Saturday, 26 March 2011

Britain is not Broke.

 A Note on an Alternative to Cuts.

During the national demonstration organised by the TUC I ran into Greg Philo, the man behind a very interesting alternative to austerity measures. Philo offers a tax-based alternative to the slash and burn solution of the Coalition. After all we do live in the sixth richest country in the world, so it would seem strange to say that "all the money has run out." The richest 10% of Brits have accrued £4 trillion in wealth, with an average of £4 million per household, it is mostly concentrated in paintings, antiques and pensions. Not to mention in property and financial assets, both of which might be linked to inflated property prices and the financial crisis. Keep in mind that the total personal wealth of the UK is £9 trillion and the bottom half of society has less than 10% of that wealth. Funnily enough, a visitor to this blog implied this proposal was "something similar" to what the National Socialists initiated in Germany. Apparently Hitler was clearly trying to combat a national debt when he was persecuting the Jews. But I digress from right-wing hysteria to the details of the proposition.

It would be a one-off tax of 20% on the wealth of the richest 10% could rake in an estimated £800 billion. The tax can be paid off over time, a lot like a student loan for riches, with a low rate of interest or even make it a charge on their property after they have passed on (if they wish to do so). With calls to "Tax the Rich!" it is not surprising that this proposal would be particularly popular. According to YouGov, 74% of the population would support such a tax and only around 10% are strongly opposed to the idea. No doubt the proposal has the disapproval of politicians and the commentariat, with Labourites differing and Conservatives shouting about "death tax". It would have the TaxPayers' Alliance foaming at the mouth, let alone the 18,000 people who support and donate to the Alliance. The common argument against the proposal would be that it will drive away Britain's best, while it's true that some people could leave it seems unlikely that 6 million people would flee to Belize to avoid the tax.

Interestingly, it was the high earners sampled in the YouGov poll who were slightly more supportive of the policy than the poor. The reason being that the social disorder which may result from cuts could have negative consequences on the stock market. The country's resources have been directed to inflated property values, which is where fat cat bonuses end up. A tax of this kind could help recirculate this "dead money" and that would stimulate economic growth. The people who would pay this tax will not miss the money, in fact the 20% paid could be regained in the long-term from a consequently stabilised stock market. Note that the Conservative Party only have 3% more votes than they had in 2005, which was the year when Tony Blair won an election on less votes than Joe McElderry. So the mandate of the Coalition to initiate cuts is highly questionable, especially given the unpopularity for the complicit role of the Liberal Democrats. Economists like Paul Krugman and Joseph Stiglitz are wary of the austere craze sweeping the West at the moment.

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