I do wish Jeremy Corbyn would engage his brain before talking. The Guardian has reported that:
Jeremy Corbyn has called for a maximum wage for the highest earners, saying he fears Brexit will see the UK become a “grossly unequal, bargain basement economy”.
The Labour leader would not give specific figures, but said radical action was needed to address inequality. “I would like there to be some kind of high earnings cap, quite honestly,” he told BBC Radio 4's Today programme.
When asked at what level the cap should be set, he replied: “I can't put a figure on it and I don't want to at the moment. The point I'm trying to make is that we have the worst levels of income disparity of most of the OECD countries
I too am concerned about income disparities. But this suggestion is absurd.
First, it assumes all high incomes are from wages. They aren't. They are from rents, investments, interest and other sources as well. So capping wages has no real chance of tackling this issue.
Then let's consider another real issue. What if a person runs their own company and makes a million a year of profit that they could pay as a salary? Is Jeremy saying they will not be allowed to pay themselves? Or is he just saying they must take a dividend instead? That would be absurd regulation and a nightmare to enforce.
But such a cap is also unnecessary. There are better ways by far to tackle this issue.
First charge all capital gains at income tax rates. That will make a massive change to the tax system, increase take, reduce inequality and stop a lot of avoidance.
Second, have a 50% income tax rate.
Third, deny companies corporation tax relief for all salaries paid at a rate exceeding ten times UK median wage, significantly increasing their cost of paying such salaries and removing the subsidy we currently give to them.
Fourth, put an employee NIC charge back on higher rate salaries.
And, fifth, have an investment income surcharge of 15 per cent on the unearned income of those with more than £150,000 total taxable income a year.
All of these could work to address this issue.
But a wages cap not only could not work, but also misses the target. That makes it very poor policy indeed.
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Today is a further sign of Corbyn’s weakness at being a leader of a political party. The message today was supposed to be the Labour proposal for Brexit and free movement. Corbyn through his failure to stick to the line has not knocked this down the agenda by a needless remark on capping high pay. Anyone who visited the Guardian website early this morning and visits it again now will see how the agenda and lead story has completely changed.
Second on the maximum income cap and stealing from Stephen Bush on twitter then just setting tax rates higher for high earners would be much better. You get the same amount of political throwback but at least you get added tax revenue. With an income cap you just open yourself up for criticism and get no reward.
It’s only the working class/wage labour who receive wages. The ruling class profit.
Hear hear.
Out of interest, why stop at 50% income tax rate(albeit for salaries increased by the ees NI on top). Why not have more rates and go up to 75% at the top? This would also remove the need for the investment income surcharge.
The problem is, with income tax at 75% and higher employee National Insurance, you get close to a 100% rate of tax pretty quickly. A huge disincentive for growth and labour. You also could never justify such a high rate of capital gains tax, and a disparity between the rates encourages people to try to turn income into capital.
It would make more sense also to broaden the capital taxes base – reliefs such as entrepreneurs’ relief have eroded it greatly in recent years.
If you equalised CGT and IT rates then you could also hugely simplify the tax code to remove the vast anti-avoidance preventing people from converting income into capital.
Finally, one point is missed here – what of inheritance tax? It has a role to play (in my view, an important one) in preventing inherited inequality.
Charge CGT on death
I would say have a lifetime gift tax at the same rate. So it is a tax on inherited wealth and not just those who are unable to give away in seven year tranches.
Because at 75% tax rate, the Laffer curve starts to work in the way it’s claimed to do further down (and doesn’t).
I agree with you on this Richard…. it would be better to raise tax rates on top incomes. A 50% tax rate plus 12% employee NICs would mean a 62% effective top tax rate and I think the top rate could conceivably go higher.
Thanks Howard
I suspect I will be unpopular with Jeremy and John McD but it’s crazy to make a oig’s ear of this when it could be a solid policy platform
Effective rates of income tax are already 62% for those earning between £100k and £120k due to the removal of the personal allowance.
