In place of cuts
As Friedman observed:
"Only a crisis - actual or perceived - produces real change. When that crisis occurs, the actions taken depend on the ideas that are lying around. That, I believe, is our basic function: to develop alternatives to existing policies, to keep them alive and available until the politically impossible becomes politically inevitable."
As we all know, the free-market ideology preached by Friedman and his colleagues provided the intellectual underpinnings for the de-regulated financial markets that crashed and burned in 2007/08. Even Alan Greenspan, the ultimate disciple of the free-market faith, has recanted. But the strategy of using moments of crisis to push forward with radical free-market policies remains live and operational.
The opening lines of a new report by Compass captures well the sense of disbelief that the free-marketeers, far from standing back for a few, much needed, years of reflection, have brazenly diverted attention from their own shortcomings and are pushing an agenda for cutting the public deficit that would be nothing short of folly if any elected government actually tried to implement it:
"Inexplicably Britain has moved from a credit crunch and an economic recession caused in large part by the excesses of bankers to a public expenditure and public services crisis. Those at the top have been bailed out by the public, while those at the bottom will have pay and benefits frozen and services cut. We simply cannot allow this to happen."
The Compass report, co-authored by TJN's Richard Murphy, makes the case lucidly for a radically different fiscal strategy to that currently being proposed by the main political parties in Britain. Instead of cuts to public services it lays out a series of nine key policy proposals (see below) that would raise additional revenue for the UK Exchequer while also increasing the fairness of a tax system that has becoming increasingly unjust and complex over the past three decades.
According to the authors, their proposals would raise additional revenue amounting to approximately £47 billion over the next 4 years. This money could contribute to financing a major green investment programme, which is exactly what it is needed to counter the appalling prospect of rising unemployment and increased poverty that will undoubtedly flow from the orthodox policy prescriptions of the tax cutters and de-regulators.
Furthermore, the nine proposals (including the suggestions that the Trident nuclear programme be scrapped, and that the use of off-balance sheet borrowings by government under the ludicrously expensive Private Finance Initiative be abolished) are wholly consistent with our vision of social justice. As the authors note:
"Crucially, the cumulative impact of these reforms helps the bottom 90% of income earners as only those who can afford it, the top 10%, are asked to contribute more."
In a society as unequal and divided as Britain, we have no problem with the idea that the top ten per cent should contribute more to the public good.
Here are the report's key proposals:
1. Introduce a 50% Income Tax band for gross incomes above £100,000. This raises £4.7 billion compared with the current (2009/10) tax system, or an extra £2.3 billion compared with introducing this band at £150,000 as proposed by the Chancellor.
2. Uncap National Insurance Contributions (NICs) such that they are paid at 11% all the way up the income scale (although pensioners would continue to be exempt); make NICs payable on investment income. This results in further revenue of £9.1 billion.
3. In addition to (1) above, introduce minimum tax rates of 40% and 50% on incomes of above £100,000 and £150,000 respectively; these raise an additional £14.9 billion.
4. Introduce a special lower tax band of 10% below the poverty line (below £13,500 per annum), while restoring the ‘basic rate’ to 22%. This costs £11.5 billion.
5. Increase the tax payable (higher multipliers) for houses in Council Tax bands E through H (while awaiting a thorough overhaul of property valuation and local authority taxation) raising a further £1.7 billion.
6. Minimise personal and corporate tax avoidance by requiring tax havens to disclose information fully and changing the definition of ‘tax residence’; these two reforms are estimated minimally to yield £10 billion.
7. Introduce a Financial Transactions Tax (FTT) at a rate of 0.1%, applicable to all transactions. This would raise a further £4.2 billion.
8. Immediately scrap a number of government spending programmes (including ID cards, Trident, new aircraft carriers, PFI schemes), reforms totalling £15.1 billion.
9. Urge that all current small limited companies be re-registered as limited liability partnerships to simplify their administration and reduce opportunities for tax avoidance.
The message to political leaders is clear. Pace Milton Friedman (see above), here are some new ideas. They're good: far, far better than the cuts proposed by the free-marketeers who caused this mess in the first place. Now implement them.