Stephen Says...

Stephen Says...

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sharing occasional thoughts about things that interest me

Corbynomics Nearly Nails It

the state of the countryPosted by Stephen Fri, July 24, 2015 15:44:01

In his crisply presented paper on economic policy (‘The Economy in 2020’) Jeremy Corbyn comes tantalisingly close to a correct analysis of the country’s situation and makes some sensible suggestions for addressing its problems.

He affirms the traditional basis for social democratic government: using the state as the agent for collective consumption. By doing so he supports the vision of the electorate as a consumers’ co-operative (the vision originally established by Beatrice Webb and supported by other foundational Labour figures like Leonard Woolf). And he confirms an explicit conception of the state as a subscription society in which it is expected that payments subscribed should reflect ability to pay.

But he could and should have gone further.

Firstly, he could have pointed out that the UK budget deficit is not due to the provision of public services as benefits in kind (health and education): these are paid for by the taxes on people’s spending which they directly pay themselves out of the money that comes into their households. A summary analysis of the system as it stands is reported in the tabulation below.

This analysis considers taxes that households pay directly when spending their take-home pay (e.g. transactions taxes such as VAT or Stamp Duty, licences for cars or televisions), compared with the value delivered through purchases made by the government on their behalf (i.e. as collective consumption or ‘benefits in kind’ - mainly education and healthcare services).

The figures show that by and large the existing system operates according to the progressive principle: to each according to their need, from each according to ability to pay. Those who spend the most contribute the most. And for the majority of households (the low-money and middle-income households), the value of collective consumption outweighs the cost of tax-payments.

Secondly, despite acknowledging that most people pay taxes linked to their employment through PAYE (so that ‘income tax and national insurance’ are removed before employees see them) Jeremy Corbyn fails to draw the logical inference that these payments are more truly to be regarded as employment transaction taxes, paid by employers as incidental to the provision of the take-home pay required to attract workers. This is unfortunate because if he did so it would create a more effective platform for the argument which he rightly makes that such taxes ought to be increased as the most effective measure to address the persistent UK budget deficit.

As can be seen from figures comparing taxes on employment in different European countries, UK taxes are lower than their equivalents elsewhere.

These figures show that the UK’s international competitiveness would not be damaged by higher UK employment transaction taxes. What’s more, by representing these charges more accurately as employment transaction taxes, and doing away from the ridiculous pretence that they are taxes on personal incomes or individual insurance payments, they would become explicitly the charges for commercial use of the infrastructure that Jeremy Corbyn rightly wants them to be seen as. Not only that, it would draw the teeth of arguments about benefit payments as transfers from virtuous workers to feckless scroungers or from the poor put-upon working young to expensively pampered pensioners.

Jeremy Corbyn has nearly nailed it: he should take the further steps that I’ve suggested and hammer home his message about reforming taxation to tackle the deficit whilst recommitting the Labour party to collective consumption and social solidarity according to existing progressive practice.

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