothing in federal income tax. Indeed, as the saga of Amazon’s new HQ demonstrates, it is often the corporates who benefit from the public purse, not the other way round. 

I don’t know if Amazon has plans to expand into public transport too, but someone’s being taken for a ride.

But this year it kept on popping up in conversation. For instance, here is the Dutch historian and Davos panelist Rutger Bregman, delivering a few home truths. It was Bregman’s first visit to the conference, it’ll be interesting to see if it’s also his last.

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It’s time to tax the super rich

By Richard Godwin

There was an interesting exchange at another Davos event – this time featuring Michael Dell, the founder and CEO of Dell Technologies. Reporting for the Washington Post, Hamza Shaban writes that Dell was asked about the Alexandria Ocasio-Cortez plan to tax incomes exceeding $10 million at a rate of 70%:

“[He] first responded by saying he’s more comfortable allocating significant resources through his private foundation than handing over that money to the government. But then he answered more directly.

“‘No, I am not supportive of that, and I don’t think it would help the growth of the U.S. economy,’ he said in response to questions from The Washington Post.

“When Dell was asked to explain why he thinks that, he said, ‘Name a country where that’s worked — ever.'”

Happily, an expert was on hand:

“Co-panelist and MIT professor Erik Brynjolfsson jumped in to offer an answer: ‘the United States.'”

In America’s post-war golden age (a time of rapid economic growth), the top rate of income tax was considerably higher than 70%, around the 90% mark in fact.

But did the rich actually pay tax at anything like this rate?

Not according to Scott Greenberg of the Tax Foundation:

“The data shows that, between 1950 and 1959, the top 1 percent of taxpayers paid an average of 42.0 percent of their income in federal, state, and local taxes. Since then, the average effective tax rate of the top 1 percent has declined slightly overall. In 2014, the top 1 percent of taxpayers paid an average tax rate of 36.4 percent.”

The Tax Foundation, though not as rabidly anti-tax as some free market think tanks, obviously has its agenda. However, the data in Greenberg’s article comes from a paper by Thomas Piketty (and colleagues) which, one can safely assume, was not concocted in the service of radical libertarianism.

The figures are for all taxes, not just income taxes, and for the whole of the top 1%, not the sub-fraction that constitutes the super-rich. Nevertheless, they do indicate that very high marginal income tax rates, of the kind favoured by Ocasio-Cortez, don’t make that much of a difference to what the rich actually pay. There are various reasons for that, says Greenberg, but here’s the most pertinent:

“…it is very likely that the existence of a 91 percent bracket led to significant tax avoidance and lower reported income. There are many studies that show that, as marginal tax rates rise, income reported by taxpayers goes down.”

Under communism, the people of the Soviet Union used to joke ‘the bosses pretend to pay us and we pretend to work.’ Under capitalism, the bosses of the West can joke ‘the people pretend to tax us and we pretend to pay.’

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Could America's Democrats be 'Corbynised'?

By Ruy Teixeira

As Warren Buffet reminded us in 2011, the super-rich aren’t even paying today’s much lower top rates. This presents a problem for the fantasy socialism of the populist left – if you can’t tax the super rich at 35% then how do get them to pay 70%?

But it’s also a problem for the equal and opposite extreme: if the slashing of top tax rates in the neoliberal era was so transformative, why are the tax havens still in business? And if tax cuts for the rich are so enlivening of enterprise, why is GDP and productivity growth slower now than in the decades when top tax rates were much higher?

Of course, it suits both sides to regress the tax debate to the 1970s – with simplistic ‘tax and spend’ slogans from the Left and equally simplistic ‘cut taxes and grow’ rhetoric from the Right. It also suits the media to focus on headline-friendly tax rates, rather than ask more penetrating questions about how income and wealth are generated in the first place. Whether tax policy distinguishes between income derived from genuinely productive entrepreneurship and the ill-gotten gains of rent-seeking speculation is much more important than where one sets the theoretical top rate.

Admittedly, there are those on both the radical Left and the free-market Right who do delve deeper into underlying problems like the rentier economy and who do explore novel solutions such as land value taxation. Yet this is complicated stuff that not only requires an effort of thought and explanation, but also blurs established ideological battle lines. For the old warhorses of the outdated Left-Right spectrum this a threat – indeed a prospect leading to the knackers’ yard.

Braindead statism needs unrepentant capitalism to stay relevant and vice versa.

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What the AI doomsters get wrong

By Charlotte Pickles

But actually there’s a third option, that is distinct from either a student loan or a graduate tax.

It’s been proposed in various forms – for instance by the Social Market Foundation and in the 2014 ConservativeHome manifesto – but the basic idea is that, instead of getting paid upfront, the education provider takes a given percentage of a student’s future earnings above a given threshold, with total payments capped at a given amount.

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According to Andrew Ross Sorkin in the New York Times, the idea is being put into practice by “Lambda School, an online learning start-up” with big-name backing from Silicon Valley investors.

The particular funding system is called an “income sharing agreement” and this is how is how it works:

“At Lambda, students pay nothing upfront. But they are required to pay 17 percent of their salary to Lambda for two years if they get a job that pays more than $50,000. (Lambda says 83 percent of its students get a job with a median salary of $70,000 within six months of graduating.) If they don’t get a job, or their salary is lower, they pay nothing. Payments are capped at $30,000, so a highly paid student isn’t penalized for success, and if a student loses a job, the payments pause.”

In principle, this is fairer than a graduate tax because there is a maximum amount payable that is the same for everyone who received the same education. Also, because it isn’t a tax, the money doesn’t go through the grabby, controlling hands of government – important if we believe that our institutions of higher educations should be pillars of civil society, not agencies of the state.

Theoretically, student loans have the same advantages, i.e. financial independence for the education provider and important limits on what the graduate has to pay.

However, the student loan system also has disadvantages. The more lenient the terms for borrowers who don’t benefit from a ‘graduate premium’ to their earnings, the greater the financial burden that’s shifted onto other borrowers or back onto taxpayers (if the state is the ultimate guarantor of the student loans system).

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By Peter Franklin

The most serious flaw of both student loans and graduate taxes is one of incentives. If how much – and how fast – education providers get paid bears no relation to the job and wage prospects of their graduates, then they have no direct stake in the long-term relevance of the education they provide.

The Income Share Agreement system, however, ensures that education providers have skin in the game:

“The school is incentivized to only enroll motivated students who won’t drop out; it is incentivized to successfully teach them the skills they will need on the job; it is incentivized to find them a job; and it is incentivized to make sure they are a success once they’re on the job because the school relies on employers to keep hiring its graduates.”

But what about ‘education for its own sake’? Well, I’m all for it. In fact, government should provide financial endowments that allow our finest minds to expand the bounds of human knowledge to the greater glory of civilisation. If more of the small proportion of people capable of making an original contribution to such endeavours have the opportunity to so, that would be great. However, the gifts and interests of most people lie elsewhere – and if they are to go to university at all, it should be to provide them with the foundations of a rewarding career. They too deserve to have their needs met.

Andrew Ross Sorkin worries that an expansion of the Lambda approach “could press programs to ignore a traditional liberal arts education where the earning power is reduced”. However, under the loans-based system, American students are already turning their backs on the humanities. As for fears that “schools may not be willing to take a chance on a promising but higher risk student”, the greater danger is that the misaligned incentives of the status quo are sucking students into a system unsuited to their needs, loading them up with debt and dumping them unprepared into an unforgiving jobs market.

Unless the cost of mis-selling higher education is properly shared among those most responsible, then it will continue.

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What's the point of the humanities?

By Peter Franklin

No, I’m not talking about Paris and the Gilets Jaunes, but London and the Extinction Rebellion movement – which campaigns against climate change through acts of non-violent direct action.

According to the Guardian the occupation of the bridges was “one of the biggest acts of peaceful civil disobedience in the UK for decades”.

Most of the media, however, didn’t seem that interested. Green campaigner and journalist George Monbiot tweeted his dismay that BBC had given “far more coverage to French protests for cheaper fuel than to the massive and remarkable #ExtinctionRebellion protest in our own country”. He condemned the editorial decision as “shameful”.

Subsequent developments may appear to vindicate the BBC’s judgement call, but that, of course, depends on one’s perspective.

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Blazing Arizona: why adapting to climate change is deeply immoral

By Peter Franklin

If, by the end of the century, our children and grandchildren are living with three, four or more degrees of global warming then the only question they’ll be addressing to our gravestones is why we didn’t do more to avert disaster. The issues that made our headlines, excited our passions and swung our votes will seem irrelevant.

But that’s the future and this is now. Any path to climate stability has to be reconciled with the political realities of the present. Any failure to do so allows environmentalism to be painted as the exclusive concern of those with the luxury of looking beyond the immediate challenges of everyday life.

