Thomas Piketty speaks to the Department of Economics at the University of California, Berkeley on April 23, 2014. Photograph: Getty Images.
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Interview: Stewart Wood responds to Thomas Piketty

The Labour peer and Miliband strategist on how the party would seek to reduce inequality.

Thomas Piketty was in parliament yesterday to discuss his book Capital in the Twenty-First Century with Labour peer and Miliband strategist Stewart Wood. Shortly before the event, I spoke to Wood about Piketty's work and about how Labour would seek to reduce inequality.

Q: How do you think Labour’s existing policies respond to Piketty’s thesis?

A: What Thomas has provided is an intellectual foundation for a lot of the things we’ve been talking about, which is the sense that, particularly in the last 30 years, but more broadly, there has been detachment of wealth-earners and income-earners at the top end of the scale from the rest of the country - and this isn’t just a concern for people on the left who care about inequality, this is a concern for people who care about the health of the market economy, and what’s encouraging is that people on the right of the political spectrum share this worry as well.

What the book suggests is that you have to understand the nature of capital if you want to get the solutions right. We’ve talked about a mansion tax, we’ve been prepared to talk about the top rate of income tax going back to 50p.

We’ve also talked about this horrible word “predistribution”, which is getting at the heart of something that Thomas talks about in the book, which is that if we really think that the drivers of inequality rest with the distinction between capital returns being high and growth incomes being lower than you have to think about ways in the long-term that you can redistribute assets so that people can get access to greater income-earning potential beyond what they just earn in their jobs. That is the biggest challenge for us and that points you in areas to do with education but also areas to do with the workplace, and I think that Labour in the recent past hasn’t taken the idea of the workplace as seriously as I think we now need to.

Those are the areas of focus, and in a mansion tax and income tax we’ve got some response on the tax agenda. There are areas in education and human capital where we need to respond further.

Q: Beyond a mansion tax, what about wealth taxes more generally? Is that something you’ll be looking at for the manifesto?

A: I’m not sure the global wealth tax in the last section of Thomas’s book is going to be in the Labour manifesto, I suspect it won’t. But I think beneath that, in that section, there’s a lot of very interesting stuff about transparency of asset ownership and capital, about international cooperation, and that is in the grain of things we’ve been talking about.

Q: There’s obviously a national dimension to this, but there’s also an international one. In a globalised era, some question whether you can have social democracy in one country any more. What do you think are the changes needed to avoid a race to the bottom?

A: There are clearly forces, to use Thomas’s terminology, of divergence and convergence here. In some respects, you can’t have a structured approach to financial capital, for example, without taking international cooperation seriously, of course that’s right. Governments left and right have realised that, although progress internationally has been pretty slow so far, but you need to have a consistent approach across the continent and globally more generally.

In other respects, I think you can make progress as a nation-state. I passionately believe that if you take the idea of making our educational policy work for the benefit of those who don’t have access to inherited wealth and existing wealth, but you actually make the education system effective, in spreading the ability of people to earn greater money and to access capital, I think that gives us a massive productive advantage as a country, it goes with the grain of those who care about being competitive as an international economy as well as those who care about distribution and social justice, so there are things you can do at the national level.

Q: Does it worry you that the legitimacy of the EU, the institution that more any other has the ability to set cross-national standards, is being questioned as never before, and that the potential for it to go further is now so limited?

A: I think that you’re right that we live an era when people’s faith in the European Union, not just in Britain but elsewhere, as a body that can set standards across countries is weakening, there’s no doubt about that. Part of our job as a Labour Party that passionately believes in the European Union is to seek to be reformers of it, so that over time, I’m not saying you can do this overnight, but over time, you can get some more faith in a reformed EU’s ability to make those kind of decisions, so it’s a long-term challenge but it’s the right one for us to be taking on.

Q: Looking further ahead, do you have a sense of how much a future Labour government could reduce inequality by?

A: I worked in the New Labour government and we did a huge amount of redistribution and investment in public services that benefited the bottom 50 per cent and we still saw inequality creeping up, so I’m not underestimating the ability of one government in one period to reverse the trends that Professor Piketty’s book talks about across centuries.

