The omni-shambles of Liz Truss was more than an ideological experiment backfiring. It was the culmination of 12 years of ineptitude, marked by the weakly opposed fleecing of the social fabric through austerity, and forty years during which rentier capitalism has become entrenched. While Rishi Sunak will delight his friends in the financial markets, the reactions to the crazy mini-budget demonstrated two realities: first, Britain lacks economic and social resilience, and second, fiscal policy is in disarray.
For the past century, social democrats have supported a model of society in which high and progressive taxes on income and consumption have been justified as the means of reducing inequality and poverty while paying for a growing array of state benefits and public services. For many decades, that prescription served them well, assuring regular electoral victories.
Since the 1990s, that has ceased to be the case. The political right may not have won the intellectual or moral argument, but their prescription of low income and consumption taxes has had increasing popular appeal, draining support for the left from those gaining from tax cuts, even if they still support public services and benefits.
It is no use the left lamenting the passing of that era. It must reinvent fiscal policy. To do so, it must recognise once and for all that the income distribution system of the social democratic decades of the 20th century has broken down irretrievably. Whether there is high or low GDP growth, most of the extra income flows to the owners of property, financial, physical and intellectual, while less and less goes to those who rely on labour. That applies in countries where unions are strong as well as where they are crippled. This is an era of rentier capitalism.
Moreover, in the globalised economy dominated by finance, it is easy for high-income recipients to avoid income taxes. They just use tax havens, as has been happening to a growing extent, as the Panama Papers and other evidence shows. Across Europe, offshore wealth is about 10% of GDP nowadays; in the UK about 20%. The wealthy hardly pay income tax whatever the rate.
Labour and the left are too defensive
However, in response to cuts in income, consumption and corporation tax, the left has been defensive. This was symbolically demonstrated by Labour’s reaction to the regressive ‘mini-budget’ the new Truss government introduced on September 23. The budget lowered the basic rate of income tax to just 19%, starting after a tax-free allowance of £12,570. Immediately, Labour said it would not reverse the cut. It accepted a tax rate so low that financing public services would become even more problematical. There was not even evidence that the public wanted such a low rate. On the contrary, a survey found that 52% of the electorate favoured tax increases. Nor is there any evidence that cutting income or corporation taxes increase economic growth; they merely increase inequality.
The questions one felt inclined to ask Labour were: How low a tax rate would you be prepared to tolerate before you squealed stop? And how are you going to pay for good public services and decent state benefits if you do not tax incomes to pay for them?
The more general question for the left across Europe is how to make taxation popular, progressive and functional. The answer should be based on overcoming the right’s populist trick, that taxing income is ‘disincentivising’ and a reflection of ‘envy’ by the losers in society against supposedly dynamic entrepreneurs and energetic ‘workers’.
Facing this predicament, progressives should opt for an eco-fiscal policy, one designed to dismantle rentier capitalism. Accept that high progressive income tax is out of date. Make it clear that income and consumption taxes are mainly for public services and infrastructure, including transport, defence, housing, schools and other social needs. Beyond that, restructure fiscal policy so as to make it a means of common justice.
Fiscal policy for the commons
It may seem esoteric, but we should start by reviving the idea of the commons, that is, resources and assets that belong to all of us, as commoners. Ever since the Justinian Codex of AD534, common property has been the base of common law. The commons include land, air, water, minerals, the sea, seabed and seashore, as well as commons bequeathed to us by previous generations. Yet all forms of commons have been taken or eroded illegitimately, through enclosure, spoilage, privatisation and financialisation. The left should demand that commoners be compensated for that plunder.
Words and how the narrative is presented matter. The term “levy” should be used rather than “tax”, to indicate three distinctive features – that it is not a tax on labour, work or consumption, that it is designed to indicate it is a cost imposed on those taking from our commons, which belongs to everybody equally, and that the revenue from it will be recycled as Common Dividends on common wealth.
So, what should be covered by eco-fiscal policy? Start with a progressive Land Value Levy (LVL), which should start on landholdings of above the typical garden size, to avoid it being dubbed ‘a garden tax’, and thus politically difficult. A progressive LVL is further justified by the fact that the value of land has jumped as a share of non-financial assets, partly due to globalisation and speculation by global finance. Across the OECD, land now accounts for over a third of non-financial wealth, and in the UK has risen from 39% in 1995 to 56% today.
Then introduce a Wealth Levy, probably instead of inheritance tax, excluding land if there is an LVL. In European countries, wealth is taxed much less than income, wealth inequality has risen relatively to income inequality, and a majority of wealth is inherited, definitionally unearned. Even a 1% wealth tax would raise huge revenue, and be harder to avoid than income.
Next, following Sweden’s lead, there should be a high Carbon Levy, a tax on carbon emissions that are causing climate change and acidifying the oceans. According to the IMF, only a fifth of global emissions are covered by proper pricing. A carbon levy would transform the atmosphere into a regulated commons. And we know that the rich cause most of the pollution, while low-income groups mainly bear the costs, including in ill-health.
