Why don’t the super-rich pay down the budget deficit?

There is an alternative to ever-greater austerity for the majority.

One assumption dominates the start of 2012. It will be an extremely grim year as the public starts having to pay down the deficit in real earnest, but they will grudgingly accept the substantial pain involved so long as it is fairly shared. It certainly isn't, however, and the growing realisation of this could well prove the government's Achilles heel in this year's bumpy handling of austerity.

There has been debate about whether the deficit should be cut through a stimulus to growth or through austerity measures, and even if the latter were chosen, how far and how fast the cuts should be inflicted. But there has been no discussion as to whether the pain is being fairly parcelled around. Initial Treasury claims after Osborne's June 2010 budget that the richest fifth of the population would be harder hit than the poorest fifth were quickly exploded when it was shown that this paradox depended on smuggling in the effects of Labour's last two budgets as well. But since then a great deal of new evidence exposes the falsity of this convenient canard.

The 100-page Rich List compiled by Philip Beresford and published last May presented a very different picture. Its analysis found that the 1,000 richest persons in Britain were £60.2bn better off than they were in 2010, and that they were £77.3bn better off in 2010 than they were in 2009. What this means is the staggering fact that just 0.003 per cent of the population, the richest of the rich, could by themselves alone pay off the entire deficit of £127bn and still leave themselves £10bn in surplus. Yet in the absence of a wealth tax, a mansions tax, a land value tax or a supertax on excess gains they are being required to make hardly any contribution at all to deficit reduction, even though many of them were directly involved in causing the financial crash in the first place.

This is all the more remarkable that such colossal gains accrued to such a tiny group of super-rich people when the vast majority of the population were being forced into stringent belt-tightening. In 2010 and 2011 full-time workers right across the earnings range have seen their real earnings decline. Nor was this just a temporary freak winner-takes-all for Britain's richest. In 1997 the richest 1,000 persons had assets of £99bn; by 2011 their assets had grown to £396bn. This means that the increase in their wealth over this period was almost two-and-a-half times the size of the total budget deficit. In terms of fair shares, one might expect they would be required to pay down at least a sizeable chunk of the nation's overdraft.

Whilst these are the facts about wealth in Britain today, the position on the distribution of earnings is equally damning. The OECD report 'Divided We Stand', published last month, showed that the top 1 per cent, those earning over £150,000 a year, doubled their share of the nation's total income from 7.1 per cent in 1970 to 14.3 per cent in 2005. Even more significantly, the share taken by the top 0.1 per cent, those with an average annual income of £1.2 million, jumped to 5 per cent. At the other end of the scale the share of the bottom quarter of the population was only 9.6 per cent. This means that the highest-paid 30,000 earners were taking home the same amount of money as the lowest-paid 4.5 million, a ratio between top and bottom of 150:1. The onus however between rich and poor in paying down the deficit represents almost exactly the opposite ratio.

As a result of the switch from the retail prices index to the significantly lower consumer prices index in uprating benefits, the cap on housing benefit payments, the doubling of the pension contribution rate for public sector workers, the pay freeze and real terms pay cuts, and the disproportionate dependence of the poorest households on public expenditure, the burden of paying back the deficit falls overwhelmingly on the bottom third of households. For the richest, by contrast, the burden is payment-lite. The balance between expenditure and benefit cuts on the one hand and tax increases on the other as decreed by Osborne is 77:23 per cent, and of the latter 23 per cent half is accounted for by the rise in VAT which falls most heavily on the poorest households.

In terms of fair shares in the pay-down this is gratuitously up-ended. Data published last month showed that the bottom tenth of earners got a 0.1 per cent rise in pay in the previous year, while over the same period the rise for FTSE-100 directors was 49 per cent. The month before the published accounts of the canteen catering firm Compass Group, a typical FTSE-100 company, revealed that the pay of the chief executive Richard Cousins was £84,615 a week whilst the average pay of his staff, many of them dinner ladies, was £240 a week, a ratio of 352:1. Yet the deficit charge on Mr. Cousins and others like him, unlike that on his dinner ladies, will be relatively paltry.