Consider the following from Jonathan Miller in the Spectator:

“As the yellow wave roils France, Macron is a diminished figure after a crunching fall to earth… Instead of the confident leader, lecturing and preening on the global stage, he is barricaded in his palace, a sort of latter-day Marie Antoinette. French people can’t afford diesel? Let them buy Teslas. Others might compare him to Nero, fiddling with emission targets while Paris burns…”

If the environmental cause becomes mired in this kind of narrative, then it will fail. Miller does acknowledge that the French uprising is about much more than diesel taxes – it is a rebellion against the elites not the environment. And yet Macron’s policy (on which he’s now u-turned) is an object lesson in how not to use taxation as a weapon against climate change.

Fuel duty is a blunt instrument whose blows fall heaviest on those who have no choice but to use their cars and vans to live their lives and make a living. Progressive taxation is all about the ability to pay, but upping duties on fuel is the precise opposite – a tax on the inability not to pay.

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Could the gilets jaunes topple Macron?

By John Lichfield

One can use the proceeds to subsidise public transport, but, inevitably, this is to the primary benefit of city centres, not the ‘peri-urban’ and rural strongholds of the gilets jaunes. Similarly, using the proceeds to help the poor, while a laudable objective in itself, excludes those who strive, without security, to subsist on their own efforts alone. Geographically and socially, there couldn’t be a better way of provoking France’s flyover country.

And it’s not just the financial pain, but the implication of guilt. Who’s to blame for climate change? You are, white van man! You and your filthy polluting diesel vehicle (that we recently encouraged you to buy as part of a Europe-wide industrial policy that the Germans wanted).

Is there a better way forward? Yes, says Leyland Cecco, also in the Guardian. He argues that the Canadian province of British Columbia provides us with a model of good green taxation – a revenue neutral carbon tax, introduced in 2008:

“By design, the British Columbia plan was simple: it slapped a tax on any fossil fuels used for heating, electricity and transportation. Each person and business was expected to shoulder the burden of pricing pollution; no loopholes, no exemptions.”

Though this did push up prices (“most noticeably at the gas pump”), there was an all-important sweetener :

“…the critical selling point of the plan – the tax’s revenue neutral design – was unprecedented. With a revenue-neutral tax, the government keeps none of the money collected from the levy. Instead, it redistributes all of it – close to $1.8bn in its first three years – back to taxpayers in the form of tax cuts.”

And for people in rural areas there were “extra cash and tax benefits.”

These features help explain why after a decade the tax retains widespread support.

The EU could have had a revenue neutral carbon tax too – but, naturally, it went for the immensely more complicated option of an emissions trading scheme (ETS).

Thanks to design flaws such as distribution of free permits to favoured industries, the price of carbon produced by the scheme has a history of crashing – and thus undermining incentives for investment in clean technologies. Moreover, not being revenue neutral, there’s no direct dividend for citizens.

Still, what’s bad for ordinary people and the environment has been good for brokers and lobbyists – so there’s always that.

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What's driving this French revolution?

By John Lichfield

If the global elites really care as much about global warming as they say do then it is vital that measures to combat greenhouse gas emissions are not aligned with the interests of the knowledge worker class and against everyone else. This must not become an open-versus-closed, globalist-versus-nationalist, anywhere-versus-somewhere issue. Green taxation needs to be socially neutral as well as revenue neutral.

Let’s not forget that globalisation is product of hyper-mobility which in turn is a product of fossil fuel consumption.

Perhaps this is something the global elite could consider at the next World Economic Forum – or even as they travel to Davos in their private jets and limousines.

Democrats contesting offices in areas where the party is not dominant (as it is in Ocasio-Cortez’ district) are running substantially more Left-wing campaigns than previous Democratic aspirants. And Abrahams and Gillum both put emphasis on mobilising the most Left-wing constituencies in their states—minorities and the young—with platforms to match on social and economic issues.

But how far Left is this surge? And what does it stand for? Can it really be compared with the hard Left radicalism seen elsewhere across the globe?

Rhetorically, this new Leftism rejects ‘business as usual’ and involves a sweeping indictment of the economic and political system for generating inequality and doing little to help ordinary people in the wake of the great financial crisis. Substantively, Democrats today – in particular aspirants for the 2020 Democratic Presidential nomination – are far more willing to entertain and endorse ‘big ideas’, such as going beyond the ACA, aka Obamacare (which is now vigorously defended) to ‘Medicare for all’, free college education, universal pre-kindergarten provision, vastly expanded infrastructure spending and even a guaranteed jobs programme. Taxing the rich is ‘in’ and worrying about the deficit is ‘out’.

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Could the Democrats' blue wave unseat Trump?

By Amanda Whiting

Democrats are also highly unified on core social issues such as opposing racism, defending immigrants, promoting LGBT and gender equality and criminal justice reform. In short, the centre of gravity of the Democratic party has decisively shifted from trying to assure voters of fiscal and social moderation, to forthrightly promising active government in a wide range of areas.

But this hardly means the Democrats are in any danger of becoming a radical party. Far from it. As Leftism goes, the current Democratic iteration is of a fairly modest variety, approaching, at most, mild European social democracy. Those who call themselves ‘socialist’ (as Ocasio-Cortez does) are few and far between.

Nor is it the case that incumbents and moderates are being thrown out wholesale and replaced with candidates much farther to their Left. Across the country, only two Democratic incumbents in the House lost primaries, and none in the Senate did. A Brookings study found that self-described “progressive Democrats” did well in primaries this election season but establishment Democrats actually did somewhat better. Thus, the change in the party is less a Leftward surge featuring new politicians (though this is happening to some extent) and more a steady party-wide movement to the Left.

Further reading

Here's what to read and watch if you want to understand the 'new left'

By James Bloodworth

So what caused the shift? This is, after all, a party that was dominated by aggressively moderate ‘New Democrats’ in the 1990s and, even under Barack Obama (after a spurt of major legislation early in his first term), shied away from big programmes and repeatedly tried to broker deals with Republicans to bring down the deficit and reform ‘entitlement programmes’ – Medicare and Social Security, America’s names for government-subsidised health care for the aged and pensions. Many, many Democrats were still scared of the ‘tax-and-spend’ label Republicans were only too happy to pin on them.

One thing that did happen is time. As Larry Summers, the former Treasury secretary for Obama and Harvard economics professor, noted, the last 15 years of economic, social and political developments, with the fissures and unsolved problems they have revealed in American society, should have moved open-minded people to the Left. These challenges are simply too big to be solved by mild, ameliorative steps. This is a widely shared view within the Democratic party, including most fervently among some of its strongest supporters – minority and younger generation voters. But increased movement to the Left is not confined to these groups; Democrats as a whole, including leading intellectual lights like Summers, are simply becoming more, and more consistently, centre-Left.

Further reading

From Jeremy Corbyn to Bernie Sanders to Elizabeth Warren; what the Left is getting right

By Liam Halligan

Indeed, we even see former President Obama in a recent speech urging Democrats to go beyond “good old ideas like a higher minimum wage” and embrace “good new ideas like Medicare-for-all, giving workers seats on corporate boards, reversing the most egregious corporate tax cuts to make sure college students graduate”.

And, from the heart of “Hillaryland”, as the cluster of operatives around Hillary Clinton is termed, comes this robust call from Jake Sullivan, her campaign’s senior policy advisor, for going big:

“Democrats should not blush too much, or pay too much heed, when political commentators arch their eyebrows about the party moving Left. The center of gravity itself is moving, and this is a good thing… We Democrats do need to embrace a big, bold policy agenda. We do need to heed the calls of Franklin Roosevelt, who asked us to save capitalism from its excesses, and Lyndon Johnson, who asked us to think ambitiously about how government – and yes, government programmes – can help do that.”

Strong words coming from a fully-paid-up member of the Democratic establishment! But of course the real progenitor of ‘big ideas’, Left-wing politics in the Democratic party was Bernie Sanders. His insurgent campaign, which featured multiple large-scale policy proposals and fierce denunciations of the “billionaire class”, took the 2016 Democratic primaries by storm, injecting this rhetorical and policy approach into the Democratic mainstream. He particularly captured the imaginations of young voters, who gave him gave outsized majorities in most states.

Given Sanders’ success, particularly with young voters, and his continuing influence within the party (even though he is not formally a member), it is fair to ask whether the Democrats’ future lies in continuing to move Left to the point where the Democrats really become his party – or, at any rate, a party dominated by his ‘democratic socialist’ politics. In other words, could there be a “Corbynisation” of the Democratic party?

Further reading

Is global momentum with the Left?

By Angus Robertson

I am sceptical. Leaving aside structural-political differences between the UK and US – the Democratic party is not a parliamentary party and does not elect a ‘leader’ in the manner of the British Labour party – the Democrats are likely to remain a big tent party, in which the preponderance of voters and elected officials subscribe to a more moderate brand of Leftism than that espoused by Sanders. Think Elizabeth Warren, who combines big proposals with savvy-bridge building within the party and forthright support for capitalism (albeit of a reformed variety).

