Monday, 5 December 2011

Nick Clegg, are you lying to us? “Policy” on income and wealth redistribution is make-believe.

I can’t stand listening to this. The government, Nick Clegg in particular, are frequently on the news, talking about dealing with excessive executive pay levels in the private sector and that how it is unfair that all the “heavy lifting is done by the public sector”. Ok, perhaps, he has a point but how can they deal with it? It is private companies and the owners surely can decide what to pay their staff, unless we are prepared to introduce legislation for “maximum salary” (which would be a very dangerous thing to do unilaterally) but according Clegg this isn’t the case, they just want more “transparency”.

Personally it doesn’t affect me very much, I’m self-employed and 100% of my salary is deposited into the black hole that is my shared bank account and under the tight management of my wife. But it does bother me to listen to this kind of spin, especially since there is no way they could or would implement any real legislation, it would simply be too expensive.

A very simple calculation will tell you why. If you are earning a very high income, you are likely to pay the higher rate tax on most of it. If you ask the companies to retain the income, you would instead receive corporation tax on the money which is about half. It is also fair to assume that banks and other large businesses will use a lot of this additional profit to pay shareholders dividends (and certainly also compensate staff more with share options). Shares that would often be owned by foreigners and therefore the money will leave the country or shares/dividend payments that will be used to transfer income to family members on a lower tax band (and since dividends are franked with a tax credit, it is an excellent tool to reduce your tax liability). Trust me the best, and most transparent, thing is to ask the banks to pay as much in salaries as they can and then take 50% (or whatever) for the common good.  

As long as bankers and other highly paid people continue to burn bonuses on fast cars and strippers, it is more a short term annoyance than a real problem. It is the long term accumulation of assets that is the problem. IF you really wanted to do something for wealth redistribution (not that it’s my personal political opinion necessarily) you would focus on the taxation of assets, not income. That would change things radically.

But I don’t think that will happen either for far less palatable reasons. Although politicians are by exec pay standards earning a low salary, most of the cabinet (23 of 29 I believe) are millionaires. Their families are sitting on vast amounts of assets, typically property portfolios, making tidy sums of lazy income on the side. Nick Clegg himself was born with a giant silver spoon up his arse made by his father in, where else, the City. It might be unfair that some jobs attract higher rewards because of a scarcity of that particular skill, but I believe it is far more unfair that some people inherit huge amounts of income generating assets and never have to lift a finger for it.  So don’t dish it if you can’t take it.

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