Industry | 2009.08.24
The rich must be reined in | Vince Cable
The public are offended by rewards for failure, and by tax-dodging. We have too much of both
This weekend\'s heated exchanges between Alistair Darling and George Osborne on bankers\' bonuses raise the question of why Labour and the Tories have taken so long to respond to popular anger on this issue. Their concerns are not only late: they are very narrow, ignoring the wider issue of excessive pay, and they offer no concrete solutions.
The past decade has seen widening differences in income and wealth, which taxation and regulation have failed to address. When New Labour was first elected, it established the Low Pay Commission to measure the claims of workers for a higher minimum wage against the wider economic impact, particularly on employment. There is now a compelling case for a high pay commission to measure the claims of top earners that their rewards are justified and necessary, even if they offend natural justice and our sense of fairness.
Britain increasingly resembles one of those developing countries whose economy and society are dominated by internationally mobile business managers and a pampered local elite. Most of the natives, outside the prosperous enclaves, count themselves lucky to have a job.
There is nothing intrinsically offensive to most people about talented inventors, entrepreneurs, performers or sports stars benefiting substantially from unique talents that enrich or protect or entertain the rest of us. Even if Bill Gates didn\'t give away a lot of his fortune, most of us wouldn\'t quarrel with his being a very rich man.
There are, however, two things that do cause offence: one is reward without merit, or reward for failure; the other is tax-dodging. We have plenty of both. If a £25,000-a-week footballer is lazy or useless, the crowd provides a public exercise in market-testing. Other talents are less public. That is why all high pay should be publicly declared in a way that directors\' pay already is.
The lazy assumption that the market sets pay rates is at best only partly true of bankers whose institutions are underpinned by state guarantees, or publicly owned after collapsing. Indeed, many industries depend on public contracts. Highly paid public-sector employees are sheltered in varying degrees. We are often told that highly paid talent might emigrate, but immigration controls operate in an opposite sense. I suspect that the number of well paid dentists GPs, media executives and finance directors would shrink rapidly in a fully competitive international market.
There is no need for a return to a 1970s-style income policy for top pay – though, of course, the government is indirectly responsible for funding often outrageous quango pay. It should look at the principles and myths about top pay. For example, the FSA is accused of diluting a commitment to curb bonuses that lead to dangerous risk-taking – on the basis that this might affect the "competitiveness" of the City. This is a dangerous myth. The banking sector guaranteed by the government is almost certainly too big for the taxpayer to underwrite. We should not be afraid to say adieu to investment bankers who think multimillion-pound bonuses are insufficient.
A 50% top rate is unlikely to gather more revenue than a 40% rate when there are gaping anomalies, such as the disparity between tax on earned income and personal capital gains (currently 18%). Britain taxes wealth, particularly property, lightly compared with income – particularly good news for the super-rich.
The public has been remarkably patient about the way some rich individuals and companies get away without paying their proper contribution to the society they live in. I sense that this will change in the next few years as the squeeze on public finance begins to bite.
For more information, please visit
http://www.guardian.co.uk/commentisfree/[...]rs-bonuses-tax-dodging-failure