If there is a wild card here, it is less likely Sanders than an increasing Leftism on ‘identity politics’ issues around race, gender, LGBT issues and so on. It is possible that the Democrats could embrace these issues so thoroughly that it would come to define the party to the exclusion of economic and policy issues, however big. My sense is that Democratic politicians are aware of this possibility and will strenuously seek to avoid it out of sheer electoral self-interest. But we shall see.

The seductive new ideology of the ‘entrepreneurial state’ is the wrong way to go. Most of the challenges listed above will only be solved by means of hefty doses of new technology and business models. Anything that reduces the global economy’s ability to innovate, however well-intentioned, will have serious consequences.

The first two decades after the collapse of the Soviet Union were difficult for socialism. The centre left was forced to concede the primacy of markets, the hard left was forced into exile. All of that changed with the financial crisis. Suddenly capitalism looked vulnerable again, but if it was to take advantage of the situation, the Left needed new ideas. Lo and behold, along came two: Thomas Piketty’s inequality and Mariana Mazzucato’s entrepreneurial state.

Piketty and Mazzucato both based their prescriptions on painstaking research. Piketty’s volume Capital in the 20^th Century – bought by so many, read by so few – is a tour de force of statistics, carefully arranged to show wealth increasingly concentrated in the richest few percent of society. Mazzucato, for her part, tracked the origins of the technologies behind some of the era’s most iconic products, in particular the iPhone, showing the extent to which they originated with state funding and programmes.

The reason Piketty and Mazzucato became instant champions of the Left lay in the solutions they were proposing: Piketty became a vocal advocate for punitive levels of redistributive taxation; Mazzucato’s entrepreneurial state more subtly suggests that the state should maintain (at least part) ownership of the technologies whose development it has helped to fund – in effect a combination of state planning and a tax on innovation.

The intellectual flaws in Mazzucato’s work lie not in what she has proven, but in what she has omitted. Yes, state funding helped create a number of valuable technologies – but at what cost? Would additional state investment result in more innovation, or more waste? What innovations might have resulted had money not been siphoned off by the state in the first place? Why only technology? By Mazzucato’s logic every logistics company which uses publicly-funded roads should be government-owned.

The other view...

The government agency that made Silicon Valley

By Nigel Cameron

Mazzucato also fails to describe the bureaucracy needed to administer the new state-owned intellectual riches. An entrepreneurial state would need to manage thousand upon thousands of venture investments each year, and track myriads of innovations as they aggregate into products – often combining multiple platform technologies like flat screens, quantum computing, graphene, nanotechnology or genetics. Most universities now have commercialisation offices; generally they are regarded as incompetent by the industries with whom they interact and by the scientists whose intellectual property they attempt to market, rarely are they staffed by top-drawer venture capitalists.

Perhaps the most critical omission in Mazzucato’s work is the impact the entrepreneurial state would be likely to have on the willingness of private investors to put capital at risk. Even if it is only needed later in the innovation process – to integrate different technologies into products and services, market them, and build the fabric of businesses – they provide real risk capital, often on a scale which dwarfs that invested in early technology research.

Mazzucato claims to have bust the myth that state actors cannot be innovative. However, that is not in fact a myth but a straw man. What is not a myth is the fact that state actors are very bad at delivering innovative new products and services. It’s one thing funding the development of internet protocols, quite another thing to create Facebook, Google, Amazon or YouTube. Minitel anyone?

More on Minitel...

The French 'internet' – when state innovation goes wrong

By Peter Franklin

Mazzucato is right to highlight how state-funded research has helped create huge corporations which have concentrated wealth disproportionately in the hands of their founders and shareholders, while paying little or no tax. Risk has been socialised and profits privatised on an epic scale.

However, if tax avoidance is the problem, then perhaps the solution is, you know, to get serious about clamping down on it – not using it as an excuse to build a vast new technology bureaucracy.

Despite these flaws – or perhaps because of them – the entrepreneurial state found a receptive audience among those who dislike American technology companies on principal, and want to get their hands on a greater tax take. Carlos Moedas, European Commissioner for Research, Science and Innovation hired Mazzucato as a consultant to advise on the next €100 billion, seven-year EU programme for research and innovation, due to launch in 2021.

It’s not that the EU doesn’t need new ideas on research and innovation. Last year’s interim assessment of Horizon 2020, the €80 billion programme which draws to a close in 2021, blandly stated that “the benefits of Horizon 2020 are… hard to monetise” – it certainly was unable to enumerate any in terms of new products, services, companies or jobs.

This is entirely consistent with its predecessor programmes. Essentially, by 2021 the EU will have spent nearly €200 billion (in real terms) on research and innovation over 37 years, with little to show for it but some macroeconomic modelling claiming it was a good idea.

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By Peter Franklin

Mazzucato is right to state that “innovation has both a rate and a direction”. She is right to point out that policy-makers need to “act in bold ways to shape new futures, solving public problems and create new markets”. They must, however, do it in such a way that it enables, rather than stifles, the very innovation it is intended to produce. They must foster competition between private players, not suppress it, bureaucratise it or crowd it out.

What is needed is a joined-up set of policies across research and development, infrastructure, taxation, trade, government procurement and regional development to target public priorities. Policies which, taken together, encourage capital formation, entrepreneurship, and the creation of intellectual property.

What is not needed is an entrepreneurial state – or in the case of the EU, superstate – to centrally plan and nationalise the development of technology.

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$10 a barrel for oil? The age of the electric car is closer than you think

By Michael Liebreich

The basic argument is that when land prices – and, therefore rental values – soar (largely as a result of other people’s efforts), the returns to the landowner shouldn’t just be taxed, but taxed in preference to most other forms of income or wealth generation.

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The cost of property may slowly kill Silicon Valley - but a Land Value Tax might give it new life

By Peter Franklin

Of course, you can’t tax the value of a piece of land if you don’t know what it is. In their new book Radical Markets: Uprooting Capitalism and Democracy, Glen Weyl and Eric Posner propose an ingenious means of valuing not just land, but all other taxable assets. In a critique of the book for CapX, Sam Bowman summarises its big idea:

“Weyl and Posner suggest a system of taxation where, in principle, everything is available to buy, all the time. A homeowner or patent holder, for example, must declare the price they would sell their house or patent for – and if someone comes along and offers them that, they will have to sell. Assets are taxed annually on that valuation – they suggest a rate of 7 per cent – with the proceeds distributed evenly among a country’s citizens via a cash ‘dividend’.”

Bowman points out that the impact of such a measure would be ‘dramatic’:

“Asset prices would fall by between a third and two-thirds of their current level, since the taxes that will be owed in the future would be priced in today. The large 7 per cent tax proposed by Weyl and Posner would raise roughly 20 per cent of national income – enough to eliminate other taxes on wealth and capital, and in the US pay for a $5,300 per person ‘dividend’ as well.”

In reality, no responsible government would engineer such a precipitous drop in asset prices – which would bring the banking system crashing down too. Any shift in taxation to land and other asset values would need to be introduced gradually — with the aim of calming not breaking the property market.

Taking that as read – and focusing solely on its application to land – are there any other objections to the Weyl-Posner proposal?

Bowman argues that you don’t need a Land Value Tax to deal with land owners who use their holdings to obstruct or ‘ransom’ much needed development – compulsory purchase powers could do the job instead. A less restrictive planning system would also help, he adds.

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Singapore shows there’s more than one way of doing capitalism

By Peter Franklin

However, as he says himself, “we have to tax something”. That being the case, taxing land is just about the least bad option. Putting up taxes on production means less production; putting up taxes on consumption means less consumption; but putting up taxes on land makes no difference to the amount of land, which, for obvious reasons, remains constant. The only thing a land tax disincentivises is property speculation – which is economically unproductive and socially useless.

The real problem with the Weyl-Posner proposal is the same thing that makes it brilliant – i.e. getting land owners to value their own land. The brilliant bit is giving the state the right to buy the land at the self-assessed value, which incentivises land owners not to under-value it. The problem is that this is manifestly unfair. Householders and small businesses are unlikely to have the expertise required to value their land accurately. Erring on the side of caution, they’d most likely over-value – and thus end up paying more in tax than professional speculators and major landowners. Alternatively, a few might naively under-value their land and thus face the compulsory purchase of a home or a workplace at a knockdown price.

However, there is an obvious solution, which is to turn the proposal on its head. Instead of owners valuing each piece of land, the state would do it; and instead of the state having a right to buy it at that price, the owner would have a right to sell – thus incentivising the state not to over-value (and thus over-tax) the land. This would be less oppressive, putting the onus of accurate valuation on the state and without placing ordinary property owners under a general threat of compulsory purchase. 

I’ve come to believe that some form of Land Value Tax is not only feasible, but necessary. However, new taxes are always controversial. To introduce them requires not just cleverness and courage, but also wisdom and tact. 

“A new study, out today in Nature Climate Change, finds that global emissions from tourism are over three times higher than previously thought.

