Inequalities — House of Lords, 2019-06-13
Topic: Mixed Topics
John Davies (Labour, Centre-left): My Lords, I add my congratulations to my noble friend Lord Dubs. He always thinks very carefully before he takes any initiative in this Chamber and regularly brings to our attention some of the moral issues which lie behind the decisions we take and the work that the Government do. That is an extremely valuable contribution, as was his speech today. I agree with an awful lot of what he said, not least what is in my view the moral obloquy of cutting taxes at a time when we are reducing spending on vital public services such as social care, the NHS and, as my noble friend Lord Adonis just explained, education It is important to be rigorous in a debate such as this, and we must distinguish clearly between the two subjects of inequality and poverty, which too easily get mixed up. They are in fact very different concepts and can well contradict each other, or there can be trade-offs between them. A policy designed to cut inequality may well produce more poverty. For example, tax rises may have that effect. On the other hand, a policy designed to reduce poverty—for example, tax cuts—may actually increase inequality. One must be careful what one is doing here The second proposition I put to the House is that there is no way in which you can intervene directly on inequality. It would be a nice idea if you could, but actually you cannot. You cannot have the state laying down people’s income or how much capital they should be allowed to possess. I do not think anyone is seriously suggesting such a thing. You could of course introduce something like a Cuban revolution, or a Chinese revolution, when people appeared to become more equal but at the expense of starvation. I do not think anyone is likely to be tempted by that approach Equally, you cannot increase levels of taxation unreasonably, because people will just go abroad—they will disappear and take their businesses with them. My eldest son, who is the only member of my family who pays tax at a 50% marginal rate, tells me that there is something very psychological about that rate. His employers are very keen for him to relocate to the United States and he would gain considerably from doing that. He does not want to do that, but he feels—and he speaks for a lot of people, because he has contemporaries who are similarly fortunate in their incomes—that people have a psychological barrier about 50% and if you go beyond that, you get some very counter-productive effects. One must be very careful about not making that sort of elementary mistake The fact that you cannot really deal with inequality directly is perhaps not so tragic, because I do not think that inequality is anything like as important as poverty. Some people will immediately think that that is just my personal normative preference. I hope that I can persuade the House that it is rather more than that; that it is rather more objective The fact is that if most human beings were as concerned—let alone more concerned—about where they stood in a relative table of income and wealth as they are about the absolute purchasing power and wealth they enjoy, they would logically be as satisfied with the thought that some wealth or income had been taken away from somebody else as they would be by knowing that they were themselves going to be made richer in absolute terms. That is such an absolute absurdity that I do not think anyone would seriously contemplate the idea. It would also be a threat to the whole concept of human rationality, so I do not think that we need fear saying that it is poverty, or the reciprocal of poverty—wealth, the purchasing power of individuals—that concerns people most. Nobody cares very much if someone else has a Lamborghini, but I do not think I speak only for myself when I say that I would be very upset if someone took away my modest motor car. I have absolutely no desire whatever to have a Lamborghini; I would not know what to do with it if I did Pursuing that view, we must maximise growth and therefore be more able in future to deal with the demands of both our public services and our private aspirations. If we do that, we will almost certainly increase inequality. That has always been the case. There is a sound economic reason for that: growth requires investment, which requires taking risks—some of which are very high—but no one will take those risks unless commensurate rewards, which can be very high, are available. So, in a period of successful growth, people become disproportionately rich. That has been the case throughout the economic history of the world. Of course, it is equally true in India or China as it is here or in the United States. We just have to live with that In those circumstances, the best policies that we can pursue are the indirect ones. I agree totally with my noble friend Lord Dubs about transparency, workers’ directives and publishing individuals’ income and tax statements. I believe very much in workers’ directives being on the remuneration committee agenda in public companies. Private companies and private equity firms should take the same responsibility for disclosing their profit and loss account, cash flow and balance sheet. Moreover, we should continue in line with the Labour Party’s glorious record—such as on education—especially in passing the Equality Act, which made life so much easier for people. Last week’s news that 60% of Oxford and Cambridge entrants now come from state schools is a return on the investment we made 10 years ago.