But I was addressing higher levels of income than that
It’s 80% for many on £13,000
If Jeremy Corbyn proposed higher taxes, and CGT on death his chances of winning in 2020 will go from slim to Zero.
Those who actually bother to vote won’t like it at all.
Who knows by then?
Why do you think people won’t vote for “higher taxes, and CGT on death”? Except that the MSM media say they won’t like it. It is a problem though. I can remember one GE (1992, I think) when the MSM were saying that Labour were going to increase taxes (i.e. income tax). Pensionsers interviewed in Basildon, who didn’t appear to be wealthy, were shaking their heads and saying they wouldn’t vote for that.
Because through my work I speak to people from all walks of life.
Older people who vote, who also own their home outright are loathe to pay any more tax so that their children/grandchildren get less inheritance.
Go into any large workplace, the employees will say they pay too much tax, those on around £10,000 more than they do should shoulder the burden, go up the payscale and it’s the same again.
In their view, everything is taxed, Income Tax, NI, Council Tax, VAT, VED, CGT, IPT, APD and inheritance tax.
The majority view in most workplaces is that they are taxed too much.
There is a possibility that McDonnell doesn’t mean what he says about balanced budgets if Labour gets into power, but they are do scared of the pounding Labour would take in the MSM if he came out and admitted it.
People want the NHS for nothing. We know that. And politics has to ignore what people say and meet their demands instead
As Jolyon Maugham has said, Labour are a cowed party – cowed to the British public’s received wisdom on so many things. I’ve even seen reports of Corbyn talking about life being better with the UK being out of Europe.
Corbyn or his advisors have obviously not read Harrington’s ‘Capital without Borders’ otherwise he would not talk like this.
Short term politics has to have driven much of the current thinking on the Labour Brexit position. Labour are about to face a by-election in a Brexit heavy seat which they currently hold. Corbyn will again be in serious trouble if Labour do poorly. It will be very hard for his supporters to absolve him of blame. Though he can of course ultimately hang on for as long as he wants given the current membership. With this in mind they are today pitching themselves to the Brexit voters who will dominate in the Copeland by election. If this by election was in one of the Labour held strongly remain seats then there is no way that Corbyn would be making this speech and these comments today.
A party adjusting its national policy on such a key issue to a short term goal cannot be a good sign of its health.
A party not adjusting its policies which are outside the Overton window cannot be a good sign of its health
Agree (but maybe for politics’ sake better at 49%), agree, agree (though dividend obvious avoidance strategy), agree & disagree on the 15% proposal as politically unworkable.
Instead would suggest dividends and rental income be taxed and Class 4 NI’d like self employment income. Yes, it involves paying tax twice on the same profits. So you would be better off paying yourself through the payroll like normal people do.
An additional advantage of my proposal is that the antisocial aspects of corporations (phoenixing, especially with unpaid employee NI / income tax / VAT but also with privat suppliers) is avoided if you disincentivise their use for smaller enterprises. You could keep corp taxes low to attract larger businesses who genuinely need a corporate structure, and have a diverse worldwide shareholder base who will not be affected by personal tax rates, to the UK.
Also it would prevent any avoidance by switching from salaries to dividends arising as a result of the 10 x median income rule.
Very interesting set of proposals – thank you.
I think the idea is you can say have a maximum wage in one sentence which then gets repeated on news bulletins. It gets a discussion going on inequality. It’s taking a leaf of the right wing populists playbook – and the centre right’s as well to be fair. A 2015 yougov poll had 39% of people supporting a maximum wage especially among the over 65s.
Will this kind of strategy work for Corbyn who doesn’t have high ratings and isn’t perceived as credible on the economy – who knows? Possibly not. But the idea is you float the simple (and unworkabke) idea of a maximum wage and then at a later date you replace that with your list of policies (or similar). But a list like that is less likely to get the media attention in the first instance. A maximum wage gets noticed and provokes discussion. It may end up being to the detriment of Corbyn. I don’t know.