“Global tourism is a $1.2 trillion industry, and it’s growing every year. Previous estimates of the tourism industry’s carbon footprint put it at between 2.5 and 3 percent of total global carbon dioxide emissions.”

The study calculates emissions for all the goods and services involved in tourism, not just the transport element.

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Control mass immigration? Europe can’t even control mass tourism

By Peter Franklin

The good news is that a lot of that can be decarbonised. For instance, Costa Rica – a leading ‘eco-tourism’ destination is, according to the Independent, set to become the world’s first fossil-fuel-free economy.

Except that the eco-tourists flying into the tropical paradise are doing so on a fossil fuel dependent form of transport. Indeed, air travel is one the biggest obstacles to decarbonising the global economy.

With no technological solutions on the horizon, we have no choice but to artificially constrain demand, says Sonia Sodha in the Guardian. But how?

“…increasing the government levies on air travel – forcing up prices to get people to fly less – isn’t the answer. This would have little impact on the most affluent travellers, while hitting the poorest in society… Instead we should look to carbon trading schemes for inspiration…

“Everyone could be given an air mile allowance – say enough for one long-haul return flight a year, or three short-haul flights, so people with families on the other side of the world could see them once a year. If you don’t want to use your allowance, you could sell it off in a government-regulated online marketplace. If you’re keen to do a holiday a month, you’ll have to buy your allowance from someone else.”

Sodha’s proposal has provoked cries of ‘rationing!’ from free marketeers; but what is the free market if not a means of rationing the distribution of scarce resources through the price mechanism?

Our ability to spew out greenhouse gases without screwing up the climate is also a scarce resource. It isn’t automatically priced by the market because no one owns the global climate (especially not those who’ll have to live with it in 50 or 100 years time).

If, however, government steps in to price the resource, then the market can do its thing. Free marketeers shouldn’t have a problem with the ‘invisible hand’ getting a helping hand.

In any case, Sodha’s proposal doesn’t actually ration the number of flights per person, but rather the number of flights each person can take without having to purchase someone else’s allowance. As long as you can pay, you can fly as much as you like.

The real problem with it, though, is that it isn’t nearly as fair to the poor as she thinks it is. In theory, it avoids the unfairness of pricing them out of the skies completely. In practice, however, there’d still be a cost to flying – in this case the opportunity cost of using an allowance instead of selling it. As with all financial costs, this would be felt most heavily by those with the least money.

Admittedly, Sodha’s system would give the poor a source of income – which would surely be fairer than a tax or a levy whose revenues would fill the state’s coffers. Or would it?

In London, as in other cities, road congestion charges help to fund public transport – to the disproportionate benefit of the poor. A carbon tax on air travel could be used to benefit the very poorest people in the world – such as those already suffering as a result of climate change. Arguably, this would be more equitable, and more efficient, than a complex system of tradable permits that transfers wealth from flyers to non-flyers irrespective of their incomes.

The irony of the Sodha’s proposal is that both sides have got it wrong – it isn’t contrary to market principles, but nor is it necessarily fair.

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Geoengineering: another fine mess not to get into

By Peter Franklin

In a world due to be turned upside down by robotics, genetic engineering and quantum computing, we’re going to need more than lawyers and accountants making the big decisions.

In fact, it would be great to have some scientifically-literate decision-making on some not-so-futuristic policy areas too.

Take the example of highway maintenance. Politicians probably get more angry letters about potholes than any other issue – but somehow there’s never enough money for adequate repairs. One reason why is that the taxation of heavier vehicles doesn’t properly reflect the damage that they do to road surfaces.

It might be assumed that the heavier a vehicle the more damage it does – and indeed that’s the case. What isn’t as widely understood is just how disproportionate an impact that each unit of extra weight has – meaning a heavy goods vehicle does massively more damage than a car:

It’s a point explained by Philippa Edmunds in a piece for CityMetric:

“The standard 44 tonne HGV, which is the industry workhorse, causes 136,000 times more damage to road infrastructure than a Ford Focus because the damaging power rises exponentially as weight increases – a phenomenon known as the ‘Generalised Fourth Power Law’.

“Local and urban roads, unlike motorways, are not built to sustain the large volume of heavy goods now traffic using them.”

The Generalised Fourth Power Law, or Fourth Power Rule, means that with every doubling of weight, a vehicle does sixteen times (i.e. 2×2×2×2) as much damage.

There are a few complications to take into account, but that’s the basic physics.

Ms Edmunds represents the UK Campaign for Better Transport, which argues that road freight is significantly undertaxed – and not solely because the damage caused to roads:

“HGVs are almost seven times more likely than cars to be involved in fatal collisions on minor roads. They’re responsible for 17 per cent of greenhouse gas emissions and a fifth (21 per cent) of NOx emissions from road transport, despite making up just 5 per cent of vehicle miles. When the full costs of HGVs are taken into account that equates to a £6bn a year taxpayer subsidy.”

As with all hidden subsidies, the distortion of incentives causes further problems:

“This subsidy undermines the incentive for the haulage industry to be efficient. Only a third (34 per cent) of HGVs are full in terms of load volume. Almost another third (30 per cent) are driving around completely empty – a figure that’s been growing for some years. Partially loaded trucks result in unnecessary lorry journeys to feed our shopping habits.

“In contrast, the German distance-based charging system incentivises efficiency and has reduced empty lorries by a third, as well as reducing tonne kilometres because of better loading rates; prior to its introduction, Germany had similar empty lorry levels to the UK.”

Hidden subsidies often have hidden beneficiaries. A prime example, in this case, are the online retailers whose delivery vehicles trundle around minor roads and residential streets in ever-greater numbers.

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Will Elon Musk drive a truck through the oil industry?

By Peter Franklin

If those such as Amazon had to shoulder the full costs of the congestion, pollution and damage done by their deliveries, then price competition would speed up the transition to more sustainable transport technologies.

Electric and self-driving vehicles are the key to change:

• Electric engines would massively cut pollution (including noise pollution)
• With dynamic road charging, delivery vehicles could be incentivised to travel where and when they cause the least congestion
• Without driver error, there’d be fewer accidents
• And without the need for a driver in each vehicle, it would be feasible to have larger fleets of smaller, lighter vehicles – which would do less damage to the roads

Door-to-door deliveries could be entrusted to very-much smaller vehicles such as the delivery ‘pods’ already being tested. These are small enough to share pavement space with pedestrians rather than road space with traffic. We might trip over them, but that’s better than being run over by a truck.

All of this is going to happen sooner or later, but to make it sooner we fast need a rational system of road taxation.

When it comes to tax, there’s one set of rules for big business and the rich, and another for everyone else. Remember the tax deal with Google, made by George Osborne, then Britain’s Chancellor, who hailed it a “major success”? The $800 billion internet giant had generously agreed to pay £130 million to Her Majesty’s Revenue and Customs. Amounting to an effective tax rate of 3%, that sum, agreed in 2016, was to cover tax it owed since 2011.

How many small businesses would get away with that?

A 2016 report by Oxfam America suggested tax avoidance by multinationals was costing the US around $111 billion a year. In an astonishing finding, they reported that between 2008 and 2014, the “50 largest US companies collectively received $27 in federal loans, loan guarantees and bailouts for every $1 they paid in federal taxes”.[1. .‘Broken at the top’, Oxfam America, 14 April 2016]

More recently, the Paradise Papers, published late last year, provided the latest in a long list of revelations about morally-compromised corporate behaviour: Apple sent its lawyers out to shop for offshore tax havens; mining multinational Glencore has a staggering 107 offshore companies; and the intellectual property of sporting Goliath Nike is nationless.

It’s not only corporates. The Paradise Papers, like the Panama Papers before them, also exposed the super-rich individuals using offshore accounts. What do cash-rich companies have in common with cash-rich individuals? Expensive accountants – dedicated to finding the loopholes and schemes that allow those with the broadest shoulders to bear the lightest (tax) load. Ordinary families, however, like small businesses, can’t afford to avail themselves of such services.

“But they would if they could”, will be the retort of some, followed by: “Anyway, it’s all perfectly legal.” And I think there’s some truth in that. No one likes paying tax – just look at the tax gap. HM Revenue and Customs, the UK tax authority, estimates it to be £34 billion – which is driven by behaviours ranging from criminality, through “failure to take reasonable care”, to avoidance. And SMEs are bigger culprits than big business, accounting for 46% of the tax gap compared to 28% for larger companies.[2. .Measuring tax gaps 2017 edition: Tax gap estimates for 2015-16, HM Revenue and Customs, 26 October 2017]

But it is the cosy, back-scratching relationship between money and politics that distinguishes the rich from the rest. Sweetheart deals are for the big boys that governments court… such as Google.

