The Point We're Missing On The 45p Rate

It’s the inequality, stupid! Reading and watching a lot of the post-budget analysis I was rather surprised to not hear this issue discussed more widely. We can expect the Coalition to be rather more relaxed about entrenching the widening gulf in our society, but I’d have thought the commentariat to be rather more forceful on this point. There was a lot of talk of how much it would raise, whether it was fair but little about the ultimate direction we want to be taking this country and what message we’re giving to a disenfranchised population.

On whether it’s fair to be “punishing success” I can’t help but feel the issue of fairness was already blown out of the water by the circumstances of the rate lowering. Labour estimated the higher rate, implemented in April 2010, would raise an extra £3bn for the treasury as it turned out it only raised £1bn and so a mere 2 years after it was introduced it was scrapped. So where did that lost £2bn go?

Largely it was kept by the higher rate payers as they began to arrange their financial affairs to mask their liabilities. It might not be “fair” to tax the rich, but going out of your way to avoid paying your tax doesn’t exactly seem “fair” either. Surely people with such privileged backgrounds should know that two wrongs don’t make a right? What I find most staggering about the reduction in the rate, is that now the rich have cooked up their tax wheezes they’ll voluntarily drop them now the rate is 5% lower. The message to the government is clear, you are not getting my money whatever the hell you say, so you may as well stop trying. For some reason the government have.

If the tax was only raising £1bn from the wealthiest in the country, how can reducing it ever have a significant impact on growth? Redistributing the revenue piecemeal back to its “creators” will probably be enough for them to buy a new sports-car or a year or two at Eton for their kids but it won’t be the shot in the arm our economy needs. And besides, what is government actually supposed to be for? Should we really have to rely on the benevolence of philanthro-capitalists to improve the country? Or should a government that’s strapped for cash be looking to sustain itself any way it can an redistribute wealth on more equitable terms?

Which brings me onto the main reason lowering the 50p rate of tax is a bad idea, it continues the slow stretching out of our social ladder and aids the creation of a more unequal society. This isn’t desirable from a simply moralistic viewpoint, but a more equal society has a number of physical benefits, from reducing crime and improving health to to slowing the rampant consumerism which will surely mean that we’ll never be able to curb our greenhouse emissions enough to prevent catastrophic climate change.

The links between inequality and a wide swathe of social ills have been documented in the book ”The Spirit Level” by Kate Pickett and Richard Wilkinson, in it they plot a number of graphs that charting the inequality index in different countries against homocide rate, life expectancy, health outcomes, trust in the society, educational performance, rates of imprisonment, social mobility, teen pregnancy, drug use and obesity and found they were all positively correlated. Most importantly, it wasn’t just the poor that suffered, it was all classes of society.

Now to be fair, there is a dispute over the cause and effect of this relationship or whether it could be more to do with an underlying social structure. Correlation might not equal causation, but a correlation seen in 10 or 12 different social problems it’s getting towards the level of being indisputable. The major underlying cause the authors suggest is the slow psychological trauma of feeling social shame at being unable to afford to integrate into the wider society. The effects of stress on health are well documented, it increases violence as people become more desperate to enter a society that they are excluded from.

Opponents will claim that making a more equal society will just stop the hard working, entrepreneurial and innovative from claiming their just rewards, ultimately stalling the economy. But if we think of the alternative it is not much more pleasant, think of all the great ideas and hard work that have been wasted because our most talented are stuck in an endless cycle of coping with the stresses of surviving that they’ve inherited from their less fortunate parents.

An unequal society is also a major driver of our materialistic culture, one that is beginning to severely impact our future prospects for survival. Think of how much you’d need to spend to fit in with your wealthiest friend’s circle of friends, new phone, new suit, new shoes, new haircut, new watch and all the rest. Multiply that by the millions desperately trying to climb the social ladder and you start to get a problem. In a more equal society you can buy the came gain in social status with fewer goods, its (almost) that simple and has the added bonus of not actively excluding those on the lower end of the scale.

Taking off the 50p rate was dead wrong. It’s not an issue of money, its an issue of what will ultimately be best for our society’s survival. It certainly isn’t an issue of growth as all the Coalition’s tax measures are expected to raise forecasts by a pathetic 0.1%. It isn’t the money of the rich that will bring our country prosperity, it is the human capital which for the most part we are letting rot away, in favour of using just what’s floated to the top.

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