Budget/Poverty thoughts - 5 comments

This is mainly a collection of Budget- and poverty-related thoughts, the former only about a week late, thanks to endless editing and the fall-out from my newly-reimposed discipline of 6.20 am wake-up calls. I'll also deal with a few points raised elsewhere, especially those I haven't seen answered satisfactorily.

Firstly, on the Budget, here's the Institute of Fiscal Studies's summary, via Tom Freeman, if you haven't already seen it:

• Sensible tax reforms with revenue recycled to minimise losers
• Higher-rate tax-payers unaffected, 65+s paying tax gain, hard to generalise about others
• Tax credit rises for low-income families generally exceed income tax losses
• Around a fifth lose, two-fifths gain, two-fifths largely unaffected
• As usual, low-income families with children gain, but still much to do to hit 2010 child poverty target
• Overall impression of Brown’s record unaffected
• Highly redistributive, especially to families with children and pensioners

Effectively replacing the 10% tax band with increased Working Tax Credits [WTCs] - that work rather like a negative income tax, and whose take-up is currently poor - still strikes me as odd. Neill Harvey-Smith at the rather fine Vote NHS blog argues that this is an unwelcome move away from individual self-reliance. In contrast to those welfare systems that operate a Citizen's Income (that is to say, none), dependency can only be prevented by carrots and sticks, within systems - such as our own - that are based upon reported or assessed need, and potential recipients who prefer to be self-reliant must miss out in many ways. To single out WTCs therefore seems to miss the bigger picture. I still can't say I entirely understand the idea behind the Chancellor's move; that being the case, does anyone have a possible explanation other than the cynical hope that take-up will be low and benefits unclaimed, that is ascribed to Mr. Brown by political opponents?

With all the arguments over benefits, lower tax bands, minimum wages, and withdrawal rates, let's not forget that being out of work - and being kept out of work, whether by macroeconomic policy, poor skills, a lack of mobility, high withdrawal rates, or wage floors - is the most damaging scenario the poor face, and we should not forget what we rightly argued in the 1980s and 1990s, that increased unemployment is not something we should lightly play off against, say, higher statutory minimum wages for easily-replaced workers.

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There's been a lot of recent attention given to the apparent increase in the number of children in poverty. What appeals most to me, politically, are significant increases in the quality of life and the number of opportunities opening up to the poorest and thereafter to others, working up through the wealth/opportunity/power scale. The "60% of median income" poverty line is a statistical measure, that guides policy but also distracts. It tells us nothing about opportunity, or power, or job security, let alone health or education, and it tells us things about higher earners, as any average must.

There must be statistics, but misunderstandings will arise when those who use the statistic argue with the majority, who determine poverty subjectively, using both senses intermittently, such as at this David Osler post. Using the 60% measure of poverty it is indeed almost impossible to escape it while on benefits. Probably only a recession, or a large increase in the basic rate of taxation can lower median income sufficiently to raise a single parent on benefits from being poor to 'not poor', and that without a penny of extra money being spent on them, but with prices continuing to rise. Undoubtedly a perverse way to escape poverty. And the more the effort to alleviate poverty is focussed on the most disadvantaged groups, the smaller the effect on the total number of poor.

If the term 'poverty' is to remain a condition that encourages Labour supporters to advocate the most urgent preventative action, it must be an accurate guide to the disadvantage that traps and restricts people and causes suffering, and to any injustices that bring this about - one which doesn't simultaneously try to measure income inequality. A measure like the Human Poverty Index, while including a relative income element, also factors in long-term unemployment, literacy levels, and life expectancy. A richer measure like this would be more likely to identify disadvantage, and potentially a figure could be calculated for each socio-economic group or income quintile. Of course there can be no substitute for looking for the Budget's effects on individuals themselves, particularly those at the bottom, to see how the people are affected materially, what problems the measures solve, what problems they create or leave standing, and how they affects the people's prospects and ambitions for the future. It might also encourage politicos to pay more attention to the effectiveness of public spending, rather than its scale.