The recent Republican tax reforms prove the point. American corporations are avoiding paying tax by offshoring their profits, so instead of dealing with that, Congress pass a bill that, as Vox so aptly put it, provides “a giant permission slip for shipping profits overseas”.[3. Dylan Matthews, ‘The tax bill is a giant permission slip for shipping profits overseas’, Vox, 19 December 2017]

President Trump’s tax cuts also benefit the very wealthy – who just happen to be political donors – above the ordinary working families he promised to champion. Washington non-profit, the Institute on Taxation and Economic Policy, reports that in 2019 the top 5% richest households will receive more than 50% of the bill’s benefits, while the bottom 40% will receive 5%.[4. .‘The Final Trump-GOP Tax Plan: National and 50-State Estimates for 2019 & 2027’, Institute for Taxation and Economic Policy, December 2017]

In the UK, the tax system is likewise skewed in favour of the wealthy. Just look at the lower rates of tax charged on income from capital compared to income from labour. A shift worker putting in 40 hours pays a higher rate of tax on their earnings than the property speculator pays on their profits. Which is a double blow when you consider that the profit has been made, at least in part, because of the investment of a local community and its taxpayers (in roads, buses, parks, policing…). That’s not about avoidance, it’s in-built bias.

78% of Americans and 76% of Brits believe “the economy of my country is rigged to advantage the rich and the powerful”.[5. .Global Trends. Fragmentation, Cohesion and Uncertainty, Ipsos, 2017] When it comes to tax, they’re right – and, along with the other six ills of capitalism, it’s threatening the free market model. Time to stop lamenting the loss of faith in capitalism’s prosperity-generating power; time to start treating its ailments.

Throughout next week UnHerd is exploring how the UK tax system can be reformed to tackle the biases in personal taxation. Our latest audio-documentary, out tomorrow, asks: Can a wealth tax save capitalism?

“The wealth of the top 1 percent increased by an average of $4.9 million over the past decade, while the average holdings of the bottom 99 percent declined by about $4,500. Wealth inequality is now the highest it has been since the Federal Reserve began collecting this kind of data in 1983.”

Breunig, however, has a solution – a sort of sovereign wealth fund that he calls a “social wealth fund”:

“Here’s how it could work. The federal government would create and run a new investment fund, and issue every adult citizen one share of ownership. The fund would gradually come to own a substantial and diverse portfolio of stocks, bonds and real estate. The investment return that the fund generates would be paid out to each citizen in the form of a universal basic dividend, and the shares would be nontransferable to preserve the institution’s egalitarian purpose.”

I’m sure we’d all like a piece of that, but how much would it be worth?

“If, over time, the social wealth fund came to own one-third of the country’s wealth, that would allow it to distribute an annual dividend equivalent to about a third of the total returns on invested capital each year, which represents about a tenth of net national income. In 2016, based on the latest available census population figures, that would have meant around $6,400 paid to all adults or $8,000 paid to every person between the ages of 18 and 64.”

That’s not nearly enough to live on (and why exclude children?), but nevertheless a substantial sum – one that might provide people with greater confidence to come off welfare, switch jobs or start their own business.

It might also give governments a new way of managing the economy – by upping the “universal basic dividend” at times of low consumer confidence, and dialling it down when the economy shows signs of overheating.

Breunig notes that the “key challenge in building a social wealth fund is not how to run it once it has been created, but how to bring assets into the fund in the first place.” Well, yes.

His ideas for capitalising the fund include the following:

“…the transfer of existing federal assets like land, buildings and portions of the wireless spectrum into the new fund… increases in taxes on capital that affect mostly the wealthy such as estate, dividend and financial transaction taxes and the creation of a new type of corporate tax that requires companies to directly issue new shares to the social wealth fund on an annual basis and during certain corporate moves such as initial public offerings, mergers and acquisitions.”

In other words, he wants to tax the wealth of the individuals and corporations that have already got a lot of it. If we are to introduce or increase wealth taxes, then a social wealth fund might be the best way to deploy the revenues.

There’s always something a bit iffy about liquidating assets to pay for current expenditure (retirement being an obvious exception, though one that applies to individuals not nations). There may be a case for greater redistribution of wealth, but it ought stay as wealth.

One could argue that using the proceeds of wealth taxation to reduce national debt would be a better and simpler option. After all, getting rid of a liability is equivalent to acquiring an asset – and a lot less fiddly.

Unfortunately, the hard work of debt reduction is easily undone. A government that pays the political price of spending restraint may be replaced by one that pushes debt back up again to pay for bribes to the electorate.

A social wealth fund, based on an equal share for every citizen, would be much harder for governments to raid – both politically and, if properly established, legally.

UnHerd's Charlotte Pickles is currently preparing an audio doc on taxing wealth. Here's her piece from last week on the topic...

Is it possible to design a tax that targets the really wealthy?

By Charlotte Pickles

Mention wealth taxes and these are common responses but given the extreme levels of wealth inequality – in the UK the top 10% of households owns 45% of all wealth, the poorest 50% own less than 10%; in the US it’s even worse, the top 1% owns almost 40%, nearly twice that of the bottom 90% – are wealth taxes really such an unreasonable proposition?

Particularly given that wealth inequality has worsened since the financial crash (and is worse than income inequality) – driven, at least in the UK, by falling home ownership.[1. Conor D’Arcy and Laura Gardiner, The generation of wealth. Asset accumulation across and within generations, Resolution Foundation, June 2017] Successive governments’ failure to build enough houses has been compounded by a quantitative easing programme that has further inflated asset prices, benefiting the wealthy at the expense of the less well-off. In 2010-2012, the wealthiest 20% of households owned 97 times more wealth than the least wealthy 20%. By 2012-2014, that had risen to 117 times more.[2. .‘Total Wealth, Wealth in Great Britain, 2012-2014’, Office for National Statistics, 18 December 2015]

The Resolution Foundation point out that more than 80% of the growth in net property wealth since the early 1990s has been driven by the property price boom, not savings behaviour – the wealthy have become progressively wealthier not from endeavour but luck. Yet, as the think tank highlights, while wealth has been increasing compared to GDP, the tax revenue from wealth has not. The burden of funding public services is firmly on labour, not capital.

London School of Economics Professor, Howard Glennerster, argues that’s not just unfair, it’s economically inefficient:

“Taxing work but not taxing rising property values creates perverse incentives to invest in property not work. And letting private owners reap most of the rewards of public infrastructure investment restricts the optimal scale of major projects. Ultimately, the whole economy loses.”

This all helps explain why the idea of taxing wealth is gaining traction and not just on the Left. Nick Timothy, the former chief of staff of Britain’s Conservative Prime Minister Theresa May, writing in The Sun newspaper, called on the Government to “increase taxes on accumulated wealth”.

I agree with Nick – with the current capitalist model seemingly unable to deliver prosperity for all, it’s time to seriously examine the case for wealth taxes. Which is exactly what we’re doing in a forthcoming UnHerd audio-documentary.

Does an annual wealth tax really spell economic disaster?

There are different types of wealth taxes, including land and property taxes, and capital gains, but it is an annual tax – usually around 1% on net wealth above a certain threshold – that, championed by rock star economist Thomas Piketty, has been gaining both traction and criticism.

Opponents of an annual tax point out that most countries that have levied one have subsequently abandoned it. Denmark and Germany abolished theirs in the late 1990s, Finland, Iceland, Luxembourg, Sweden and Spain in the 2000s, and this year France joins their European neighbours. (Switzerland and Norway are among the few nations to have retained their wealth taxes.)

And the arguments deployed for binning the tax? They’re a drag on growth, investment, and entrepreneurialism, of course. It’s a reasonable proposition, lowering the return on investment through taxation reduces the attractiveness of investing, and less investment means less job creation and less economic growth.

Yet on closer look, it seems, as economist David Seim puts it, that these countries had “sparse knowledge about [the] effects”.[1. David Seim, ‘Behavioural responses to an annual wealth tax: Evidence from Sweden’, 28 March 2014] They appear to have acted out of fear of negative economic impacts, rather than actual evidence of direct damage.

Where there is empirical evidence, the negative impact of wealth taxes on desirable economic behaviour appears much smaller than critics would have us believe. A 2010 paper by tax expert and economist Asa Hansson looked at the relationship between wealth taxes and economic growth.[2. Asa Hansson, ‘Is the wealth tax harmful to economic growth?’, World Tax Journal, February 2010] Based on analysis of 20 OECD countries between 1980-1999 she did indeed find “robust support for the contention that taxes on wealth dampen economic growth”, but, crucially, “the estimated magnitude is relatively modest”. A one percentage point increase in wealth taxes – a very large increase indeed – reduces growth by just 0.02 to 0.04 percentage points. Not insignificant, but certainly not the picture of economic doom painted by critics.

Interestingly, Hansson also notes that by lowering the net return on financial investments relative to investment in human capital, wealth taxes might in fact encourage a shift towards human capital formation, and that in turn could stimulate growth.

