The Mirrlees report claims — it was trumpeted from the platform at yesterday’s launch — that it was ‘neutral’. It did not seek to raise new revenue, they said. They did not want to redistribute wealth, they said. They did not want to recommend rates, they said. And all this, they said, was a virtue.
What hypocrisy. The claim of neutrality is in this matter is absurd. And the last thing it represents is objectivity. It is a subjective choice, in the way presented by this team, to support the status quo. So they are saying tax rates are right, tax revenues are acceptable, the economy from which the tax is collected is properly ordered, and so on.
But this is again absurd. The tax system reflects that economy, and the economy that tax system. So if you suggest a change in tax base or tax you are not neutral, You will change the economy, you will by implication change the tax base and you will therefore change the tax collected. Any recommendation made is not, therefore neutral. In that case the claim to neutrality is obviously false.
But in the case of Mirrlees it’s not just false, it is also untrue. First they chose when undertaking their work — at least as they presented it yesterday — to ignore some things. They totally ignored inherited wealth in discussing savings, when they suggested all savings are just deferred consumption which smooth over a lifetime. This is very obviously untrue. So implicit in their neutrality was not just an acceptance of the current distribution of wealth in society, but a willingness to ignore its impact.
As they ignored it for example when they suggested that inequality in the UK results from differing access to work — and then ignored the fact that this is almost always the consequence of the accident of birth, and is becoming increasingly so. It was not neutral to ignore that — it was a conscious act to turn a blind eye to it.
And to then suggest that the amount of corporation tax collected should be reduced, as Steve Bond did, that the corporate tax burden should be shifted onto labour, as he did, and to suggest that much savings income should be entirely tax free, as he did, is not an act that is neutral. It shows a profound political (not economic, but political and subjective) bias to the political right, towards the interests of the wealthy and to the maintenance of a structure in society that preserves and in the case of this report enhances inequality in society.
Please don’t call that neutral. And don’t claim you’re objective when you do. Be blatant and say you’re promoting a profound right wing agenda. At least we’d then think you honest. But right now I can’t genuinely believe that of the Mirrlees review team because by presenting the case as they do what they claim and what they’re doing are inconsistent one with the other on the logic I present here. And that undermines their credibility.
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I very much agree with you Richard. The truth is that there is no such thing as a “neutral” analysis of tax and benefit policy, and it’s disingenuous of IFS to claim that there can be.
Some responses to Mirrlees – real basics
1. It is a falsehood to think that full-time Mums are not worth their weight in gold, in many cases. Why should it only be the very wealthy that can lavish time on their home and their children (if not their own personal development as well) with all of the benefits society has had from that in the mid-late 20th C. In the current economic conditions I would have thought the Government should be positively encouraging one partner to be at home if they choose to do so. But also encouraging those (as you say above, Richard) to climb out of where the “accident of birth” put them.
This is what I found in the mid-1970s when I came to the UK from Australia: a relatively enlightened education system, efficiently and locally given and available to all. Contrast this with the scramble by the most ignorant of the wealthy to get a few points up some league table for their children. Tables that have themselves been shown in some respects to be of questionable value. And congestion caused in doing so. Any of us could get where we wanted back in the 1970s if we worked hard, yet the meaning of real work has been devalued as the screen-based games and PCs took over and the banking boom took us the wrong way with excessive “service” industries.
Result: excessive car journeys, an industry of house-moving and now an industry of congestion-charging and road pricing as recommended in Mirrlees – the opposite of freedom. Isn’t this part of a general destruction of democracy using ill-founded fear?
2. So my second point is: Congestion charging spreads congestion.
Road Pricing tends to spread congestion. An obvious solution to fixing the problem – re-localise education, at least, and aim to relocalise production (see MakeItZone.org). But please don’t further impoverish essential workers by charging for essential journeys. Let those who choose to atrophy cocooned in their luxury vehicles listening to their expensive stereos sitting on their heated seats “suffer” a little. Even if they do so in some cases atrophy thereby adding to our NHS costs.]
Can I put my version of what could have been in the Mirrlees Report -easier to do? (and a better way to get towards a more sensible economical system?) in a separate post?
