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LIBERATING PERSONAL CAPITALISM AND EMPLOYMENT
Reviewed by ANDRE BEAUMONT
These days, only political parties with an appetite for factionalism go in for blatantly redistributive taxation rather than the equitable variety. At the very least they will have an internal group that prefers electoral survival.
Most people know prosperity is not a zero sum game.
Redistributive rhetoric may win plaudits from the conference floor but anyone who actually introduces high personal taxation, without the promise of its reduction, to diminish inequality, soon permanently loses the regard of much of the electorate.
This is because there are far better tools to hand to achieve the same end.
High taxes, too, are seen for what they often are - acts of desperation to remedy poor fiscal management.
People soon see that the money does not, in the main, go to alleviate poverty.
New Labour tried high taxation and still ended up with higher inequality.
Instead, what is needed are changes in society that incidentally reduce inequality.
Building more homes does so. If supply is increased more people can own something and that can help diminish poverty.
With more supply of homes, future upward spikes in the price of accommodation, both privately and communally owned, will likely be reduced in amplitude.
Despite a well-formulated case for releasing more agricultural land for building having been in the public domain for more than two decades, since Alan Evans wrote No Room! No Room!, only a little has been done since to increase the supply of land for homes.
So a small push in this direction is perhaps necessary through other means.
Buildings and railways have long gone together.
When London's Central Line was extended eastward, expanding the Underground's reach, many new developments sprung up along its course, and other settlements expanded, increasing the number of homes within reasonable travelling time of the metropolis.
Likewise, the expansion of the railways westward across the American continent provided for their own viability by allowing new settlements to grow up along their routes.
Those who propose high speed lines often advocate following existing transport corridors and this, of course, may make planning hurdles easier to clear.
However, if the London to Birmingham high speed link gets built on a reasonable timescale, consideration should be given to giving it a stop at, or taking it on a loop to, somewhere away from existing major settlements where a new town can be built.
A concession could then be granted to build the town which would partly finance the building of the railway.
However, to get away from the mindset where either the state or large companies must undertake everything, it would make for a more interesting town if the land were divided into modest plots and sold off to individuals and housing associations to build what they will. The dynamism of individual capitalism has been increasingly less seen, almost institutionally discouraged, since the first internet boom expired in 2001.
With high speed lines, the point-to-point travelling time is more important than the miles travelled. Any new town within an hour of London has a good chance of delivering housing supply where it is still most needed.
Returning to taxes, four are much hated. Mistakes of past administrations are also associated with these taxes.
For individuals, the hated taxes are property taxes and taxes levied on death.
The reasons are clear. When you are struggling to keep the roof over your head, or the grim reaper away, the last thing you want is a tax that is inevitable.
James Callaghan is remembered for presiding over the winter of discontent and also for letting property taxes soar. To this day people cringe on opening their Council Tax bills in case they produce the unpleasant surprises of the Rates of the late seventies.
New Labour made a different mistake. It failed to adequately raise the inheritance tax threshold to reflect real inflation. Before 1997, the only people who really thought they would be paying the tax were those well enough off to be names at Lloyds. By 2010, ordinary people had had enough of the tax's low threshold, its unfairness to single people and its high rate. The possibility of a death tax being added if Labour were re-elected was the last straw on its own pyre.
For business creators, the hated taxes are high marginal rates of income tax and capital gains tax.
The most successful and endearing aspect of Reaganomics was that whatever the state of the public finances there was always a tax cut and always one promised.
Tax cuts can appear unaffordable at times but the promise of them can have nearly as good a stimulatory effect on enterprise.
With income tax, a high rate can be worn by business creators provided there is a promise to lower it by a date in the future, say five years hence. The promise has no immediate cost but it does mean more people start businesses and pay more tax.
Business creators tend to defer their rewards but they do hope to be high earners in the future. If they believe they will pay over 60% tax, including employer's and employees' National Insurance contributions, they may hesitate to start a business. They did when Harold Wilson had an 83% tax band and a 98% marginal rate.
The countries in Europe that do not have personal capital gains tax are amongst the richest in the world and perhaps for good reason. Give individuals an apparent tax break, easy to understand, readily explainable by the taxi driver, and they will create jobs, increasing all revenues. Give a large corporation an advantage and it will still need to assess your country against a wide range of criteria to see if it is welcoming before establishing there.