I’m a big fan of Jeremy Corbyn, primarily because he appears a compassionate human being in a world full of narcissists. Having said that, the salary cap seems to be a poorly thought out idea. I can’t imagine it would produce the desired effects on inequality. I’ll put your excellent piece on my FB where I’m sure it will be appreciated.
Danny Blancflower and I are in agreement
It’s not I uncommon
But often a good sign
I believe he was talking about multiples of lowest paid workers in particular businesses, not a cap as such. Not as if I think it’s a good idea. But then neither is UBI (like John Mc is keen on). Hopefully they will throw out the less practical policies before they have to write the manifesto.
It’s the new populism. It sounds good and will probably get a lot of people nodding their heads agreeing with the general principle. Detail? We’ll worry about that later.
Owen Smith remarks – “Corbyn is right to challenge gross inequality in earnings. But comprehensive & progressive reform of our tax system is the way to fix it”
He and others who have commented along the same lines are bang on.
Owen is right
I agree maximum income is a crazy idea. I do not even think you need to go to 50%, 40% should be fine as long as you ensure that 40% is actually paid on all forms of income (capital gains/inheritance), which it isn’t at the moment.
Remove tax advantage for high earners (lower taxes on capital gains, saving etc.), and close down all the tax havens.
Broadly agree
But I may go to 50% plus the rise crimes for high pay I note
Do you have to be so phenomenally rude in your writing style? You make good points, but you do it in such a deeply unpleasant way that you diminish any influence you might have – not that you have any, and perhaps it’s because you lack people skills? I don’t know you, but the tone of this article is so arrogant that it makes me think you might not know how to talk to people without being astoundingly high handed and entitled. Politics is partly about communication, isn’t it, and this is really poor communication.
You have been here twice
Both times you have been personally rude
Both times you have said your opinion is more important than mine
Maybe it is – but I have no clue who you are and candidly you look like a troll to me
And I have treated you as such. When you get the amount of crap I do a day for writing my honest opinion that’s the pint you get to
The problem is all yours, not mine
I agree totally with Deborah I was going to say something similar it is such a shame as you used to be less aggresive in your blogs
Corbyn is a Politician making a Political Point he is not an Economist
He is highlighting inequality within the UK
I cannot see what is wrong with that it may not be economically sound what he is saying but I feel it is morally so and helps to show the values of the Labour Party.
I am almost certainly less aggressive now than I have been in the past
But your point is absurd: if as a politician Corbyn hasn’t got the ability to avoid making crass suggestions he should not hold the position he does
And please don’t ask me to be less forthright. I have been told by the establishment (including that of the left) that if only I moderated my views I would be so much more successful for a long time now (decades)
I have rightly ignored all such suggestions, all of which were intended to suppress opinion
John
Come on – he is not just highlighting inequality in the UK – he has just put forward a policy idea concerning pay restraint. He’s gone much further than highlighting.
But why just mention that when there are other things that need dong to? It does add up. Corbyn is not being plausible John. Sorry.
If you are going to successfully play a game of cards you need a full hand to begin. By doing this and suggesting just one tokenistic idea of how to deal with inequality Corbyn has come to the table with fewer cards than needed.
It’s an example, a big one, of Corbyn’s weakness as a leader and more properly (unless he said this stuff totally off the cuff) of those who advise him. Had he said ‘What we need is a fair, progressive, redistributive tax system – which means, inter alia, the very well off paying more to ensure that people don’t die on trollies in our hospital corridors ever again…’, the headlines might’ve been rather different.
He was about to go – for, I think, the very first time – into the lions’s den of the Humphrys interview on ‘Today’. Did no-one in the upper echelons of the Labour Party ask themselves how this (‘a pay cap’) might play out in the media?