In another paper looking at the impact on self-employment, a proxy for entrepreneurialism and another common focus for criticism, Hansson finds a similarly small, though still negative, impact. While self-employment in countries that taxed wealth was on average 24% lower than in counties that didn’t, abolishing a wealth tax resulted in an increase in self-employment of just 0.2 to 0.5 percentage points.[3. Asa Hansson, ‘The wealth tax and entrepreneurial activity’, Journal of Entrepreneurship, 2005]

“Other factors such as perhaps attitudes toward risk, overall business friendliness, and labor market institutions that vary across countries are likely to be more important than the wealth tax.” 

That’s important, wealth taxes shouldn’t be seen in isolation, governments have many policy levers they can pull. Plus it is worth remembering that income taxes also have economic impacts, but revenues have to be raised, and its only fair that everyone, not just workers, contribute.

The biggest barriers to taxing wealth are practical

David Seim, in his analysis of the behavioural effect of Sweden’s wealth tax, found that evasion, rather than a reduction in savings, is the more likely outcome. And herein lies the real issue, wealth taxes have tended to raise little by way of revenue – and have therefore proved ineffective at redistributing wealth – because wealthy individuals tend to have clever accountants. Just think of the Paradise Papers, or the Panama Papers before that.

Much of today’s wealth is mobile, making an annual tax on net wealth near impossible. Where wealth is rooted and measurable, like land and property, there is often no associated revenue – so if you’re asset rich and income poor, how do you pay the tax? And how do you prevent the rich shifting their wealth to less easily identifiable investments, like art or fine jewellery?

As Seim’s puts it: “If the practical difficulties of capital tax implementation can be resolved, wealth taxes are likely to be a powerful redistributional tool.” But that’s the million-dollar question: can a wealth tax be designed that raises sufficient revenue to justify administrative costs, and that taxes the super wealthy rather than just capturing those who can’t shift their assets? We’ll be answering that for you, plus examining other types of wealth taxes, in our up-coming audio-documentary.

Another example is ‘income’ and ‘wealth’ – terms which are often used interchangeably in everyday language, but that have distinct meanings when it comes to economic policy. This is especially important when it comes to the issue of inequality.

Wealth inequality is the subject of piece by Christopher Ingraham for the Washington Post. He kicks off with a helpful definition:

“Wealth, often described as net worth, describes how much stuff you actually have: It’s the value of your assets minus the value of your debts. If you have a $250,000 house but you still owe $200,000 to the bank on it, and you have no other debts or financial assets, that means your net worth is $50,000.”

His key point is that, in America, wealth inequality is even greater than income inequality – and that the problem is getting worse:

“The wealthiest 1 percent of American households own 40 percent of the country’s wealth, according to a new paper by economist Edward N. Wolff. That share is higher than it has been at any point since at least 1962, according to Wolff’s data, which comes from the federal Survey of Consumer Finances.

“From 2013, the share of wealth owned by the 1 percent shot up by nearly three percentage points. Wealth owned by the bottom 90 percent, meanwhile, fell over the same period. Today, the top 1 percent of households own more wealth than the bottom 90 percent combined. That gap, between the ultrawealthy and everyone else, has only become wider in the past several decades.”

Polling shows Americans don’t actually want a perfectly equal world in which everyone has an equal share of the nation’s wealth (imagined by Christopher Ingraham as 100 slices of a pie):

“On average, respondents said that in an ideal world the top 20 percent of Americans would get nearly one-third of the pie, the second and middle quintiles would get about 20 percent each, and the bottom two quintiles would get 13 and 11 slices, respectively.

“In an ideal world, in other words, the most productive quintile of society would amass roughly three times the wealth of the least productive.”

In reality the top 20% have 90 slices of the pie. With just 8 for the next quintile, 2 for the middle quintile and nothing for everyone else. The distribution of wealth has become steadily more unequal in recent decades, but even if the trend were reversed, how likely are we to achieve the “ideal world” described above?

The answer is very unlikely, because the underlying dynamics of wealth tend towards inequality.

For a start, richer people not only have more income to save they are also in a position to save a greater proportion of their income. Their consumption levels are generally higher too – but not so high as to mop up that extra income, leaving a surplus to be saved. In theory, the rich could just spend, spend, spend, but, in practice, most people’s appetite for consumable items is limited. As for splashing out on luxuries like expensive jewellery or second, third or fourth homes – those are too are assets and therefore add to wealth, not consumption. Therefore, any given level of income inequality will normally produce a higher level of wealth inequality.

Another factor is that wealth levels are age-dependent. The longer you live, the more time you have to pay off debts and accumulate assets. You can have a much higher income than your parents, but if they’ve paid off their mortgages and paid into pensions for decades longer than you have, they’ll have a great deal more wealth. What we should be concerned about isn’t how much wealth people have at a particular point in time, but how much opportunity they have to accumulate it over a lifetime. The failure of increasing numbers of young people to gain a foothold on the housing ladder, or to accumulate savings, is therefore a matter of grave concern.

On an even longer timescale, inheritance allows wealth to be passed down from generation to generation, raising fears of permanent, ‘dynastic’ inequality. However, the evidence shows that most family fortunes are lost within three generations, a long-term equalising force. Of course, this requires that government policy doesn’t go out of its way to create safe havens for the assets of the wealthy.

Assuming we don’t want to resort to draconian methods like flattening the income distribution, asset confiscation through wealth taxes or the return of sky-high death duties, we need to craft policies that channel the way that wealth ‘naturally’ tends to accumulate and dissipate. This has to start with the aggressive incentivisation of basic levels of saving – it should be much easier to save part of a modest income than a much higher one. We must also do whatever it takes to enable everyone in regular employment to own their homes. Finally, we need a tax system that pushes higher levels of wealth into economically productive and/or socially useful investments – and out of speculation in ‘low risk’ assets like land.

After all, what’s the point of rich people if they won’t risk the money they can afford to lose?

A fascinating example is the relationship between the Dissolution of the Monasteries in 16th Century England and the Industrial Revolution a couple of centuries later. This is the subject of a rather brilliant piece of research by Leander Heldring, James Robinson and Sebastian Vollmer, which they write about for VoxEU.org.

They begin with the historical context:

“…[when] Henry VIII decided to break with the Catholic Church… he expropriated all monasteries in England, which collectively held about one third of all land in the country…

“When the management of these vast properties turned out to outstrip the bureaucratic capacity of his government, Henry sold all monastic assets in England.”

This was a lot of land, but why was its change of ownership so significant?

“Where lands were before held in long leases whose rates were set by medieval custom, lands now changed hands frequently and at market rates. In a few years between 1535 and 1542, the majority of monastic land was sold…

“The historical consensus on the immediate impact of the Dissolution was to break up archaic forms of land tenure and create a land market…”

Markets are all about the efficient allocation of scarce resources; and land (which they’re not making anymore) is an indispensable input to just about every economic activity. Henry was a brutal despot, but in selling off so many stolen acres, he accidentally created the basis for a modern enterprise economy – one capable of nurturing the seeds of an industrial revolution.

That’s the theory, but where’s the proof? Luckily for the researchers, English land records go back a long way. It also helps that monastic land holdings were not evenly distributed – thereby allowing those villages that were impacted by Henry’s ‘reforms’ to be compared against those that weren’t (because they didn’t contain much, or any, monastic land for Henry to confiscate):

“We choose comparison villages that lie close to impacted villages so as to make them comparable. When we statistically estimate the effect of having more monastic assets in a village in 1535 on industrialisation, we find a large positive effect – villages that had more monastic assets (by value) were more likely to have at least one textile mill by 1836 and employed more people in the textile industry.”

As well as a more industrialised workforce, the researchers also found that the former monastic villages had “higher productivity in agriculture” and were associated with a greater number of agricultural patents.

The Industrial Revolution was the most important economic event in human history – and its birthplace was Britain. No one is arguing it was the sole result of the Dissolution, but the contribution of a functioning land market to the growth of entrepreneurial culture not only makes sense, it also appears to be supported by the evidence.

Fascinating stuff, but of what relevance is it to us today? Well, despite the digital age, land (in the right place) is still a vital economic input. And though most medieval customs may be long gone, we have many modern restrictive practices that stop land markets from working as they should.

For instance, governments are shockingly bad at making the most productive use of their own extensive land holdings – including those in high-value global cities like London. Property developers use land banking and land option techniques to sew up and carefully ration the supply of land for new housing. Investment companies hold on to high-value sites in commercially attractive locations, not bothering to regenerate them because the rising value of the asset is all they need in showing off their balance sheets to shareholders. And most stupidly of all, tax systems treat property speculation, land hoarding and rent extraction as if they were a socially useful, economically productive activities and not the parasite on growth they actually are.

While not copying his methods, any government presiding over a sluggish economy needs to follow the example of Henry VIII – breaking up land monopolies and freeing the productive potential of local economies.

Like most Americans, I love the idea that companies make money, and I’m no fan of the IRS[34.  The Internal Revenue Service, the US federal tax-collecting agency, is famously unpopular among Americans.]. But much as we hate paying taxes, we know we will end up paying more if your company and others like it don’t pay a fair share. You may have noticed that retirement, health and other programmes are under threat, that the deficit continues to grow, and the nation’s infrastructure is not exactly the envy of the world. At some point voters will get angry and they’ll get angriest with the tax dodgers.