But we do need to make the pursuit of a more equal Britain something that is fundamental to policy, from education, to Treasury policy, to industrial policy. I don’t think it’s the only thing that matters, but it’s a crucial thing that matters and it gets at the heart of something in our country that is not working at the moment, which is squeezed incomes in the middle that don’t have sufficient skill levels and where there’s a productivity problem. We need to address the problem of our national competitiveness at the same time that we address the pressures on people in the middle and the bottom of our income distribution.

Q: Do you think you could enshrine that focus on reducing inequality in law or through a particular institution?

A: I’m not sure that targets in this area are the way forward. The trends are so multiple and so difficult that I think just setting an arbitrary target is not the way to do this. What you need here, maybe it’s old fashioned, but you need a debate, you need resolve, you need it to be in the bloodstream across the political spectrum. I don’t think it should just be the ambition of the Labour Party, it should be the ambition of all politicians to seek to build a country where you don’t have this detachment of those at the top from the rest, I think that’s bad for a country whatever your politics.

George Eaton is political editor of the New Statesman.

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Theresa May gambles that the EU will blink first

In her Brexit speech, the Prime Minister raised the stakes by declaring that "no deal for Britain is better than a bad deal for Britain". 

It was at Lancaster House in 1988 that Margaret Thatcher delivered a speech heralding British membership of the single market. Twenty eight years later, at the same venue, Theresa May confirmed the UK’s retreat.

As had been clear ever since her Brexit speech in October, May recognises that her primary objective of controlling immigration is incompatible with continued membership. Inside the single market, she noted, the UK would still have to accept free movement and the rulings of the European Court of Justice (ECJ). “It would to all intents and purposes mean not leaving the EU at all,” May surmised.

The Prime Minister also confirmed, as anticipated, that the UK would no longer remain a full member of the Customs Union. “We want to get out into the wider world, to trade and do business all around the globe,” May declared.

But she also recognises that a substantial proportion of this will continue to be with Europe (the destination for half of current UK exports). Her ambition, she declared, was “a new, comprehensive, bold and ambitious Free Trade Agreement”. May added that she wanted either “a completely new customs agreement” or associate membership of the Customs Union.

Though the Prime Minister has long ruled out free movement and the acceptance of ECJ jurisdiction, she has not pledged to end budget contributions. But in her speech she diminished this potential concession, warning that the days when the UK provided “vast” amounts were over.

Having signalled what she wanted to take from the EU, what did May have to give? She struck a notably more conciliatory tone, emphasising that it was “overwhelmingly and compellingly in Britain’s national interest that the EU should succeed”. The day after Donald Trump gleefully predicted the institution’s demise, her words were in marked contrast to those of the president-elect.

In an age of Isis and Russian revanchism, May also emphasised the UK’s “unique intelligence capabilities” which would help to keep “people in Europe safe from terrorism”. She added: “At a time when there is growing concern about European security, Britain’s servicemen and women, based in European countries including Estonia, Poland and Romania, will continue to do their duty. We are leaving the European Union, but we are not leaving Europe.”

The EU’s defining political objective is to ensure that others do not follow the UK out of the club. The rise of nationalists such as Marine Le Pen, Alternative für Deutschland and the Dutch Partij voor de Vrijheid (Party for Freedom) has made Europe less, rather than more, amenable to British demands. In this hazardous climate, the UK cannot be seen to enjoy a cost-free Brexit.

May’s wager is that the price will not be excessive. She warned that a “punitive deal that punishes Britain” would be “an act of calamitous self-harm”. But as Greece can testify, economic self-interest does not always trump politics.

Unlike David Cameron, however, who merely stated that he “ruled nothing out” during his EU renegotiation, May signalled that she was prepared to walk away. “No deal for Britain is better than a bad deal for Britain,” she declared. Such an outcome would prove economically calamitous for the UK, forcing it to accept punitively high tariffs. But in this face-off, May’s gamble is that Brussels will blink first.

George Eaton is political editor of the New Statesman.