This was an opportunity to appear well prepared, well briefed, to present a well thought through ‘populist'(!) Left wing (socialist even?!) alternative to the current mess. Missed it, muffed it, dropped it all over the floor. Poor indeed.
Well, at least he did something and started a conversation with a soundbite. It’s not what I would have wanted him to mean (Richards suggestions are much better) but it does start the ball rolling towards it.
I can see the conservatives biting the bullet and going for some tax rises in the medium term to position themselves as listening on inequality and helping the NHS.
I see you’ve replied to other comments but not ‘moderated’ mine. Perhaps you don’t like being criticised in a personal way? Well, maybe you should think about that before you suggest that someone else should engage their brain before talking, or dismiss their comments as absurd. It’s fine to use a style like this when talking about a political enemy because you have no intention of communicating; you just mean to make a statement. If you want to achieve communication (as in a two-way process of speaking and listening) then you need to get beyond the dictates of your own ego and consider audience needs.
You need to keep your own ego in order
I moderated this on the first occasion I read it
Though heaven knows why as it adds nothing to debate
I think Corbyns heart is in the right place, but not his head – he should really get advice. Oh he did but it moved on!
I agree with Richard and indeed we really need the publication of everyones salary and remuneration esp those of executives in partnerships (the Big Four tax avoiding advisors) etc. Private enterprise means lots of privacy and little enterprise (except when avoiding tax)
If your going to put CGT along income tax lines (like I conseed they once were) I imagine surely indexation allowance would also be reinstated?
Maybe
“First, it assumes all high incomes are from wages. They aren’t.” Corbyn was addressing those cases where high incomes ARE from wages. So a cap would seem to address that?
So income would cease to be wages
Easily done
yes, Les, but then corporate chiefs just wouldn’t be paid a wage (or even less than they are now). They’d be remunerated in other ways.
Poorly thought through policy by a man who clearly doesn’t think as much as he ought to.
[…] of Mr Corbyn’s former advisers have described a maximum wage law as “totally idiotic” and “absurd”. They are obviously right. If Labour made it into power and introduced such legislation, there […]
I heard the interview. He was pushed to say this. All he said was “I would like to see a maximum wage”. That was all. He was not describing current policy thinking.
In fact he was trying to dispute tax cuts for the rich.
Sadly I fear the explanation may be simpler. Whilst I accept that Corbyn is probably a decent human being, I suspect that he is just not very bright. He struggles with more complex ideas and challenges, and appears unable to think on his feet. Indeed he gets quite grumpy when challenged or taken off script. That’s fine when you are talking from your ideological reference book to an audience with similar views. Hopeless, when in his position you need to handle complex and often ambiguous briefs, and respond to the kinds of questions you get in the House or from journalists.
I’m no fan of the Eton and Balliol brigade but a look at Corbyn’s educational achievements is not encouraging and he had better educational opportunities than most. There are bright politicians with little education who have learnt from the university of life (Prescott, Johnson?) and dumb ones with expensive educations (take your pick from the Tory front bench). I fear that Corbyn may be nearer the latter in the thinking department
I’m sorry if this sounds like a personal attack. It’s not meant to be, and I’m trying to put it kindly. However, if we are hoping he is going to engage his brain a bit more, that may be a forlorn hope. He is just way out of his depth, regardless of his politics
Socialise land rent by implementing a Land Value Tax.
Isnt merging NI with income tax better, avoiding benefit of changing income type and meaning marginal tax rates are clearer irrespective to your combination of income sources?
That massively penalises pensioners
I’m not convinced it does “massively”
NI used to pay for a subset of state pension and income contribution and they would still be benefiting from this.
They would be no more penalised than if income tax rate went up.
A lot of pensioners work and like others wit significant “non-earned” income it allows them to keep more of any income they get if they choose to work a bit.
(please feel free to refer me to places I can read-up more on)
If all pensioners had their tax rate incraesed by maybe 10% I think that might hit quite a lot of them quite hard
I thought you were for this idea, Richard. Glad you’ve changed your mind.