At the moment Facebook appears to be doing more than just take advantage of general deductions, but is playing hardball. Last year there was a story that the IRS had issued Facebook seven summonses within one month, and got no response. Did that get sorted out?[35.  Seth Fiegerman for CNN, 29 July 2016. “Facebook could owe $5 billion in taxes.”]

Then there’s the rather dramatic way the company has used Ireland – a famously low-tax economy – as a base for international operations.  As a result, it is not just the US treasury that has suffered. Fortune magazine reported that in the UK “Facebook Pays Astonishingly Little in Corporate Taxes.”[36.  See David Kravets, 12 December, 2016. “Facebook tells IRS it won’t pay billions over Irish tax maneuver.”
 and Michael Addady, 21 January, 2016.]

Jack Schofield reports from ZDNet that the IRS is after Facebook for these international tax games:  “America’s IRS is chasing Facebook for back taxes starting in 2010: Facebook opened its international headquarters in Dublin in 2009. Other American tech giants, including Apple and Google, are already under pressure from European tax authorities for channelling revenues through Ireland, which has a 12.5 per cent corporate tax rate. The US rate could be as high as 35 per cent.”[37.  Jack Schofield, July 30, 2016. “IRS wants more tax cash from Facebook, while Europe’s tax collectors target US tech.” and for more details on Facebook’s tax behaviour in the UK, Ireland, New Zealand, and elsewhere, see Liat Clark, Wired UK, May 4 2017.]

Oh I know, you have top-end tax advisers and follow their advice. And I’m also aware that corporate leaders have a fiduciary responsibility to investors (including you) to make as much profit as they can. But there’s a lot of scope for discretion in these matters, as the image of the company is itself enormously valuable. You might want to exercise it in a manner that leaves Facebook in the clear with tax authorities at home and abroad – and looking good with the public in the many nations in which you now operate.

If you’re wanting to be president it’s not enough to say you’re only acting like all other companies. Because, Mark, public service is very different from maximising your own bottom line, whatever the consequences for the wider nation.

How about firing your tax advisers and putting out a statement that you want Facebook to be a model corporate global citizen? So your plan is to start over, and pay tax in rough proportion to the average, standard rates in the nations that you operate – and which schools, police services and other public amenities require.

Part 3: You are taking a lot out of the news industry – perhaps it’s time to put more than a little something back

Due to their immaterial nature, digital services are geographically indeterminate. This makes it easier for tech companies to minimise their tax liabilities in any particular nation. Of course, avoiding tax is not the same thing as evading it – as Google recently demonstrated in a courtroom victory over the French government. But what of the charge that the big tech companies are ‘dodging’ tax (implying a moral lapse if not a legal one)? A particular complaint is that companies that sell vast amounts of online advertising, like Facebook and Google, pay very little corporation tax in the countries where the advertising is sold.

Writing for CapX, Tim Worstall comes to the tech giants’ defence:

“…the basic underlying principle of the international taxation system – tax should be paid where value is created. Intellectual property is an ever rising portion of value being created and when we come to things like software platforms it’s by far the majority.”

He goes on to cite a counter-argument from Richard Murphy:

“I know that it will be claimed to be due to the intellectual property having been developed in the USA. But let’s be candid; IP is worthless without a customer and it is UK customers who create the value added in this country, and not the IP as such”

Worstall is not impressed with Murphy’s logic:

“It’s worth just savouring that. JK Rowling created considerable intellectual property with her books, but it’s the readers who provide it, so therefore JK must be paying tax everywhere else and not in the UK – or perhaps only in the UK on her UK sales.”

The JK Rowling analogy is a revealing one, but not quite as Worstall might wish. He is right when he says that customers don’t create value (rather, they pay for it). But while that applies to Ms Rowling’s readers, it doesn’t apply to the users of Facebook – who don’t pay anything. Instead, the customer is the advertiser who pays Facebook for drawing its users’ attention to adverts. As the new old saying goes: ‘if something is free, then you are the product’.

Unlike the Harry Potter reader, the Facebook user is the (unpaid) co-producer of what Facebook sells. Obviously, as a digital platform, Facebook is essential to the whole enterprise – and it’s fair that the foreign-owned intellectual property on that platform should be taken into account. But let’s draw a parallel with another kind of platform – a North Sea oil rig.

Without the engineering brilliance of companies like Shell or BP there would be no North Sea oil industry. However, no one can deny that much of the value of what they produce comes from the natural resources that they extract – resources that properly belong to the nation not the oil companies. That’s why the North Sea oil industry has its own special tax regime, one that allows private enterprise to make a profit, but ensuring that the nation gets its due.

We should treat the big tech companies in a similar way. If the value co-produced by a nation’s collective attention (and sold on to advertisers) can’t be individually remunerated, then it should be nationalised – and taxed accordingly. Yes, the platform should have a fair share of the profits, but so should the nation.

• Working class voters who provided Trump’s margin of victory would, on balance, get nothing.
• Upper-middle income taxpayers, who are tending to move away from the GOP and centre right parties across much of the world, would see their taxes hiked.
• Traditional Republican constituencies – the well-off and business owners – will get the overwhelming bulk of gains. I suspect the political implications of this fact will cause Republican Congressmen and Senators to try to scale the plan’s scope back, which in turn endangers presidential support as Trump has made clear he primarily cares about a deep cut in the corporate tax rate[1.  President Trump has repeatedly stated he wants a 15% corporate tax rate despite most observers’ belief that such a drastic reduction is too large for Congress to stomach (current rate is 35% and the GOP is aiming to cut to 20%). The President says that America’s corporate tax rate is much higher than other nations and that reducing it dramatically, the US will attract investment and jobs to the country. Watch his speech supporting the plan, delivered on 27 September 2017].

Let’s briefly examine some of the specifics…

The Republican tax cut plan remains in flux, but the basic outline released two weeks ago provides a sense of the GOP’s priorities. They are clearly seeking to do two things:

• dramatically reduce the cost of capital, especially for large corporations, and
• provide modest tax relief for middle-income taxpayers.

This will not be much of a tax “reform” (despite the headline given to the plan by its authors) but, unless changed, a large tax cut.

Cutting the rate of income tax for large corporations to 20% is the largest item in the plan. Many American small businesses are taxed as “pass through” income to taxpayers’ personal income tax returns. In order to provide rough equity in treatment the plan proposes to cut their top rate of taxation from 39.6% to 25%. These provisions ensure that the bulk of tax relief will flow to both large and small businesses.

Owners of capital or well-to-do taxpayers are benefited by two other proposals. The inheritance tax will be eliminated. This will only help taxpayers with estates in excess of $5.4 million (as estates below that level are already exempt from the so-called death tax). The top rate of income tax, paid by couples earning over $500,000 a year, will also be cut from 39.6% to 35%, although the plan states this could be less generous or even set aside as negotiations continue.

Taxpayers earning below these lofty amounts will see a variety of changes that will benefit some, hurt others, and leave many unaffected:

• Upper-middle income taxpayers, approximately those earning between $130,000 and $350,000, will see a substantial tax increase due to complicated changes in what types of expenses they can deduct from their taxable incomes[2.  An analysis of the GOP plan by the Urban-Brookings Institution Tax Policy Center found that nearly thirty percent of middle-income taxpayers would see a tax hike under the plan, and that a majority of taxpayers earning between $150,000 and $300,000 would have their taxes raised.].
• Families making less than $45,000 will see no change on average, while single people earning more than $25,000 will likely see a small increase in their taxes (the plan increases the bottom rate of taxation from 10% to 12%).
• Those in between those two bands will probably see a modest tax cut ranging from a few hundred to as much as two thousand dollars, depending on their earnings and their family size.

One can only guess what the final bill will actually look like. Moreover, we cannot be sure that this Congress can pass a tax cut plan – despite the sense that failure to do so will probably destroy their chances in next November’s 2018 midterm elections.

“…job losses will be followed by declines in income tax, social security contributions and other payroll taxes. Exchequers will see healthy tax flows replaced by increased obligations to pay social benefits. So far, so simple: why not tax a robot as if it was a person?”

The obvious retort is that robots aren’t people, they’re equipment:

“Neither robots (no matter how humanoid they might look) nor the AI which drives sophisticated machinery, highly evolved service-delivery mechanisms or financial transactions are anything other than tools by which businesses operate. They exist to boost business productivity and profitability. Taxing them as if they’re real people simply doesn’t make sense.”

Indeed, it makes no more sense to tax a robot then it does to tax a forklift truck, a combine harvester or a Corby trouser press. Each of those three items is a labour saving device, enabling what was previously the work of several people to be done by one person. A robot is no different.

