In 1859, Karl Marx wrote, ‘There must be something rotten in the very core of a social system which increases its wealth without diminishing its misery.’ Some decades later, in 1901, Labour’s founder Keir Hardie said in the House of Commons, ‘I submit that the true test of progress is not the accumulation of wealth in the hands of the few, but the elevation of the people as a whole.’
And in 2021, it wasn’t a socialist who said of the Conservatives’ Autumn Budget, ‘This is actually awful. Yet more years of real incomes barely growing. High inflation, rising taxes, poor growth keeping living standards virtually stagnant for another half a decade.’ It was in fact Paul Johnson, the Director of the impeccably establishment Institute for Fiscal Studies.
So, for all the pre-briefing of positive policy announcements before the Budget, we need to address the reality of the situation.
In the Budget, the Chancellor took no action to address the issue the cost of living crisis, with more and more people falling into poverty, while wealth for those at the very top is still increasing. For all the talk of ‘levelling up’ and a ‘high wage’ economy, rising energy bills, food prices, and soaring rents are people’s everyday realities.
Using the OBR figures, the Resolution Foundation said the outlook for living standards has deteriorated. Growth in real household disposable incomes has been revised down sharply—from 1.4% to just 0.3% next year. The TUC condemned the fact the Chancellor has no plans to get wages rising.
During the pandemic over 11 million people have had their jobs furloughed, 14 million are living in poverty (nine million of whom are actually in work), and there has been a 33% increase in the use of food banks in the last twelve months. During that time, the richest 250 people have seen an increase of £106 billion in their wealth.
This reflects a longer trend following the banking crash in 2008. Since then, as the TUC have set out, real median earnings have only just returned to their 2009 value—a twelve-year gap with no real terms increase in pay for much of the country. The richest people have seen their wealth increase by £538 billion between the financial crash and just before the start of Covid.
To mask this chasm—and a cost-of-living crisis looming for millions—the Treasury has been forced to generate positive headlines about a future ‘high wage economy’, from increasing the National Minimum Wage, to ending the public sector pay freeze, and amending the Universal Credit taper rate.
The headline announcement of increasing the National Minimum Wage to £9.50 an hour sounded good, but taking into account the impact of inflation on bills, income tax, higher national insurance payments, and for those on Universal Credit, the impact of the taper rate, much of this increase won’t ever get taken home. Even the amendment to the taper rate announced means over half of any increased take-home pay gets taken off Universal Credit payments.
For those in various public sector occupations, an end to the public sector pay freeze sounds good on the face of it, but there was no guarantee of funding that.
The reality is this is a country with a growing antagonism between the super-rich, getting wealthier, while low and middle incomes are stretched further and further. And the real impact of the Budget was to reinforce that. The ending of the triple lock will take £5-6 billion from pensioners each year. The headline tax cuts announced, a reduction in air passenger duty for domestic flights, and a cut in the surcharge on bank profits was the Tories once again showing whose side they are on.
Labour needs to address this conflict between stagnant real incomes and booming wealth with a transformative approach to the economy.
On incomes, we need to set clear red water between ourselves and the Tories’ mealy-mouthed minimum wage increase and chart a course to £15 an hour. On public sector pay, we need to back the unions’ demands for our key workers, such as those to make up the twelve-year squeeze in real pay with a 15% increase for health workers. On both these issues I have tabled Early Day Motions in the Commons.
But we also need to address the accumulation of wealth. That’s why last week I argued for a radical overhaul of our tax system. As much as we can make our income tax system more progressive and target those at the top, we also need to end our over-reliance on taxing income and start to tackle wealth itself.
I’ve set out four different options for a wealth tax, including a one-off tax, an annual tax, and a hybrid tax targeting increases in wealth. and found that the median revenue of the four wealth tax options is £218.4 billion over the course of a five-year parliament.
Bringing dividends into line with income tax would raise £37 billion in five years and doing the same with capital gains tax would bring in a further £90 billion. In addition, closing tax avoidance loopholes and tackling tax evasion would raise a total of £145.5 billion in five years.
Therefore, approximately £490.9 billion in additional tax revenue could be raised in a five-year period. And these estimates are deliberately conservative to account for behavioural changes, administration costs, and other factors.
If implemented, these measures would transform our public finances making money available for our underpaid key workers, those struggling with the Universal Credit cut, and neglected public services, and engineer a transformative investment-led drive to rebuild a dynamic green economy capable of competing with the best in the world.
Labour must step up to deliver real incomes increases at the bottom, and tackle runaway wealth accumulation at the top. The time for timidity is over. The society we inhabit is filled with the stench of rottenness Marx spoke of. The answer is the elevation of the people as a whole, as Hardie demanded.