There are two headlines that provide the background to budget week. The first is in the FT, and refers to the up-market auction house, Bonhams:
As 600,000 use food banks in the UK for some the story is very different, as the Guardian points out, referring to a new report from Oxfam:
We have growing inequality in the UK, and it is harmful as the work of Kate Pickett and Richard Wilkinson showed, with that agenda now being powerfully argued by the Equality Trust.
As the IMF noted last month:
Inequality and unsustainable growth may be two sides of the same coin.
And as they also noted:
[T]here is remarkably little evidence in the historical data used in our paper of adverse effects of fiscal redistribution on growth. The average redistribution, and the associated reduction in inequality, seem to be robustly associated with higher and more durable growth. We find some mixed signs that very large redistributions may have direct negative effects on growth duration, such that the overall effect–including the positive effect on growth through lower inequality–is roughly growth-neutral.
They followed that report up with a new one last week on fiscal policy and income inequality. Introducing that report, David Lipton, the deputy managing director of the IMF said:
There is also scope to more fully utilize property taxes, both as a source of revenue and as an efficient redistributive instrument.
The UK's failure to properly tax property is, very obviously, a major contributor to the inequality that Oxfam draw attention to today. The IMF does, however, perhaps almost inevitably, focus on other taxes. It says:
To start, countries could consider making their income tax systems more progressive.
In the UK George Osborne has made the tax system less progressive: the abolition of the 50p tax rate is the simplest evidence of that.
The IMF does have comment to make upon VAT, and unusually, in this case, quite specifically focused on the UK:
Indirect taxes, including the VAT, are generally less effective in achieving redistributive goals than direct taxes. On the VAT, the recommendation is thus to minimize exemptions and special rates, in order to efficiently raise revenues to help finance pro-poor spending. For instance, elimination of reduced VAT rates in the United Kingdom, and using the proceeds to increase social benefits, would significantly reduce inequality.
This is, of course, contentious: VAT, as they rightly note, is a regressive tax. But, note how the policy suggestion is made in this case: the VAT change is specifically linked to an increase in increased social benefits. They are not treated as independent decisions: they are treated as being related, as is, for example, the case in the Nordic countries. Then the outcome could be beneficial.
It is not only the UK, though, who are subject to specific note. As the IMF said:
For example, in economies where a flat rate is used, there may be scope for more tax progression at the top.
I, unsurprisingly, agree. I happen to think this is also true whether or not there is a flat tax system at present.
The IMF also makes the very important point that it is not just tax rates and systems what have an impact on redistribution: the way that spending takes place also has a significant impact upon reducing inequality in society. So, for example, they note:
In advanced economies, maintaining the access of the poor to health services during periods of expenditure constraint is also consistent with efficient redistribution.
Current NHS reforms question whether this will remain the case in the UK. simply declaring that the NHS will always be free delivery is irrelevant: the fact that many services will only be available subject to delays, and when really required if payment is made, which may well become the norm if current trends in funding continue, is an effective denial of service to those on low-income whatever the government wishes to claim.
And, we have already seen this government reduce access to education for those less well off, by reducing the educational maintenance allowance and by increasing the cost of going to university.
I am not saying I agree with everything that the IMF says: clearly that is not the case. But, what is clear, is that there is massive inequality in the UK, and it is increasing. As the IMF notes, this is not just a UK phenomena, it is a general one, but that does not mean we need to ignore it: it is happening precisely because there is such a consistent approach towards economic policy around the world, which now always favours the well off at cost to the rest in society. And, if you want a background to this week's budget then this is it: the UK is increasingly unfair and the test of a government that is committed to growth, stability and justice is whether or not it decreases that inequality.
NB: I advise Oxfam but had no involvement in this report
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WE have NO political party that can deliver this. MMT and Positive Money do have answers but there is no political interest in them. The system of reverse socialism that we have now is a tyranny which holds sway over a narcoleptic populace -with climate change disasters looming (http://www.independent.co.uk/news/science/nasafunded-study-warns-of-collapse-of-civilisation-in-coming-decades-9195668.html) we can’t wait for neo-liberalism to burn itself out. The opportunities are their: LVT, Sovereign Money creation, green Deals but their is no political representation, just business as usual.
The poor (condescending term in itself) are now used as TV reality entertainment and the dumbing down culture seems to deepen. Not too many reasons for hope.
Alas, I fear that we may need to await a further economic crash (trust me, it’s coming) to wake the masses from the consumption and false moral outrage induced commas. Something tells me, that the British (a nation of whining shop keepers?) won’t kick up a stink until it’s difficult for even the bulk of the middle class to put food on the table, literally. *sigh*
sadly, I agree, Lee. I’m profoundly shocked at the vacuity of our culture at present and how the press seems to so easily channel people to the lowest common denominator. It will have to get worse to wake people up but i suspect the neo-liberals know this and will stop just short of where the ‘red-line’ might be, offering sops.