By itself, a Carbon Levy is potentially regressive, in that paying for emissions would be a higher share of a low-income person’s income. It would only become progressive if all the revenue were recycled to all commoners equally. The way to ensure that is to channel the revenue into what could be called a Commons Capital Fund, from which all usual residents would be entitled to equal Common Dividends. Here is not the place to go into details, to ensure independent governance and so on. The point is that progressive should shift to eco-fiscal policy and build mechanisms to ensure outcomes are progressive.
Next, eco-fiscal policy should target rental income gained by exploiting the commons. Here we should salute Norway, which has just announced a ground rent on industrial aquaculture, (salmon farming), as well as on hydropower. Given that major aquaculture firms only pay about 50% of production costs, the rest being borne by local communities and surrounding ecosystems, the proposed 40% levy could be copied in other European countries where fish farming is booming. As proposed in my new book, the principle could be extended to sea fishing, seabed mining and offshore windfarms.
Among other levies should be a Digital Data Levy. The Big Tech corporations make billions of dollars from our work, in us providing them with information all the time we use electronic equipment. They are taking rental income from the information commons. That should be shared, justifying a Levy on their advertising revenue, put into the Common Fund, as it would only be fair if everybody received an equal share of the revenue.
The left should play on the right’s ideological contradictions. They justify shareholder capitalism by claiming that shareholders (principals) pressurise managements (agents) to pursue long-term growth. That had some veracity decades ago when the average time a share was held was seven years; today it is under six months and falling. So, a Financial Transactions Levy would incentivise what the right claim to want, and it would be progressive.
Similarly, a Market Concentration Levy would be a form of anti-trust measure. The right say they are opposed to monopolisation as contrary to a ‘free market’. But conglomeration has resulted in a sixfold increase in the average mark-up of prices over production costs. So, to combat conglomeration, a levy should be imposed on profits of corporations that take more than 20% of their market. This would be better than a ‘windfall tax’, since it would address a structural fault.
Regressive subsidies
There is also the other side of fiscal policy that receives remarkably little attention in progressive economic thinking, that is, government subsidies. These are really a ‘negative tax’, and are mostly regressive. A progressive fiscal policy would take an axe to thousands of selective subsidies that governments give to special interests. I have identified 1,190 in the UK. If the right claim to believe in ‘free markets’, then giving distortionary subsidies is hypocritical.
One sphere where subsidies are particularly damaging and regressive is fishing subsidies, mainly for fuel to enable industrial fisheries to carry out ‘long distance fishing’. The World Trade Organisation trumpeted an agreement reached in mid-2022, but all it did was ban some subsidies for ‘illegal’ fishing, which is an oxymoron. The WTO even removed reference to ‘harmful subsidies’ from the agreement’s final text. Globally, $35 billion is spent on such subsidies. They are causing fish population collapses. In Britain, the government spends £120 million a year on them, to no good effect.
The resort to subsidies during Covid was an opportunity for the left to be consistent, by applying a ‘progressive stress test’, that a fiscal policy should only be supported if it does not increase inequality. The job furlough schemes failed that test miserably. But most leftish parties vociferously supported them, as did unions. It was predictable from the outset that they would intensify inequality – giving far more to the salariat than to the precariat – and be subject to massive fraud. They also propped up numerous ‘zombie firms’.
More generally, progressive politicians have gone along with bail outs of companies deemed ‘too big to fail’.[i] In effect, commoners pay for the socialisation of investor losses. Worse, the left has not opposed the globalisation of the US intellectual property rights regime, which enables corporations to make monopoly profits for 20 years through patents and for much longer in the case of copyright and industrial designs, even when patents are the result of publicly funded R&D, which means the public bears the risk. This was brought out shamefully by the vast profits earned on Covid vaccines. At the very least, the public should have an equity stake in any patented product if public money is used to subsidise the R&D.
Progressives should also oppose implicit subsidies to capital. Under the Investor State Dispute Settlement process, multinationals can sue governments if in their view reforms threaten their future profitability. So, as has happened, if a government introduces anti-pollution measures it can be sued for hundreds of millions of dollars. This should be scrapped, saving revenue that would increase the fiscal space.
Similarly, the Energy Charter Treaty (ECT) should be scrapped. It dates to the 1990s and ironically was drawn up to help ex-Soviet countries by protecting investors in their oil, gas and coal industries, by obliging governments to compensate companies if reforms hit their potential profits. Today, five energy companies are suing European governments for almost E4 billion over restrictions being placed on coal, oil and gas projects. If they win, Europeans will see their taxes diverted to paying them, while further disincentivising energy firms from efforts to decarbonise. Progressives should be demanding a reform of the ECT.
In sum, in this potentially transformative moment, progressives in Britain and across Europe should reposition fiscal policy to dismantle rentier capitalism, contribute to ecological revival and reduce inequalities.
Guy Standing is Professorial Research Fellow, SOAS University of London and a Council member of the Progressive Economy Forum. He is author of various books, including The Precariat: The New Dangerous Class and The Corruption of Capitalism: Why Rentiers thrive and Work does not pay.
[i] Consider British Steel, owned by Chinese capital. After receiving £780 million in subsidies, it is in negotiations with the new ‘free market’ Business Secretary, Jacob Rees-Mogg, over a new subsidy of £500 million, supposedly so that it can keep afloat. As an act of political expediency, one understands. But it shows the hypocrisy behind the ideology. Also, it is hardly pro-growth to prop up loss-making capital.
