Chancellor Rachel Reeves has provided in her conference speech many hints as to what is to come in her first budget on 30 October. In addition to her being the first woman chancellor, her speech was unique in its reliance on upbeat rhetoric. Things are going to get better. We are turning a page; we have a long-term industrial strategy and so on. There may be little harm in striking a positive note. But will it have any effect in the short run, let alone for a longer period? Past experience suggests it will not.
Her primary substantive emphasis was on the goal of promoting economic growth. Again, past experience suggests that annual growth of 1% is feasible. So we should not expect to see too much improvement soon, if ever. Past growth has led us to where we are now. Will future growth, on its own, be any different? The main means of promoting growth, she explained, is a vigorous house building programme. This may be a good thing in itself, but it will not substantially contribute to growth. Growth depends on investment in human and physical capital leading to new products and more efficient production of the existing products. Neither sources of growth flow from investing in houses.
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Taxation was touched on lightly in her speech. There were some encouraging remarks to the effect that plans are in hand to close some of the loopholes arising through the use of trusts to escape taxation. More to the point, I would urge the chancellor to give serious consideration to a wealth tax directed at multi-millionaires and above, not to lucky homeowners. And it should be set at a tiny rate, less than 1% annually, so as not to encourage big jurisdictional moves. And very careful drafting of the legislation is needed to take on the tax lawyers. Only the Green Party is talking about a wealth tax. We can admire their courage and deplore the timidity of the rest, especially Labour.
Gross inequality is a major threat to democracy. The extremely wealthy can use their money both to influence public opinion and more effectively to influence public policy. Market economies have an in-built and persistent tendency towards inequality. Through skill, effort and good luck, some individuals and firms perform better than the average. These winners in the competitive process can further their advantage in subsequent competition. Not all will succeed in doing this, but a substantial number will. And so the process goes on, with ever greater concentrations of wealth in the hands of the winners.
The early stages of the competitive process can deal with the problem of excessive inequality through income taxes, capital gains tax and through taxing inheritance. But we are not at the early stages, far from it. The only tool available now is a wealth tax. Some of the extremely wealthy have joined together and are themselves promoting the idea of a wealth tax because of their rightful concern for democratic civilisation.
Of course the conventional means of budgetary control have to be undertaken. But these will only tinker at the edges of our problems. It is time to think seriously about a wealth tax targeted at multi-millionaires and billionaires. This is not the politics of envy. This goes to the heart of our need for an economy that is fair and that meets the needs of our society.