“We find some mixed signs that very large redistributions may have direct negative effects on growth duration”
If you look through the IMF report, you’ll find that the UK was in this catagory – suggesting the UK already has a very redistributive tax system.
All things are relative
They found no adverse effect on growth
And they also note the UK need is pressing, it seems – much more attention than average in their commentray
I assume we are talking about the same IMF paper:
http://www.imf.org/external/pubs/ft/sdn/2014/sdn1402.pdf
If so, in it they say;
Our first main result, from the first column, is that inequality has a statistically significant negative relationship with the duration of growth spells. A one-Gini-point increase in inequality is associated with a 6 percentage point higher risk that the spell will end the next
year (or, equivalently, with a decrease in expected spell length of about 7 percent). This echoes the results in Berg and Ostry (2011), but now controlling for redistribution.
Turning to redistribution, we find (also in column 1 of Table 5) that when redistribution is already high (above the 75th percentile), there is evidence that further redistribution is indeed harmful to growth, as the Okun “big trade-off” hypothesis would suggest. When it is below that level, however, there is no evidence that further redistribution has any effect on growth.
Figure 7 shows redistribution for selected countries; further redistribution seems to start having a negative direct effect when it exceeds about 13 Gini points.
The UK, according to their data, is just past that 75th percentile, suggesting that the UK has th ebalance about right and any more redistribution would likely be bad for growth.
In this paper there is no specific reference to the UK, past it appearing the data. In the other IMF paper you reference there is little reference to the UK (a quick example about VAT only), and no more than a range of other countries. Are you sure you aren’t getting your inforation for this topic frmo one of the other papers not authored by the IMF?
As they overall conclude though – and I quoted them precisely, there is no trade off with growth even at high levels
And you are clearly not following links to the later paper issued on Thursday – you are quoting the earlier one issued in Feb
I provide links to both
Richard -the IMF is a moribund group of bureaucrats and these comments by them are a mere tinkering at the edges of a profoundly inadequate economic model – you are pragmatic and will say ‘it is better than nothing’ but it is about time that we demanded more from these ‘austerians’ and ‘deficit hysterians’ and started eroding the grip of death system we have now and start getting some social justice/environmental awareness and an equitable use of money on the agenda.
Simon
I have my concerns about some of the IMF’s prescriptions but I also welcome support for the equality agenda from wherever it comes
Richard
No, that isn’t what the IMF concluded in the feb paper. They said;
We do find some mixed evidence that very large redistributions may have direct negative effects on growth duration, such that the overall
effect–including the positive effect on growth through lower inequality–may be roughly growth-neutral. But for non-extreme redistributions, there is no evidence of any adverse direct effect.
In their sample, the UK was just over the “very large redistribution” threshold. They specifically say that there may be a trade-off with growth.
I have also read the paper issued on Thursday. This one:
http://www.imf.org/external/np/pp/eng/2014/012314.pdf
I don’t see the IMF giving the UK any more attention than any other country. They do say in Appendix II, Recent Fiscal Consolidations and Income Inequality;
In the United Kingdom, the overall incidence was progressive, due to higher taxes, especially on the richest 1 percent of the population.
I linked to where they talked about the UK
And ‘just over’ is not worth drawing a conclusion from
Surely we have learned by now that such artificial limits based on some researchers spreadsheet are likely to lead to false divisions leading to inappropriate conclusions
Shall we stop the pedantry, in other words?
Hardly support for an equality agenda -more like tinkering with the margins of gross inequality – if you see that as supporting equality then you are using a scale of nonometers!
Simon
I live in the real world
Compromise is part of that
And sometimes that results in suboptimal outcomes
This takes us forward: that’s important to me
Richard
I can’t find the references to the UK in the IMF papers you have linked to. Please link again. As I said, the two IMF papers mention the UK, but neither places any great emphasis on the UK over any other country.
You have drawn conclusions from the paper, saying that more redistribution would improve growth. The paper does not say this for the UK, though it does for other economies. You extrapolating to a false conclusion, for the UK at least.
You can’t agree with their conclusions in general, then disagree with them when it suits your point of view.
I linked the IMF report I took them from – it’s the presentation by the deputy MD
And you are fixating on 75%
Remember others who fixated on 90%? They were wrong. I suggest you are too
I have read the full report released last week, by David Liption, and it doesn’t fixate on any one country.
I am not really fixating on the 75% level. This 75% is only a boundary in terms of their sample size. The important takeaway from their research was that the UK tax system is already highly redistributive and making it more so is likely to negatively affect growth.