Best regards, Ian.greenwood@STEERglobal.org
Sorry not to have been in touch recently. I have been busy doing a job which would accomplish many of the tasks local and national government should be doing, but without the staff help needed due to funding stoppages. Here’s my promised Report (see earlier posting on your blog, please bear with me on the lack of editing):
Towards a Fairer Society, Gas security and Warmth
Given that if bank lending recovers the commercial banks will be making substantial amounts of new money by this process without any of this being diverted to the public purse except for normal taxation, why not create some warmth of feeling? As Mervyn King, Governor of the Bank of England has said in 2007 “there’s an unlevel playing field between the finance sector other businesses”. We can achieve change by:
1. Government amending the rules to get a clear separation between new money and existing money, at the same time protecting all deposits of cash (whether electronic or otherwise ) to protect the public/small businesses — see “100% Registered Money” TWD Davies (available by return, just by emailing ian.greenwood@STEERglobal.org)
2. Government setting a flow of some of all commercially-created money to the public purse. This could be done by the Bank of England setting up a new account to ensure ring-fencing and charging the base rate of interest for all new money created each year by commercial bodies. Over time this will grow and then stabilise as all the new loans are accounted for. This then offers the huge advantage of a feedback mechanism for less to the banks in bouyant times. The main cause of the credit bubble was the inability of being able to quickly control the economy when it began to “heat” and then “cook”. Such a measure could make inflation easier to control due to rectification of a missing feedback loop. As bank profits get bigger they could be made to pay a higher proportion (as base rate goes up) AUTOMATICALLY. Who got the money from house price booms when it’s only a house-worth of money but the value of that money in house-price terms is declining? Only banks. This has been a cause of divides within what should be a global and happy society — once a well-rounded set of facts are fully understood.
Economic cycles could do with being moderated and these proposals offer a simple way to achieve that and a way to immediately start it. Feeling warm?.
3. a) The economy could be regenerating in a more wholesome direction towards sustainability by a much bigger effort of retro-fitting houses and other buildings [see “Every Town an Eco Town” offering 50% gas savings —We prepared how to do this for OCC/DECC]. Training people to do it, whether as builders or as DIYers, reducing “impulse” journeys in vehicles and shopping/drinking themselves to oblivion as a pastime, COULD BE A MAJOR SOCIAL BENEFIT. 3b) A new [even voluntary?] code could be introduced for banks to encourage their customers to borrow for the retro-fit purpose if the banks were to offer some of the resulting free money as a refund towards such a purpose. Our points 1-4 could stimulate healthy degrowth in the purely frivolous areas as well as regrowth in the right direction by helping energy efficiency, saving gas. Why not be in touch for free advice/details – how this all works?
4. As an extra bonus to working people why not put a floor on interest rates below which savings interest cannot go to reduce reliance on declining pensions. The “fat-cat” pensions can afford to come down, while those with meagre savings or wishing to make wholesome investments need to be rewarded more.
The NEW Make-It Zone shows how such energy efficiency then allows a sensible underground heat storage system. This new Centre for on-the-ground Education while making a living and helping others can then become a valuable contribution to quick understanding/global security – to avoid further climate change and energy stress.
For more information, Ian Greenwood, Founder: MakeItZone.org, STEERglobal and Greenwood Structures, civil engineers. 0121 449 0278 [or 07702 569 077].
“We ignore the rise of the super-rich at our peril” Who Runs Britain Robert Peston
Appendix 1 The making of New Money:
Money creation as loans are issued
“A deposit created through lending [via the banking system] is a debt that has to be repaid on demand of the depositor, just the same as a debt that has been created through the customer’s deposit of loans or checks with the bank. Of course they do not really pay out loans [entirely] from the money they receive as deposits. If they did that no additional money would be created. What they do when they make loans is to accept promissory notes as credits to the borrowers transaction account.” Federal Reserve Bank, Chicago, Modern Money Mechanics p 6.
Statistic: £1.5 billion in hard cash created by the UK government/Bank of England in 2006 [website statistic] compared to an estimated £80 billion created by the UK’s commercial banks in the same year (James Robertson) some of which would be for international purposes. In the UK domestic economy it is estimated that in 2006 an amount of “free” money created as householder loans might be in the region of £30 billion — see below. But without a clear separation by registering money creation this is difficult to pin down exactly. While this was going on, the numerical value of the housing stock may have risen but its real value was also overblown by the reselling of imports. Lack of clarity concealed by inefficiencies in the banking system and created extra “services”. In 2010 we need a steady contraction of house price multiples – 2 and 3 times first-time buyers’ typical annual incomes? Affordable in the late 1970s if one was frugal. Rather than the high interest rates then to try to control inflation, why not aim for a few percent Base Rate directed to the public purse allowing the finance markets to compete around 1% or two percent mark-up as the building societies used to do? They were well rewarded before they were allowed to create money, so if that privilege is maintained, they should also pay base rates to the public purse.
The amendment proposed by our STEERglobal group to the UK government (first made in April 2007) is that a charge should be made for any element of free money created by banks thus reducing inflationary tendencies because of the long-term investments then enabled. But instead of Quantitative Easing by supporting bond prices and therefore bank profits, wouldn’t it be better to directly fund suitable projects or at least the materials for them? Such a move was proposed initially before the credit crunch [the “sub-prime crisis” began shortly after our suggestion] wiped out large amounts of credit money. A simple diversion should be made of the Base Rate of interest on any “free” money. By fixing the diversion to follow the Base Rate as set by the Bank of England’s Monetary Policy Committee from time to time, there would be an automatic feedback loop to reduce “froth” (Professor Congdon’s words [LSE] in a letter to Financial Times around 2006 after the economy had been overheating for years). As we say in our conclusion below there is unnecessary hesitation and confusion over investment policy because of the lack of clarity over money creation.
