The other day Oxfam shocked the world by reporting that, amazingly, a very small number of people in the UK own an awful lot of its assets. To be specific, five of Britain's richest families "own more wealth" than the poorest 20% of the country put together.
I don't doubt that Oxfam are broadly right, and that there are some terrificly rich people out there. I do however rather doubt the conclusions Oxfam and its political allies draw. In his Budget tomorrow Oxfam calls on George Osborne to launch "a fresh assault on tax avoidance and introduce a living wage . . . and explore the possibility of a wealth tax".
Firstly, I very much doubt whether Oxfam understand the way statistics work. When you take any group of data, almost all the results tend to clump around the middle. Away from the middle, there are outliers. Any statistician will tell you that in a graph of asset distribution there will be a few people at the rich end who are are enormously rich (and a few at the poor end who are terrificly poor). It's not news. It's called a bell curve.
Secondly, when it calls for "a fresh assault on tax avoidance" Oxfam makes a revealing mistake. Tax avoidance is legal. Anyone who puts some money in an ISA is engaging in tax avoidance. What Oxfam is really asking for is tax rises, which is fair enough. But you can't have a "fresh crackdown" on something that's perfectly lawful. It's like calling for a fresh crackdown on cycling.
Thirdly, by calling for a "living wage" Oxfam is effectively calling on employers to sack staff. It works like this. Employers have to put up wages. They put up prices in order to cope. People buy fewer goods. The company's turnover falls. Employees get laid off.
(Incidentally, inflation goes up too, so interest rates have to be higher. Some people can't afford to pay their mortgages and some of them lose their houses. Happy now, Oxfam?)
Fourthly, a "wealth tax" is essentially confiscation. That's to say, you earn money and pay tax on it; the Government thinks it might not have taxed you enough, so it then takes some of that money away. Some people hate the rich so much that they would be happy to see the Government just confiscate the assets of the wealthy. Personally I prefer to live in a society where the Government tells you when you'll be taxed, taxes you and then leaves you alone.
The five richest families identified by Oxfam fall into two categories. The first is the hereditaries, one of whom, the Duke of Westminster, owns a good deal of land in Central London. I don't have much sympathy with the Duke, who will have inherited property from his parents and whose contribution to his continuing good fortune has probably been limited to putting his affairs in the hands of competent experts. However he will have paid very large sums in inheritance tax when he came into his money, and I'm absolutely sure he will have an annual tax bill that would make you and I gulp (Think he's not paying enough? Fine. Put rates up and see what he does).
The other category includes businessmen, including the Hinduja brothers and the owner of Newcastle United FC, Mike Ashley. Ashley is a particularly interesting case, because he started a business from nothing , risked his own money and made a fortune, along the way employing many thousands of people, providing the public with a product that they apparently want to buy, and creating dividends for thousands of people with savings they need to invest.
That isn't to say that people like Ashley couldn't endure higher tax rates (although as I've pointed out that isn't what Oxfam is asking for), but nevertheless to portray people like him as rich parasites bleeding society dry is a very, very partial and misleading portrayal of someone, who, given capitalism's limitations, on the whole benefits a lot of people. I couldn't be bothered to go about trying to acquire riches on the Ashley scale, but I'm quite glad to live in a society where people are free to do that if they want, partly because I know a lot of other people, including perhaps myself, will benefit on the way.
The difficulty with Oxfam's analysis of Britain's problems of inequality is not that they're wrong to pinpoint that inequality per se. It is that their prescription is economically illiterate.
Wage growth happens because companies need to compete with each other to attract staff. That happens best when an economy is growing and the labour force isn't. Inequality increased dramatically under New Labour because the pool of available workers increased dramatically from 2004, as Britain took on the best part of a million East Europeans. The consequences of this intake, depressing wages, depressing inflation, depressing interest rates and thereby increasing private borrowing and pushing up house prices, are incalculable. Those who really dislike inequality should now be thinking wistfully about what might have been if the Blair government, like those of all the other richer EU countries, had not suspended the right to work for new immigrants.
The bitter truth about taxation is that if we want to increase the overall take in a way which will take pressure off those at the bottom end, those in the middle will have to pay a lot more. There aren't enough very rich people. Their assets generally take a form which is easy to move around. They have ingenious accountants who recognise that a hurdle is there to be circumvented. Some of them also benefit society by creating wealth for others. Why would we want to discourage them?
