The pragmatic case for tackling billionaires

HPC Director Luke Hildyard writes for Labour Hub asking why supposed political pragmatists are not more interested in more efficient use of the income and wealth currently flowing to the super-rich

Running the Government is no picnic, but listening to the Conservative administration over the past 14 years, one could be forgiven for thinking that it literally is.

Throughout their terms of office, Tory Ministers, MPs and Advisers have repeatedly struggled to talk about the UK economy without digressing into ruminative metaphors involving pie and cake and jam.

Former Prime Minister Liz Truss is the figure most associated with the ‘economy as pie’ analogy with her frequent assertions that we must ‘grow the pie’, although it was widely observed at the time, her plans to galvanise the UK economy were of commensurate plausibility with the notion of an expanding pie.

But long before Truss arrived on the scene, Grant Shapps was warning in 2014 that Ed Miliband and Labour only wanted to divide the cake and never grow it. In the early months of the Coalition Government, no lesser figure than Rupert Murdoch, giving the inaugural Margaret Thatcher lecture to Tory thinkers at the Centre for Policy Studies think tank (to whom this presumably made some kind of sense), noted that “baking a bigger cake requires us to look beyond these borders.”

More recent examples of this tendency, include another ex-Prime Minister, Boris Johnson declaring his levelling up agenda would not be a ‘jam-spreading exercise.’ Business and Trade Secretary Kemi Badenoch has lamented that “for too long we have focused on how to divide the pie” rather than how to grow it. And backbench MP Ranil Jayawardene delivered a thundering Daily Express column last year setting out how Labour would take “someone’s slice of the pie and give it to someone else.”

It’s difficult to know how to read all this. The idea that confiscating your pie and giving it to someone else is such a mortifying prospect for voters reflects an endearing but slightly patronising view of the British public. If the constant references to pies and cakes are an unconscious expression of their innermost desires, then given the various scandals that dogged the end of John Major’s Tory Government, it’s possibly a good thing by comparison. On the other hand, if they’re sitting round the Cabinet table trying to sort out the pensions system or whatever and everyone is daydreaming about custard then perhaps not.

The serious point is what this shows about the world view of the Conservative Party, and whether or not it is shared by Labour. The point of the analogy is of course to argue that economic growth, rather than the distribution of resources, is the key factor determining living standards. The aggregate size of the pie is more important than how evenly it’s sliced up.

In reality, both aggregate wealth levels and how they are shared matter. The Resolution Foundation’s recent report ‘Ending Stagnation’ pinpoints both the lack of economic growth and the high levels of inequality as sources of the UK’s economic malaise. A fascinating data analysis by the Financial Times recently showed how, compared to counterparts in ostensibly similar economies across Europe, rich people in the UK are generally richer, but middle and low income households are much poorer. Because the UK is more unequal and those at the top take a bigger slice of the pie or cake, there’s less left over for those in the middle and at the bottom.

Though less bafflingly obsessed with finger foods, Labour seems to essentially accept the argument that distribution doesn’t matter that much. Rachel Reeves said in a Times interview last year that she wanted to solve inequality by raising people at the bottom up rather than bringing those at the top down. Her recent ‘Mais lecture’ to the City of London also emphasised that the economy is not ‘a zero sum game.’ Labour has ruled out multiple redistributive taxes including a wealth tax, an increase in capital gains tax or a higher top rate of income tax.

This is quite at odds with the way that living standards have improved throughout much of history. Mechanisms to ensure that wealth doesn’t overwhelmingly flow to the people with all the economic and political power have always been necessary to ensure that economic growth benefits everybody. Examples might include the rise of trade unions ensuring more of the wealth generated during the industrial revolution flowed to the workers who powered it. Or the creation of the NHS and the welfare state funded by progressive taxation. Or the introduction of the minimum wage, ultimately paid out of business income that would otherwise benefit the business owners.

In the UK, the richest 1% of the population have steadily increased their share of total incomes and wealth over the past few decades to the point that they capture up to 17% of total incomes, depending on which estimate you read – up from around 6% when Margaret Thatcher was elected – and nearly a quarter of all household wealth – up from about 18% over the same period. Taking a 17% share of total income down to 7% (still a disproportionately large amount) and re-distributing the remainder across the wider UK population would be equivalent to another £2,500 per person per year, assuming existing levels of income. The richest 1% by wealth could hypothetically give every household in Britain around £60,000 and still be left sitting on an average fortune of nearly £3 million each.

My new book Enough: Why it’s Time to Abolish the Super Rich argues that taxing the 1% more effectively and getting them to pay a bit more to the workers at the companies they run and invest in is the most pragmatic, obvious and effective way that policymakers could immediately raise general living standards for the UK population.

The economic risks associated with this approach are wildly exaggerated. There’s increasing evidence that a braver approach to extreme concentrations of income and wealth would actually release money and assets for use in the productive economy and help to make aggregate riches greater, as well as more equally divided. The argument that the super-rich would all leave is flawed on multiple levels – they wouldn’t, there are measures that could stop them or mitigate the effects and it wouldn’t matter that much if they did.

Taxes and/or curbs on top pay applied to the private sector bureaucrats that run Britain’s biggest companies or the heirs and heiresses, speculators and Russian oligarchs that populate our rich list aren’t going to penalise irreplaceable innovation or productivity, they’d merely ensure that people’s level of material affluence reflects how hard they work on their contribution to society a little bit more accurately.

This really ought to be the most moderate, mainstream, common sense. There’s a huge resource, in the form of the incomes and wealth of the super-rich, that could be used to raise living standards for people whose living standard needs to be raised, rather than to make people who are already obscenely rich even richer. Surely anyone who considers themselves a political pragmatist ought to be at least curious about enabling some kind of re-balancing of the distribution. Instead, those who think like this are treated as extremists or utopians. Meanwhile, talk of growing pies and ending inequality by making all the poor people as rich as the rich ones is considered a hallmark of sensible, sober policymaking.

Rather than getting annoyed about this, progressives should see it as a challenge to get out there and make action to address extreme concentrations of income and wealth politically opportune. Trade union rights, universal health care and the minimum wage were all seen as implausible heresies at one point, but are now broadly if not universally accepted.

A potential change of Government creates the opportunity for an administration containing a number of progressive voices and at least a bit more interest in distributional issues than the current one. My book argues that a major and transformative programme to re-direct the income and wealth captured by the super-rich to the people who need it and create it now needs to become a unifying and priority mission for progressives. With a broad, sustained and popular movement behind the cause, it is far from pie in the sky.