I’ve always proposed the ideas suggested here
I wrote some of them for the TUC in 2009
Never a cap
Sorry, my comment was detached from the context – I should have made it clear that I was referring to NICs.
But what of the idea of increasing the contributions of some pensioners in a means-tested way? I am not saying by the full amount of NI being charged on pensioners, but with the younger generations now facing a worse standard of living than their parents, facing little prospect of being able to afford to own a home or have children, and the ageing population issue growing and growing, can we as a country afford not to increase the contributions of pensioners? See Owen Jones’s piece in the Guardian today about how the Conservatives have prioritised the needs of pensioners over younger generations.
Maybe
But say how you’d do that politically
Maybe
But say how you’d do that politically – because that is not easy
No I agree – a mammoth political task. Owen says that the Conservatives (and to an extent Labour e.g. student tuition fees) have targeted the young because they don’t vote. He’s right. So while young people don’t vote in the numbers that older generations do, politically one would have to target it on the basis of “fixing the future of your children and grandchildren” and then try to target the changes to those pensioners who can afford it. The tough bit is that people feel cheated, but we either have to lower the benefits the state provides to pensioners (because young families simply cannot take any more cuts and we have an ageing population) or we have to be honest about what decent care costs and raise additional tax revenue. Right now politicians are sticking their heads in the sand. This problem will only get worse, as the NHS crisis shows.
I wonder if Corbyn put his proposal in this way because it can be condensed into a simple message – ‘cap excessive wages’?
It seems to me that all the successful sound bites of the Right work because they are so simple to understand
Living within our means
Take back control
and so on.
While I don’t doubt for one second that you are right in your proposed alternatives Richard, how would you summarise that in a form that would be accessible to most people?
I would call them tax reforms to redistribute income and wealth
Agree absolutely. The sooner this Barmy, Pr**k Ars*d, LaLa Land, Cardinal Fang policy is knocked on the head the better!
I think this isn’t a suggestion to increase tax revenue. Rather an incentive (or to call a spade a spade; a threat) to companies to look again at the salaries of their lowest earners. But I hear your call for caution in your conclusion.
I do have one question which I would love to hear your take on. When work place unions are being constantly undermined, wage stagnation and the minimum wage not keeping up with the cost of living; is there anything that government can do to lift the wages of low earners in good times?
Yes
It could change union law
And it could reflate the economy e..g by doing a Green New Deal
Sorry – but they’re the obvious things to do
Not at all. Thank you for answering my question.
Quibbling about UK taxpayer’s tax rates is still a distraction when the UK continues to run the world’s largest network of tax havens and when driving the dirty money out of London would reduce the cost of living for everyone.
http://opinion.premiumtimesng.com/2017/01/06/ibori-london-cesspool-stolen-monies-ken-tadaferua/
I gave up completely on Corbyn today and so, I think, did many others. Nice guy but clueless and absolutely NOT prime ministerial timber. If Labour doesn’t wise up and put someone like Keir Starmer likely to be credible to the public as a whole it will sleepwalk into the breakup of the UK over Brexit and will never again form a government in whatever’s left afterwards.
Why did I give up?
His failure to lead and communicate coherently.
He’s chasing UKIP voters with his “not being particularly wedded to free movement of people”. He knows, and most Labour voters know very well, that free movement is tied to membership of the single market. The message from the EU has been that there will be NO CHERRYPICKING has been utterly consistent all along. So this message translates as his not being greatly bothered about staying in the single market. A majority of Labour voters voted to remain. Corbyn is telling them clearly: the UK could be better off out of the EU. If you believe it and like vote UKIP and if you don’t like it or believe vote LibDem.
It’s hardly credible when they are so split themselves that the Tories should be so fortunate as to have such a feeble leader of the opposition.
like Keir Starmer in charge (sorry)
Are you sure?