It was a mistake in the eighties to equate CGT rates with income tax ones, alleviated by taper relief.
CGT is a tax on inflation and, worse, the value you may add yourself. Personal CGT also ignores financing costs which may typically approach twice the rate of inflation.
Taper relief became so complicated over the years that hardly anyone could work out their real position without an accountant. It would have been better to do away with taper relief and have set a cut-off period after which CGT was not payable but governments are greedy and believe they will catch a magnate selling an Old Master he bought 40 years ago.
For every magnate snared there are 50,000 who hesitate to start a business because of the absence of a cut-off period.
Indeed, to introduce a cut-off point would increase tax take as many would buy assets with the intention of long-term holding but be obliged to sell before time.
A red herring in the debate about growth in Britain is that Keynesian measures are needed until full employment is secured. The measures can be argued for but surely not in terms of Keynesian full employment? Britain has not seen full employment since a couple of years after Alec Douglas-Home was Prime Minister. It is unlikely to come about again in the forseeable future.
Demand in advanced economies has often principally been driven by consumers coveting 'must have' goods. In approximate order of appearance on the 'must have' shopping list are automobiles, white goods, televisions, audio equipment, cameras, personal computers, software, laptops, early mobiles, smartphones and tablet computers to name the most obvious.
With each successive wave of goods, a lower percentage has been manufactured in Europe and North America. That trend is likely to be ongoing.
Given that China, India and Indonesia alone could probably supply another half a billion people into the global workforce undertaking manufacturing and systematised service provision, the prospect of domestic demand ever floating the boat of British employment as far as full employment is slight.
Add to this the great productivity gains delivered by the digital revolution and the destiny of advanced economies is more likely to be one of part-time work than full employment.
A think tank has recently outlined a case for a 21 hour week for the 21st century. That case should be looked at on its merits. The proposal that follows is a variant on the same long-standing idea with different objectives.
It will reduce costs for employers and will reduce inequality by bringing more people into the workforce.
Its main objective, however, is to get different people into the mainstream workforce, especially older people, entrepreneurs and artists. These are the people that this review makes the case out for but, in practice, the change advocated can benefit all kinds of people including, for instance, working mothers and part-time students.
The proposal is that employers be exempted from paying National Insurance contributions for employing people who work no more than 21 hours a week (an increase in hours on previous exemptions).
Three conditions would attach.
Firstly, that the person taken on should not have worked for the same organization or group of companies in the past five years, to prevent churning.
Secondly, that although all other employment rights consistent with full-time employment would attach, the notice period on both sides would always remain seven days.
Thirdly, that the employer would not be entitled to exemption if it used an agent at any stage in the recruitment process.
Conformity of business and administrative cultures is leaving some organizations unsuited to meeting crises. Perfectly predictable occurences, like the downturn, were not predicted at all. People with a habit of thinking differently, or, at times, just thinking, could be needed within these organizations.
Older people can offer a different view based on experience.
Entrepreneurs tend to get to the point and are less tolerant of unnecessary process or bureaucracy.
Artists, if their artistic training has been good, are looking for truth. Without truth in their work, it is not art. Not all are suited to organizations but if they are, their contribution can be invaluable.
The latter two categories often have their own goals. They may want to work two or three years to build up resources for their next project. This is frowned upon by the recruitment industry. It is much less of an issue if they can pursue their projects part-time.
There should be less awkwardness about moving from job to job.
If people are uncomfortable with seven days notice, they can usually apply for a full-time job instead. If employers cannot bear to lose someone at such short notice, they can offer a full-time job. Small businesses need some modicum of labour market flexibility such as this to take on staff.
The proposal is for a new, clearly distinguished category of employment.
It is not intended that the employees should fall within agency worker definitions. Agencies are excluded from the recruitment process. This is to encourage employers to recruit by word of mouth, to place local adverts, to do all the interviewing themselves and to de-commoditise recruitment.
More jobs would be created, localism given a fair wind, and with more people paying income tax and employees' National Insurance contributions, net revenues might even flow to the Exchequer.