The later report also supports this, saying that the UK tax system is already highly progressive and that the effect on the gini coefficient of redistribution is also at the high end of the sample, similar to Norway and higher than in Finland and Sweden.
It’s also worth noting that the UK has the highest reduction in the gini coefficient (from the sample) thanks to in-kind spending, and is on the low end of the scale for the gini for disposable income.
I just can’t find where the IMF are saying that more redistribution through taxation would be good for growth in the UK, which is essentially what you are alledging in your article.
I made direct quotes
We differ
I think the IMF make it quite clear that further redistribution could take place, without cost to growth, and that we have only just reached the point where growth impacts will be approximately neutral rather than beneficial, and that as such impacts never become negative further redistribution is then a matter of social policy, not economics
And if you genuinely think that there is no inequality remaining to be addressed in the UK I feel deeply sorry for you. It must be very hard to live with so little empathy
I have never made any statement as to inequality in the UK.
All I have done is point out that the IMF have stated in their report, that the UK tax system is already highly redistributive and that further redistribution would likely hurt growth. That isn’t a position on the “fairness” of it all, just a conclusion they have reached form their data. This statement of yours directly contradicts their statement though;
‘and that as such impacts never become negative further redistribution is then a matter of social policy, not economics’
I disagree that is what the IMF says
Further debate on the point does, in that case, seem futile
It does seem pretty clear to me that the IMF is saying that decreasing inequality is good up to a point, and the UK is pretty much at the apex of that point.
And I think, as I have said before, that you are over emphasising the spurious quality of a researchers chosen inflexion point
Such mistakes have been made before, with serious consequences
Researchers don’t “choose” inflexion points. It comes from analysis of the data.
You are saying that the IMF is correct in it’s general assertions until it gets to the UK, at which point it somehow trips up. It’s not a logical argument.
Please do not be silly. As far as I can see the IMF researchers chose to band their findings, using quartiles, and as a result artificially chose a 75% inflexion point, above which they said there were some potential negative consequences. The choice of the 75% point is therefore, arbitrary, and the fact that the UK was near it was neither here nor there
No, that isn’t what they have done. If you look at the chart produced (Figure 7), it shows the distribution for countries between the Gini of net and market income.
They state;
‘further redistribution seems to start having a negative direct effect when it exceeds about 13 Gini points.’
This 13 Gini points is the inflexion point, not the sampling they have done to put countries in percentile groups. The percentile grouping of countries has no materiality to the underlying data or the results gained from it.
Seems and about
Judgement
Mine differs from yours
This debate is closed
As long as you acknowledge that you differ from the IMF and the findings of it’s reort, then fine.
I often feel that our society is operated as though it were a lottery — a compulsory one. There are enormous jackpots for a lucky few, and the rest of the takings are distributed unevenly around the losers. The majority must buy a ticket (i.e. work), or face being taken out of the game altogether, while the winners are welcome to hoard their winnings with little credit given to the collective source of their wealth. Any efforts to shrink the size of the top prizes to spread the money pot around a bit more are argued against as actions which will disincentivise people from buying tickets in the first place. Never mind that the odds of getting the top prize are stacked against you from the start, and few people can ever be winners; if you don’t like the game, you can stop playing, but then you’ll get nothing from it.
Those who run the lottery very rarely have to play it …
“…which may well become the norm if current trends in funding continue, is an effective denial of service to those on low-income whatever the government wishes to claim.”
I’m sure that the Tories would like nothing more than to introduce ‘patient loans’ of the same model as their student loans. The Liberal Democrats will be there to provide cover and claim that nobody should worry, because it’s not an up front payment, interest charges only start mounting once you’re cured of your ailment, you won’t pay back a penny if you earn below and the loan becomes delinquent and is cancelled after 30 years. They’re already deporting folk because their cancer treatment is ‘too expensive’ (see http://tompride.wordpress.com/2014/03/17/dad-deported-from-uk-for-having-cancer/) so I wouldn’t put it past them to introduce ‘patient loans’ as a more ‘humane’ solution than the one they’ve already implemented (and that nobody with a soul would ever have considered in the first place!). It’s not even as if this particular example (a chemical engineer who’s lived, worked and presumably paid substantial income tax, NICs and VAT for 13 years) can be classed as a ‘moocher’ or health tourist (he has a British wife who served in the Royal Navy and a British child!).
Doubling down on neo-liberal doctrine after such an obvious market failure, punishing the victims of that failure whilst doing all you can to protect the architects of it (and certainly not prosecuting any of them, oh no) is the act of either a coward, a wilfully blind fool or a callous sociopathic monster.