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I notice some bloggers have used the cut in the main corporation tax rate to introduce "city bonuses" to the conversation. I'm not going to whitewash that issue, but I feel I ought - once again - to interject to tackle a bad and misleading argument, before the two concepts become one in people's minds. So here's an alternative hypothesis: that companies employ workers, and might - as a result of the cut - be able to employ more in the future, for more hours, and for more money, just as companies are able to do in healthy economic conditions, and not in recessions.

Thinking of benefits as only affecting the poor, income tax the middle class, and corporation tax the rich, when they are - as are we all - interdependent, has (had) an unfortunate effect on left-wing attitudes to government spending in the UK. It might well be responsible for the popular idea on our side that - whatever you or I think about current rates - income taxes cannot be acknowledged as being close to "too high" while poverty and social problems remain, even though those same taxes affect most of us. I fear that this tax anxiety is not simply a product of the "Blairite" imagination, or (insert something about Murdoch), the real challenge being that both poverty and politically unsustainable taxes may coexist, and the issues of rising expectations and the effectiveness of public spending must be looked into, by those who are serious about tackling poverty but know they cannot do so from the Opposition benches.

John McDonnell and Arbitrary Taxation - 7 comments

An honest, democratic tax system - to me - is one where the tax rules are set out in advance, and Governments do all they can to raise money based upon the strict application of those rules. If revenues are substantially different from what the Government expected, that suggests either a failure of collection - for which Governments must be held accountable - or that the taxation has prompted a change in economic behaviour (this is, itself, interesting, but a topic for another day). The results should be factored into the plans for the next Budget. Trying to meet a shortfall by taxing something after the event - that is to say, taxing something that an individual didn't expect to be taxed, or at a rate they couldn't have foreseen - represents an abuse of Government power, if you want my view, and not something you expect in a democracy, whether the taxes come from people who can't afford it, or who probably can. "The rule of law", I believe, is the term.

This is just what John McDonnell is proposing here, with an arbitrary tax on Christmas bonuses. Yes, clearly in some sectors of the economy they're huge, but that's no justification for what borders on theft by the State. There's no good reason that I can see why Christmas bonuses, per se, ought to be taxed, and at least in the banking sector, they're also unpredictable, making them not a source one can depend upon for funding public spending, or reducing taxes elsewhere. Now, I certainly don't think such a windfall would do much harm; the money even be put to good use, but that doesn't justify the policy, and the proceeds from any windfall should not be wasted, or simply raise expectations that would have to be met out of general taxation when the apparent bounty doesn't materialise (insert - 19/12) in subsequent years.

John invites us to contrast news of these huge bonuses with reports of new efforts to coax the long-term unemployed back into the jobs market. By contrast, he means, of course, to imply a relationship without needing to - or being able to - state what that relationship is. The implication is, presumably, that those bonuses - shared out - would solve the problem of long-term unemployment, saving us all that silly debate about skills, apathy, migration, competition, benefit traps, and marginal tax rates; also that one reason for long-term unemployment is just that the right 5-6 figure salary just didn't come along for those people. Perhaps the issue is one of education (though this doesn't seem to hold many traders back), or application, or interest, or not living near London, or not wanting to work 60-hour weeks, or preferring a stress-reduced life to the salary benefits. There are plenty of reasons why that career might not work out for people, but it's hardly the point: we need to be trying to equip people for some kind of plausible career, because I certainly don't think the kindest or most liberal approach is to allow someone to degenerate, wasting the skills they have. Everyone should care about that, it just so happens that Governments care more, it being other people's taxes.

John's quite right to talk about the need to tackle inequality, but in terms of ideas, he evidently has nothing new to offer, just a pat, simplistic approach that is designed to invigorate his supporters, woo potential supporters, and avoid making any difficult choices. Now, I did hear once that he supported the Citizen's Income, though I haven't find any evidence yet. Is this true? And if it is, why doesn't he talk about that, and help get it on the agenda, rather than all this "fantasy politics" stuff?