Posts Tagged 'social inequality'

Taxation, inequality and post-industrial society

Ruane4Jul17

Sally Ruane

In this blog post, Sally Ruane, co-author of Paying for the Welfare State in the 21st Century, explains why we need to challenge the political culture surrounding taxation to effectively tackle inequality.

 

“The dramatic electoral developments in the US, France and most recently the UK, point to a state of flux in which there is a high degree of uncertainty regarding future direction and outcomes.

These political symptoms emerge following the transition of advanced Western countries from industrial to post-industrial societies, a transition managed in such a way that economic inequality has deepened and financial deregulation has brought about a destabilisation of the whole system.

The rise of in-work poverty

In the UK, from 1980 to 2003, median income began to lag behind economic growth, rising at the rate of only 70% of national economic growth; and in the five years leading up to the financial crash, household income stagnated despite economic growth during the period. More recently, the Institute for Fiscal Studies found that in the seven years after the crash, average gross employment income had yet to recover its pre-recession levels. Into this mix we must add that, unlike the postwar period when poverty was associated with a problematic or disrupted relationship to the labour market, most people living in poverty today are living in households where at least one person is working. What is more, average pensioner household income is now higher than average income in working age households. Meanwhile, at the top end of the scale, the best off 1% of households has raced away, holding 7.9% of all income in 2014/15 against 5.7% 1990.

“Average pensioner household income is now higher than average income in working age households.”

Tax and the allocation of resources

The allocation of resources in society is an outcome not just of ‘market incomes’ but also of the totality of fiscal policy. This entails government spending on benefits and in-kind services, on the one hand, and the tax system on the other. The social policy gaze has tended to focus on the former rather than the latter but to understand questions of inequality we have to examine taxation. The tax system encompasses more than the entities taxed, the taxes levied, and the rates and thresholds at which those taxes are levied. It entails also attitudes to the payment of tax, the capacity to and vigour with which the tax collection authority pursues those who owe tax and the infrastructure through which income and wealth are handled, disclosed (or not) and made subject (or not) to tax liability.

‘Flexible’ working and rising inequality

The way in which the tax system works not only is influenced by the nature of the wider socio-cultural and economic system but at the same time influences that wider system.

The acceptance of a model of globalisation in which the financial system was deregulated and many relatively well paid working class jobs were transferred to other, low wage economies, reinforced by a strong pound which suited the interests of the financial sector, gave rise to exhortations that labour must be flexible to attract capital investment. ‘Flexibility’ meant that the wages and terms and conditions of workers were systematically worsened to the advantage of capital. New Labour’s revival of Speenhamland type policies in which the low wages of those in work were supplemented by tax credits afforded a degree of redistribution but at the expense of establishing the acceptability of paying low wages, reinforcing the problem of in work poverty. In other words in addressing workplace exploitation, the tax system has simultaneously exacerbated it.

“… in addressing workplace exploitation, the tax system has simultaneously exacerbated it.”

The cost of tax avoidance

The increasing effectiveness with which corporate and financial interests have been able to lobby ministers has given rise to criticism of Her Majesty’s Revenue and Customs for lacking zeal in its pursuit of complex and sophisticated forms of tax avoidance and evasion, reinforcing the resources which corporations can bring to bear in further lobbying of ministers. The debilitation of the organised working class through acceptance of the dominant globalisation model has weakened the countervailing forces which might have checked concessions to big business and big finance. The success with which large corporations and affluent individuals are able to avoid and evade paying taxes materially affects the resources governments claim are available for funding social security and public services. The resulting austerity erodes the social wage and further weakens the base for social democratic policies.

“Challenging the political culture surrounding taxation is essential if inequality is to be effectively tackled.”

These are just some of the inter-linking examples of the way in which the tax system is both shaped by wider cultural and social factors as well as recursively shaping that wider society.

We argue in Paying for the Welfare State in the 21st Century that reforming the tax system goes beyond altering rates and bands and that challenging the political culture surrounding taxation is essential if inequality is to be effectively tackled and some of the destructive consequences of the shift to post-industrial society are to be reversed.

 

Paying for the welfare state in the 21st century [FC]Paying for the welfare state in the 21st Century by David Byrne and Sally Ruane is available with 20% discount on the Policy Press website.  Order here for just £10.39.

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