EXTENSIVE papers have been published justifying and promoting the Scottish Government’s “independence bonus” and UK government’s “union dividend”. Neither contained a distributional analysis and so the reader can only ponder on who these bounties might ultimately be bestowed.
Will the dividend/bonus be evenly spread across the income distribution? Or will those at the top benefit disproportionately?
The omission is hardly surprising. For despite inequality of income (and to a lesser extent wealth) becoming a major theme of the referendum campaign, no detailed remedies are proposed. Indeed many factors exerting a strong influence over the path of inequality continue to be completely overlooked.
First, inequality reflects deeply embedded asymmetries of economic power. In the UK and US the rising trajectory of income inequality has closely mirrored falling trade union membership and collective bargaining coverage. Across nations there is a clear and sustained relationship between relative bargaining power and inequality: those nations with high trade union membership tend to be those with the lowest income inequality.
Reversing what are long-term trends in most developed nations is hardly a straightforward or short–term project. But it’s difficult to envisage a sustainable solution to inequality if more workers are not to benefit from the protection of a collective agreement. Action on minimum and living wages is a welcome but insufficient response.
Second, something has to be done about finance. Consider this: in the UK between 1979 and 2007, the top 1 per cent of earners increased their share of total income from 5.9 per cent to 15.4 per cent. Fully 60 per cent of this increase was pocketed by financial sector employees although they account for only around one-fifth of such workers.
Is there anyone left out there who genuinely believes that these outcomes were fair reward for talent and effort expended in a perfectly competitive labour market? That in less than 30 years a few senior bank executives increased their productivity to the extent they were worth an additional 6% of total income?
Any viable response must surely lie in structural reform of the sector and an overhaul of the shockingly poor corporate governance endemic in the UK. But corporate governance is a non-issue in Scottish politics and there is nothing – not a squeak – in the White Paper on reform of banking and finance. As confirmed by their recent banking strategy, the Scottish Government has been weak and supine on matters financial.
Third, a sensible debate about tax is long overdue. It seems few (if any?) in the Yes campaign can summon the intellectual honesty to acknowledge that the Nordic society they desire and promote so relentlessly simply cannot and will not be funded on current levels of taxation.
Again, the international evidence is clear: in tackling inequality it is the levels not rates of tax that make a difference. And those countries that sustain higher revenues do so with systems more regressive than the UK’s: everyone has to pay more. This tax take is then used to fund the transfers that reduce inequality. Increasing tax revenues as a share of GDP in a way that is fair and sustainable will be tremendously difficult, but please cease with the Nordic rhetoric if you’re not prepared to give it a try.
Fourth, Scotland must open its eyes to global economic trends which we have developed a prodigious ability to ignore. A global economy characterised by secular stagnation in the developed nations and rapidly increasing automation is one in which inequality is set to flourish. Thinking through these trends and developing ways to mitigate their impact is essential.
The UK is too unequal. Inequality has profound social, political and economic consequences. Effective remedies will not be distilled by howling inanity after absurdity into the cavernous echo chamber of the Indy Left. «
Stephen Boyd is Assistant Secretary of the STUC