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Welby proposes radical tax reforms

05 September 2018

UK economy unjust: wealthy must pay more, says report


BIBLE verses are not normally traded at press conferences, but there was a sharp exchange on Wednesday, when the Archbishop of Canterbury launched a radical set of proposals to reform the UK economy.

The proposals are contained in Prosperity and Justice, a report produced by the Institute for Public Policy and Research (IPPR) Commission on Economic Justice, of which Archbishop Welby is a member. The report’s premise is that wealthy individuals and corporations must contribute more to ensure a just society.

“Isn’t there a risk that, if the Government were to impose a wealth tax, particularly on earnings that people had already paid tax on, they would fall foul of the eighth commandment: ‘Thou shalt not steal’?” Sky’s economics editor, Ed Conway, asked.

Undaunted, the Archbishop turned to Romans 13.6: “This is also why you pay taxes. . .” Despite having called for a greater tax on wealth, in an article for the Daily Mail that day (prompting the front-page headline “Welby Wealth Tax Storm”), he suggested that he was “the last person” who should specify what a “just level” might be.

The reform of taxation — including a proposal to tax capital gains and income at the same rate — is just one element of the Commission’s report, which runs to more than 70 recommendations, many of which pertain to a “more active and purposeful state”.

IPPR’s report argues that a “palpable feeling that the economy is not working for most people” is rooted in reality, pointing to stagnant earnings and a young generation on course to be poorer than its parents.

It calls for a “paradigm shift” in economic thinking, of the magnitude of the post-war Keynesian settlement, or Margaret Thatcher’s free-market reforms.

Among the proposals are:

  • a shift to “investment-led growth”, with industrial strategy supporting a “new industrialisation” to boost the UK’s exports and close the trade deficit, backed by a new National Investment Bank, and by raising public investment by £15 billion a year;
  • a Technology Displacement Fund to enable workers displaced by new technologies to be retrained;
  • the net migration target to be replaced with an Annual Immigration Framework, with separate targets for different types of migration;
  • trial of auto-enrollment into trade unions in the gig economy;
  • tax credits to provide low-paid workers and unemployed adults with up to £700 a year to invest in their skills;
  • an immediate increase of about £1 an hour to turn the minimum wage into the Real Living Wage; all those on zero-hours contracts to be paid 20 per cent above the higher rate;
  • a mandatory requirement for workers to be represented on boards (an idea considered and shelved by the Government);
  • a new “alternative minimum corporation tax” levied on multinational corporations that report suspiciously low profits in the UK;
  • the establishment of a Citizens’ Wealth Fund that could provide all citizens with a small annual dividend, or a £10,000 “universal minimum inheritance” to all young people at the age of 25;
  • regulation of near-monopoly tech giants and utilities through a new Office of Digital Platforms;
  • taxing work and wealth on the same basis, with a new, single income-tax schedule for all types of income (meaning the abolition of capital-gains tax and dividend tax), and the replacement of inheritance tax with a lifetime gift tax, levied on recipients rather than estates;
  • a new “economic constitution” for the UK, devolving more economic powers to the nations and regions.

“For decades, the UK economy has not worked as it should, with millions of people and many parts of the country receiving less than their fair share,” Archbishop Welby said on Wednesday. “The widening gulf between rich and poor, and fears about the future among young people and their parents, have damaged our nation’s sense of itself. . .

“By putting fairness at the heart of the economy, we can make it perform better, improving the lives of millions of people. Achieving prosperity and justice together is not only a moral imperative — it is an economic one.”

Launching the report, the Archbishop cited the Gospel of St Matthew, where Christ, he said, “explicitly says that judgement is linked to justice, namely in the way in which we treat those who are most vulnerable and the weakest”.

The report has many echoes of Catholic social teaching, and sets out a vision for a “good economy” which is “judged not only by its results but also by the conduct of those within it, and is concerned with reciprocity, generosity, and kindness”. Companies are defined as “communities of common interest”.

But the report warns that, while income is “very important”, the goods we consume “are not enough to make us happy or give us a sense of a fulfilled and flourishing life”. Without fundamental reform, “our economy will continue to fail large numbers of people. We have to ‘hard-wire’ justice into the economy, not treat it as an afterthought.”

On joining the Commission in 2016 (News, 25 November 2016, 8 September 2017), the Archbishop envisaged recommendations that “go beyond party politics”. Although the IPPR was founded by Clive Hollick, now a Labour peer, the membership of the Commission is broad, encompassing both Frances O’Grady, general secretary of the Trades Union Congress, and Dame Helena Morrissey, head of personal investing at Legal & General Investment, and a prominent Brexiteer.

The report acknowledges strengths in the economy, including record employment, and the fact that the UK is second only to the US in exporting services. But it also diagnoses a raft of weaknesses, including too little private and public investment.

At the launch, Dame Helena outlined problems including short-termism in companies, the failure of banks to lend to businesses, and the economy’s reliance on household consumption fuelled by debt. Dominic Barton, global managing partner emeritus at McKinsey, called for a new wave of industrialisation centred on the UK’s universities.

The report’s call for a “purposeful and active state with its role in wealth creation better understood and actively embraced” is not out of kilter with government policy. In 2016, the Prime Minister argued: “the state exists to provide what individual people, communities and markets cannot.”

But whether, in the wake of austerity, the Government will embrace the Commission’s call for “investment-led growth” — a key tenet of Labour’s last manifesto — remains unclear.

At the launch, the Archbishop rejected any suggestion of bias. “The reality is that this is not a left-wing or a right-wing prescription.”

Ms O’Grady suggested that, while the big problem in 1985 was mass unemployment, “now we have mass insecurity: a different problem, but just as scarring”.

Among the report’s conclusions is that too much power is concentrated in the hands of management”. The UK must “escape from the idea that wage costs must be as low as possible”.

Unions — “vital social institutions” — are held up as an important part of the answer. Currently, one quarter of workers are union members, compared with one half in 1979. The percentage covered by collective-bargaining arrangements has fallen from 70 to 26 per cent. The report recommends “making it easier for unions to gain access to workers and increasing the coverage of collective-bargaining agreements”.

At the launch, Ms O’Grady singled out Amazon as an example of the failure to ensure that the gains of new technology were shared fairly. Jeff Bezos, the CEO, was now the world’s richest man, “but low-paid warehouse workers have been peeing in bottles because they are afraid to take a toilet break.”

A key question was what sort of jobs were being created: “Is it going to be more of the Amazon fulfilment centres, where workers are sweated, frankly? Or are we going to get the kind of skilled, decently paid, secure jobs that you can build a life on?”

Sara Bryson of Tyne & Wear Citizens, another commissioner, suggested that: “In the North East, we can’t wait ten years for these economic reforms.” The idea that “people shouldn’t be working and not able to afford to live” was “not that radical”.

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