But what if the new wave of automation is so powerful that instead of boosting our productivity, or freeing us up to do other work, we’re swept out of the labour market altogether?

I doubt whether this will happen anytime soon, but let’s assume it does. What would then happen to the tax base? Nothing good, says John Bull:

“In most G20 nations, the rate of tax which businesses pay on their profits (corporation tax in the UK) is less than the rate of income tax, social security contributions and payroll taxes paid by and in respect of the human workforce. So, increases in corporate profits promised by the rise of robotics will not result in a compensating increase in corporation tax receipts.”

He goes on to set out three options for a government response:

1. “Increase the rate of corporation tax to compensate for the decline in labour taxes…”
2. “Reduce the tax incentives available for research and development. While that might contribute to the solution, it could be disastrous for advanced economies.”
3. “Or, broaden the tax base in other ways, for example through the implementation of a land value tax, through higher business rates for companies using robotics or AI, or through similar measures specific to business type or location.”

As it happens, there’s something rather fundamental that both Mr Corbyn and Mr Bull have overlooked: In the event of a comprehensive robot takeover of the labour market, tax rises will not be necessary. Indeed, we’d be able to abolish taxes on productive economic activity.

Instead, government could simply create money to fill its own coffers and to distribute to the population, making up for lost wages. In normal circumstances that would unleash inflation, perhaps hyperinflation. But there’d be nothing normal about an economy in which most work was done by robots and artificially intelligent systems. In such a scenario the supply-side would be able to ramp-up production to cope with any surge in consumption.

Indeed, the big challenge would be on the demand-side. The end of the payroll wouldn’t just demolish the tax base, it would pauperise consumers. Government would have to step in to create demand in the economy.

To an extent, it is already doing so–for instance, by holding down interest rates and through quantitative easing. Some economists want central banks to go further, using so-called helicopter money to put spending power directly in consumers’ pockets.

If such measures are on the agenda in today’s high-employment economies, imagine what would happen if super-productive machines were doing our jobs.

As I’ve argued before, we are moving into an era of new economic realities, in which old assumptions no longer apply. But just as we stand on the threshold of a fundamentally different future, our politicians are refighting the ideological battles of the 1970s.

Lucky old robots: they don’t feel despair.

Governments claim to be prioritising the interests of “hard working, low earning” people and Britain’s PM, Theresa May has even invented at least two names to describe them: first, “JAMs” (the Just About Managing) and, more recently, the “OWFs” (Ordinary Working Families).

It is unsurprising that politicians are focusing on the needs of this large group. Their earnings have stagnated over a sustained period. In the UK, for example, low to middle income working households have experienced no growth in real incomes since 2003 – according to the Resolution Foundation[1.  “Still just about managing” – the Resolution Foundation’s general election briefing of May 2017.].

What is more surprising is that all the political focus on this issue has resulted in almost no concrete policy actions. Indeed, in the UK, recent steps to raise the minimum wage have been more than cancelled out by larger cuts in welfare benefits (see that same Resolution Foundation report for details).

What explains this gap between benign rhetoric, and benign neglect? Perhaps it is a matter of political bandwidth? May’s government is preoccupied by the complexities of Brexit, while Trump is hardly short of political challenges, from North Korea to healthcare reform. But given the scale of this economic and a political challenge (and with many votes at stake), it’s hard to regard political bandwidth as a sufficient alibi. Most governments can do more than one thing at a time.

Perhaps a lack of deliverable policy solutions is the real issue? In both the US and UK, the lack of productivity growth appears a central part of the problem, but the solutions – investment in human and physical capital – are necessarily long term in nature.

Meanwhile, in a continuing era of public sector austerity, governments struggle to pursue any remedies that carry a price tag. When Mrs. May’s Conservative Party presented its recent General Election manifesto, the search for more savings led them to propose policies which would actually worsen the position of lower income working households (such as scaling back entitlement to free school meals).

Some policies seem to fail both affordability and desirability tests. Paying out more money in means-tested tax credits can, for example, undermine work incentives[2.  Stuart Adam and James Browne, “Redistribution, Work Incentives and Thirty Years of UK Tax and Benefit Reform”, Institute for Fiscal Studies, 2010].

One policy which the UK government has been pursuing since 2010 and continues to pursue – that of raising the starting point for income tax – might help. Since 2010, the UK “personal allowance” has been significantly increased, taking 2.6 million low earners out of the income tax system and delivering a tax cut worth around £600 per year for each basic rate taxpayer[3.  “The Coalition Government’s Record on Tax” published by the Institute for Fiscal Studies in March 2015].

The problem with this policy? It isn’t cheap. Moreover, as the allowance is raised it becomes a blunter instrument to target the lower earners. Only 57% of UK adults now pay income tax, and further increases in the allowance will significantly benefit two earner couples (often relatively well off) and pensioner households (as the personal tax allowance has now caught up with the pensioner threshold).

Nonetheless, there is surely more that could be done to reduce the tax burden on low to middle income working households, without damaging work incentives? After all, the UK tax system is hardly generous to lower income groups. The progressivity of the income tax system (where the richest fifth pay 23% of their gross incomes in tax, while the poorest fifth pay just 11%) is still fully offset by the regressive nature of the indirect tax system (where the bottom fifth of households pay 27% of their disposable incomes in tax, versus 14% for the richest)[4.  “Effects of taxes and benefits on UK household income; financial year ending 2016”, April 2017, published by the Office for National Statistics].

Lower income groups pay a particularly large share of their incomes in council tax (which helps fund local government). For the bottom fifth of households, council tax is actually a considerably larger burden than income tax – and accounts for over half of all their income related taxes[5.  Same source as above].

Council tax has fallen in real terms over recent years, largely because of repeated freezes as part of government policy, but it rose dramatically faster than inflation before 2010.  Council tax is set locally, but the relationship between the level of charges for houses of different values is set nationally. The lowest council tax band (A) has to charge 67% of the Band D amount. Meanwhile, a multi-million pound property in top band G can only be charged at double the Band D amount. Council tax is therefore a regressive tax.

The very lowest income households (often non-working) will receive council tax benefit – potentially paying almost nothing. So reductions in council tax focused on lower income working households would be highly effective in targeting exactly the groups which politicians say they want to prioritise. This could be achieved, for example, by cutting council tax by 25% for lower banded properties. More radically, the Mirrlees Review[6.  “Reforming the Tax System for the 21st Century: The Mirrlees Review“, Institute for Fiscal Studies, September 2011] recommended that council tax should be transformed into a simple percentage of property value. Either way, the lost revenue could be recovered by hiking the rates for the largest properties or shifting the tax burden onto higher income groups (see below). This seems a more sensible approach than that favoured by some UK political parties, which have proposed an entirely new “Mansion Tax” on high value properties.

How else might low/middle income working households be effectively supported? Well, although the starting point for paying income tax has been raised, this has not been the case for another, less visible, tax – national insurance contributions.  While Mrs. May’s government has pledged to raise the income tax threshold to £12,500, the national insurance starting point is presently around £8,200. Raising this threshold would therefore be a more effective way of targeting support on lower-paid workers, and because employee NI contributions are not paid by pensioners, this “giveaway” is also better targeted.

But how can all this be paid for? An obvious answer would be to raise the higher rates of both council tax and national insurance contributions.

But if the government does not want to raise council tax for larger properties or national insurance for higher paid workers, there are many other possible revenue sources which would avoid hitting low and middle earners…

• How about reducing the capital gains tax exempt amount?
• Or cutting back “Entrepreneurs relief”, which the IFS regards as “complex, distorting and arguably unfair”[7.  “Taxes and Benefits: The Parties’ Plans”, published by the Institute for Fiscal Studies, April 2015].
• What about greater alignment of dividend taxation with income tax, or cancelling part of the reduction of corporation tax rates (the 2010-2015 Coalition government spent almost as much reducing corporation tax as raising the personal allowance – [8.  “The Coalition Government’s Record on Tax”, Institute for Fiscal Studies, March 2015])?

The point is that if governments really want to make a difference, they have plenty of workable and immediate policy levers.

One final point: the present UK government has imposed a freeze on most benefits – cutting them significantly in real terms. This policy seems in part aimed at improving the work incentives of those not in employment. But around £1 in £5 of the incomes of “low and middle income working households” come from benefits. This includes housing benefit – as almost 30% of this group now rent privately – up from just 11% two decades ago [9.  From the Resolution Foundation’s “Living Standards Audit” of July 2017”].  This has two implications: firstly, that the government needs to re-think the impact of its benefit cuts on these families; secondly, we need more affordable homes to buy.

Longer term policy should prioritise better education and skills training, improved housing supply and affordability, and productivity enhancing infrastructure investments. But governments are judged over the short and medium term.

It’s surely time for ministers to turn the rhetoric about hard-working but low-paid workers into practical action. In the UK, the Chancellor Philip Hammond has an opportunity to blaze a trail in his Budget on 22nd November – he could start by slashing national insurance contributions and council tax for “ordinary working families”.