From the archiveUK’s housing stock value rises
January 2007 The value of the UK’s housing stock rose by 12 per cent last year, according to research from Halifax.
The total value of UK property now stands at £3.8 trillion, with the market growth far outweighing inflation. [2010 SEE ALSO BELOW: If housing turnover is 5% by buying and selling and the prices of those houses were rising at 10% then in 2006/10 we might have £150 bn to £300 bn in house prices bought and sold based on the above £3 trn. This might indicate at 10% house price inflation for 2006 roughly between £15 billion and £30 billion created as extra “free” money unearned profit by banks, part of their declared profit of £40 billion. Ed. This was pure inflation and not much value considering how profitable the speculative activities of banks are and the low value of return they were and are offering to small savers (who could instead be encouraged more to save and invest if there was a “floor” on savings rates as suggested above in point 4 of the main summary document.]
Overall, 2006 witnessed a swell of £410 billion in UK housing equity when rising property prices and increased house production were taken into consideration.
Tim Crawford, group economist at Halifax, said: “The combined value of all privately owned houses in the UK was a record £3.8 trillion by the end of last year.
“The UK’s household balance sheet is in good shape. Total housing assets are now worth 3.5 times the overall level of housing debt. Ten years ago, 2.9 times was the equivalent figure.”
[August 2009 “Britain and France say Banks must pay for climate change” (after the Turner Report “socially useless functions of banking” {such as speculation})]
With the statistic below that’s £800 bn in 3 years, so maybe half was from imports and half from “financial services” roughly in the same ball park as £150 pa above
OR Earlier in March, 2004
“UK housing now worth £3 trillion
The value of the UK’s housing stock has almost doubled in the past five years to £3 trillion, a new report indicates.
The report by High Street bank Halifax says that over the past decade, every region has seen the value of its housing rise by at least 85%.
But some have moved much faster, with Greater London’s housing more than tripling in value since 1993. [Now we know why]
The news comes as housing survey firm Hometrack doubled its estimate for 2004 price growth to 8%. Hometrack said its decision reflected a 0.7% rise in prices in March.
The first three months of the year had all shown price rises “significantly above” those seen in 2003.
This all has long-term social effects, reducing the will of people to save, to invest for the long term etc.
http://sticerd.lse.ac.uk/dps/case/cp/CASEpaper117.pdf
We need more balance between sectors in the economy, between social and owned housing, pension values, etc, etc.
CONCLUSION
The two major measures we proposed provide a way into a faster energy and social transition. See summary on page 1 above and STEERglobal.org for more detail (publications, click “all”). The demutualisation of building societies created a problem of too much money in the private sector. Now we have an opportunity to DIRECT some of that money by allowing banks to continue to make money but legislating to direct some of it for long term investment, such as super-insulation and InterSeasonal Solar Heat (underground heat Storage) which should both be be grant aided [Carbon trust say”No grant money available for solid wall insulation”.] These solitions will be demonstrated at the Make-It Zone at a well-connected and central location within the UK easily reached just south of Birmingham – if funding can be provided to enable the installations. The plan is for this to be within a Business Hub (but also a historic building -Heritage statement “Last remaining example of Work-live”) where young people can get their hands on tools under supervision, thereby helping to address the skills deficit and motivating people in the right direction by a better understanding of history and practical economics. Over to you, Government!
Ian Greenwood +44 (0)121 449 0278 +44 (0)7702 569 077 [August 2009 “Britain and France say Banks must pay for climate change” (Copenhagen outcome after the Turner Report’s: “[some of the banking and finance industries’] socially useless functions of banking” i.e. speculation/short-termism are relevant here]
Just quickly to say after point 4 in the previous text it would have been clearer to stress
The NEW Make-It Zone will show how such energy efficiency then allows a sensible underground heat storage system FOR SOLAR ENERGY gathered in late summer/autumn – a real breakthrough. Similar, but better than Diagram on ICAX website.
For years Mirrlees and Co have argued that consumption, not savings, should be taxed—this is the main rationale for shifting the tax buden away from capital taxation. The only problem is that the evidence from the USA—where taxes on capital came down precipitously under Reagan, Bush et al—suggests that growth was far stronger when the rich owners of capital (who allegedly save) were taxed far more heavily than today.
In reply to No 5 above, what kind of growth, Monetary growth or real growth?
I would like to see a shift away from “growth” to some kind of sustainability index: (i.e. how well are we doing in a quest to fairness and justice/reducing the spend on poverty, ill-health, on weapons, etc) with the regard to the energy transition, sea barrier protection in the case of unstoppable final melt of Himalayan and Arctic land-supported ice. [As evidenced by the combination of the Monsoon and the melting mountain ice inundating a large area in Pakistan.] Lets get points 1 to 4 in #3 above in place quickly to regenerate the right areas of the UK workforce with SUPER-INSULATION and then STORAGE of SOLAR. YEAH!