Even where the Labour Government had made a small start in focusing payback on the better-off, Osborne has now reversed it. In 2009 tax relief on pension contributions amounted to £20.6bn, of which £14bn or two- thirds was concentrated on higher-rate taxpayers. The 2009 budget then announced that the 40 per cent higher rate pension tax relief would be tapered down to 20 per cent for those with incomes of £150,000, with effect from April 2011. One of Osborne's first acts was to repeal it.

The St. Paul's Occupiers were right about the 1per cent against the 99 per cent, except that the inequality and the unfairness that goes with it are more extreme than even they imagined. Most people have been persuaded that they must now endure grinding austerity for years and years ahead because there is no alternative. But actually there is.

Michael Meacher is Labour MP for Oldham West and Royton.

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Is TTIP a threat or an opportunity?

TTIP offers potentially huge opportunities to both Europe and the US - we should keep an open mind on what the final agreement will mean.

Barack Obama made it abundantly clear during his visit to the UK that if Britain left the European Union then it would be quite some time before we would be able to negotiate a trade deal with the United States. All the more reason to examine carefully what the Transatlantic Trade and Investment Partnership (TTIP) will mean for the UK. For Labour this is especially important because a number of trade unionists and Party members have expressed concerns about what TTIP could mean.

The economic worth of such a partnership between the European Union and the US has been questioned and it has been frequently stated that TTIP could give multinational companies unprecedented influence and undermine the British NHS.

With regard to the economic benefits of TTIP there are few that would argue that there are no economic gains to be achieved through the partnership. The question is to what extent economic growth will be stimulated. On the positive side the European Commission has argued that an agreement could bring economic gains of between €68 billion to €119 billion per year to the EU (0.3% to 0.5% of GDP) and €50 billion to €95 billion (0.2% to 0.4% of GDP) to the US. For Britain, this means that an agreement could add up to £10 billion annually to the UK economy.

On the negative side, a study commissioned by the European United Left/Nordic Green Left Group in the European Parliament has maintained that TTIP would bring only “limited economic gains”. These gains have to be weighed, it was argued, against the “downside risks”. Those risks have been identified as coming from the alignment of standards in areas such as consumer safety, environmental protection and public health.

These are important concerns and they should not be quickly dismissed. They are made all the more important because the existence of already low tariffs between the EU and the US make the negotiations to reduce non-tariff barriers to trade all the more significant.

There are a number of areas of concern. These include food standards and the regulation of GM crops and the worry that the EU’s focus on applying the environmental precautionary principle might be weakened. The European Commission, which has a responsibility for negotiating TTIP on behalf of the EU, is however acutely aware of these concerns and is mindful of its legal responsibility to uphold, and not to in any way weaken, the agreed legal standards to which the EU adheres. A concern has been expressed that irrespective of what European law may say, TTIP could undermine those standards. This I find difficult to accept because the ‘rule of law’ is absolutely central to the negotiations and the adoption of the final agreement.

But the EU is mindful of this concern and has brought forward measures which have sought to address these fears. The latest proposals from the Commission clearly set out that it is the right of individual governments to take measures to achieve public policy objectives on the level that they deem appropriate. As the Commission’s proposal states, the Agreement shall not affect the right of the parties to regulate within their own territories in order to achieve policy objectives including “the protection of public health, safety, environmental or public morals, social or consumer protection or promotion and protection of cultural diversity”.

Of course, this is not to suggest that there should not be vigilance, but equally I believe it would be wrong to assume the theoretical problems would inevitably become reality.