This:
“deny companies corporation tax relief for all salaries paid at a rate exceeding ten times UK median wage, significantly increasing their cost of paying such salaries and removing the subsidy we currently give to them”
Not only does it increase tax yield, but it provides an incentive to raise lower salaries to increase the median wage. Great idea.
Richard,
Although I am in general a Corbyn supporter, I fear you are right on this one. Though I think that even some of the tax rates on income that you mention are too high. Salaries will simply be called something else and paid without tax. You mention some of the more obvious alternatives. I guess there will be various more imaginative tax dodging schemes, generally exploiting some concession which would have been a good idea if used as intended. Or maybe all company directors will suddenly be citizens of Lichtenstein? Whatever, I think you would be on the case.
Two questions on feasibility
Would a system be practical if all benefits were taxed but there was no clawback and no benefits were means tested?
Would it be practical (and fairer) to abolish inheritance tax, but treat all legacies as the income of the recipient?
I am not sure I understand your first question
I address IHT in The Joy of Tax. I suggest abolishing it and charging capital gains tax on death – including on houses
So a person with a big bank balance beneficiaries would not subject to anything as that would not attract cgt? But a person who has 1 house that over many years would? Or another variation someone for the sake of argument, wins say £1 million then buys several properties but then dies there would be no CGT to speak of and such no tax but if say someone paid off buy to let mortgages/normal morgages eventually and many years later died there probably be a issue of cgt. So this would benefit the cash rich certainly, unless I am missing the point.
No one has a considerable cash legitimate pile without it having been subject to tax first
IHT and CGT ae taxes on gains otherwise untaxed
I am happy to have a gift receipt tax as well
Please read The Joy of Tax
Hi Richard,
any opinion on Wealth Tax?
Piketty argues forcefully in Capital in the 21st Century that taxing income cannot begin to make a dent on inequality – the state has to tax wealth.
This suggestion doesn’t seem to have made it into the public sphere in the English-speaking world, though I understand that there are or were such taxes in, say, France and Germany.
What are the implications of a Wealth Tax? How could it be practically applied? Are there issues with valuing assets?
Thanks in advance,
Steve
I am in favour
I again refer you to The Joy of Tax
Ordering it now!
Hi Richard,
when you say –
“First charge all capital gains at income tax rates. That will make a massive change to the tax system, increase take, reduce inequality and stop a lot of avoidance.
Second, have a 50% income tax rate.”
– two further questions come to mind:
1) would there not be argument for charging capital gains at higher rates than income tax rates? (providing the international cooperation can be put into place to stop states undercutting each other in their competition for capital). Was there not an investment income surcharge in the UK in place in the 1970s? (75% on income tax but 90% on investment income?)
2) why just 50% income tax rate for the highest earners? Historically, the US top rate of income tax was over 90% under Truman & Eisenhower, and even higher in the UK in the 1970s (up to 98%, right?).
A Labour government could introduce equally high tax rates for incomes exceeding the 20:1 ratio, could it not?
Best
Steve
I would charge a wealth tax as well as CGT at income tax rates
When other taxes are taken into account e.g. a wealth tax and investment income surcharge that I suggest 50% is a high enough income tax
No you are wrong there are situations where ‘considerable’ legitimate cash piles would not be subject to tax. Such as winning the lottery/getting the top prize with premium bonds. Then someone could get lucky at the bookies (such as Leicester city last year). More dubious this I admit however then as unlikely as it may sound someone could have came from a country that does not tax income and in theory at least come here to live again voila again nothing due. Or someone could sell their own home (before cgt on primary homes came in) and in say mayfair and downsize and keep the difference in a bank and again nothing would be payable. But someone who held onto said property would be liable. Or someone could make big contributions to their pension (it gets tax relief) and again nothing would be payable, that would have been possible during much of the labour years as the contribution limit was in the several hundred thousand if memory serves.
So, there are rare exceptions
I suggest you read my proposals in The Joy of Tax
I can’t rewrite it here