David Cameron this week outlined his admiration for Nigel Lawson's period in the Treasury. This is consistent with his stockbroking heritage.
David Cameron this week outlined his admiration for Nigel Lawson’s period in the Treasury. But is this consistent with his earlier commitments to tackling inequality or the stockbroking heritage he boasted about?
On Wednesday, the Times reported comments made to a gathering of top financiers:
[Cameron said he] was in favour of flatter taxes. “I’m a Lawsonian, basically,” he said. Under Nigel Lawson’s Chancellorship, income tax was cut and other taxes were simplified, but some indirect taxes went up.
The Institute for Fiscal Studies’ ‘Poverty and Inequality in the UK‘ report contains the critical information about Lawson’s years in No. 11 from 1983 to 1989. As the chart below shows, Lawson’s tenure saw the sharpest rise in income inequality that Britain since records began.
As Sunder Katwala at Next Left has recently pointed out, the result of Lawson’s tax policies:
“was massive redistribution to help those at the top while regressive taxes like VAT went up. That Lawsonian approach did not reverse, but instead contributed to, stark increases in poverty and inequality, which Dave is famously against.”
The reason for this dramatic increase is explained by the chart below from the same IFS document. The chart explains how incomes have changed across the distribution. It compares the Labour government (bar chart) with the last Conservative government (black line). It clearly shows how over the respective period, top earners did better under the Conservatives.
Perhaps this is why Cameron was careful to use his Huge Young Memorial lecture to say:
“That doesn’t mean we should be fixated only on a mechanistic objective like reducing the Gini co-efficient, the traditional financial measure of inequality or on closing the gap between the top and the bottom …
“And we should focus on closing the gap between the bottom and the middle”
After all, attacking the top would mean attacking his heritage. From the same Times article:
“My father was a stockbroker, my grandfather was a stockbroker, my great-grandfather was a stockbroker.”
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16 Responses to “Why Cameron’s stockbroking heritage explains his love for Lawson”
Josh
Anon, LabourList is like the Daily Mirror, a rag. I was apprehensive about visiting this blog. I am naturally sceptical of people who call themselves progressives because they are generally stuck up imbeciles who believe they are thoroughly nice people and that everyone else is backward, antediluvian and they paint libertarians as people who slaughter babies in German forests whilst chanting to our capitalistic demon Gods. Mr Straw is a little less patronising than the stereotypical leftie.
Anyway, my job in life is to expose the hypocrisy of left wing politics through ‘evidence based analysis.’ I am an advocate of the Austrian School of Economics, developed by Menger, Von Mises, Hayek and Rothbard. The Chicago and Keynesian Schools both failed to predict and explain this crisis because they rely on computer models. Here is another example of socialist hypocrisy. Those on the Left have been some of the most eloquent critics of the use of computer modelling in economics. They have rightly explained that these models are useless because computers cannot predict human behaviour because there are far too many unexpected external variables than cannot be replicated in a model. However, the same socialists swear by the climate change models, championing them as infallible. The inputs on the models are as fallible as the humans inputting them. The Austrian School eschews computer modelling and complex mathematics. Their creed is Praxeology. Their dismissal of modelling and mathematics means that it is a heteredox economic school, but that dosen’t discount its important contributions to economic debate, such as the Socialist Calculation Problem, as propounded by Professor Von Mises in a classic 1921 paper.
I may have branched out from the original subject matter, but I believe the points I make are important. I hope Mr Straw and his comrades enjoy my company, because I will be stalking this blog forthwith.
Sunder Katwala
Thanks for the post. The graph shows a significant problem with Lawsonism for an egalitarian progressive Conservative like Mr Cameron.
It might legitimately be said that while the New Labour income distribution is a fair bit better for the bottom 40% and less good for the top 40%, it is not as different as many might have hoped. It shows political choices make significant differences, but that the choices have sometimes not been as different as they might have been.
This also reflects the ‘running up the down escalator’ point about governmeent’s mitigating pressures towards inequality. Adding a post or further graph specifically on the distributional impact of the tax/benefit choices which governments made would demonstrate an even greater contrast, and highlights the Cameron dilemma. (It would be nice to think it is at least a dilemma!)
willstraw
Josh – Welcome aboard. It sounds like you’re going to be excellent value so please keep coming back. Your stats are interesting but you’re not accounting for the very steep increase in income at the top of the scale over the same period (as shown in the graphs above). That will account for some of the increased tax take.
For me, the key question is not whether the Laffer curve exists but where the peak is and whether it is symmetrical. Controlling for rises in income, you could probably plot the tax rate and yield to get a sense of the curve. Would you accept that the peak could be around 60%?
Sunder – happy to put that kind of graph in place if you have a sense of where we would find it.
Josh
Thankyou for the welcome Mr Straw, I shall remain civil and courteous, something which you have shown towards me.
As a working class person, I have no problem with people earning what may be considered excessive sums. Although a libertarian, I realise that my ideal society will never exist and government services will always exist, so the more people earn, the more they pay in tax, which means more money for the public services. Without the steep rise you refer too, there wouldn’t have been as much money for public services. If a government borrows money, the supply of loanable funds decreases, crowding out private investment, which can cause unemployment. So if a steep rise increases tax revenue for increased spending, we should be happy.
John77
There are two reasons why the graphs you show are less than useful: one is that the Gini coefficient is so poor a measure that it wasn’t even taught to statisticians when I was an undergraduate, instead we learnt newer and far better discriminant functions, the second is that HMRC are extrapolating from tax paid ignoring the massive growth in non-taxable income (particularly under Brown – I am horrified to find, on checking, that I now have more income from PEPs and ISAs than direct investments). According to this theory when Geoffrey Howe reduced the top rate of tax from 98% to 60% and the tax yield increased, the income of the top few earners jumped by more than 70%. Pull the other one, it has bells on!
The greatest increase in equality since the 1930s has been since 1997. Under all PMs from Churchill through Attlee to Thatcher, inequalities in wealth reduced, but under Blair and Brown the share of wealth of the top 1%, 5%, 10% etc has increased while the share of financial wealth (excluding the house they live in) of the bottom 50% has fallen from 6% to 1%. (HMRC do not provide adequate data for Major’s premiership).
It is my personal opinion that the means-testing of unemployment benefits at a level that excluded anyone with an average car – which he/she might need for his/her work is a significant factor in this horrifying increase in inequality under New Labour.