The main area of concern which has been expressed in Britain about TTIP relates to the NHS and the role of the private sector. Under the Investor-State Dispute Settlement (ISDS) provisions investors would be able to bring proceedings against a foreign government that is party to the treaty. This would be done in tribunals outside the domestic legal system. If a Government is found to be in breach of its treaty obligations the investor who has been harmed could receive monetary compensation or other forms of redress.

The concern is that the ISDS arrangements will undermine the ability of democratically elected governments to act on behalf of their citizens. Some have maintained that measures to open up the NHS to competition could be made irreversible if US companies had to be compensated when there is a change of policy from a future Labour Government.

In response to these concerns the European Commission has proposed an Investor Court System. This would be based on judgements being made by publicly appointed and experienced judges and that cases would only be brought forward if they were precisely defined. Specifically, it is proposed that cases would be limited to targeted discrimination on the basis of gender, race or religion, or nationality, expropriation without compensation or the denial of justice.

Why, you might ask, is there a need at all for a trans-national Investor Court System? The reason in part lies in the parlous state of the judicial systems in some of the relatively recent EU accession countries in Eastern Europe. To be frank, it is sadly the case that there are significant shortcomings in the judiciary of some countries and the rule of law is, in these cases, more apparent than real. It is therefore not unreasonable for investors to have an international framework and structure which will give them confidence to invest. It should also be noted that there is nothing proposed in TTIP which contradicts anything which is already in UK law.

We need to remember too that this is not only about US investment in Europe, it is also about European investment in the US. No US-wide law prohibits discrimination against foreign investors, and international law, such as free trade and investment agreements like TTIP, cannot be invoked in US courts. The Investor Court System would therefore benefit European companies, especially Small and Medium Sized Enterprises. 

It is of course impossible to come to a definitive conclusion about these provisions because the negotiations are ongoing. But it would surely be unwise to assume that the final agreement would inevitably be problematic.

This is especially true regarding the NHS. Last year Unite the Union commissioned Michael Bowsher QC to provide an opinion. His opinion was that “TTIP does pose a threat to a future government wishing to take back control of health services”. The opinion does not express a view on whether TTIP will “force” the privatisation of the health service (as some have claimed) and Bowsher admits that much of the debate is “conducted at a rather speculative level” and he has been unable to produce any tangible evidence to support his contention about future problems. On the other hand, it is the case that there is nothing in the proposed agreement which would alter existing arrangements for compensation. There are of course many legal opinions which underpin the view that existing legal arrangements would continue. While I accept that it is theoretically possible for the Bowsher scenario to occur, it is nevertheless extremely improbable. That is not to say that there ought not to be watertight safeguards in the agreement, but let us not elevate the extremely improbable to the highly likely.

A frequently heard criticism of TTIP is that the negotiations between the US and the EU are being conducted in ‘secret’.  Greenpeace, for example, has strongly sought to make this a central part of their campaign.  Although the Commission publishes EU position papers and negotiating proposals soon after they are tabled, it is impossible to see how complex negotiations of this kind can be practically conducted in public.  However, I believe that the draft agreement should be made public well before the final decisions are taken.

Once the negotiations have been concluded, the draft agreement will be presented to the European Council and the European Parliament, both of which have to agree the text. The European Council is, of course, made up of representatives of the governments of the EU and the European Parliament is democratically elected. Both Houses of the British Parliament will also debate the draft and there will need to be parliamentary approval of the agreement.

Transparency and democratic scrutiny are two things which there cannot be too much of. But, in practical terms, it is difficult to see how there could be more of either without making it nigh on impossible to secure such a complex agreement. Unite, of which I am a member, and others are quite right to express their concerns about TTIP, but let’s not exaggerate the potential difficulties and let’s not assume that the worst case scenario will always come about. TTIP offers potentially huge opportunities to both Europe and the US, and we should therefore at least keep an open mind on what the final agreement will mean.

Wayne David is the Labour MP for Caerphilly and is Shadow Minister for Political Reform and Justice. He is a former Shadow Europe Minister and was a junior minister in the last Labour government.