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A short history of the social rights myth
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The income tax mess
COMBINED INCOME TAX AND NATIONAL INSURANCE RATES 2008-12
2008/9
| £ 0 – 4,525 | 0% |
| £ 4,525 – 6,035 | 11% |
| £ 6,035 – 40,040 | 31% |
| £ 40,040 – 40,835 | 21% |
| £ 40,835 + | 41% |
2009/10
| £ 0 – 4,940 | 0% |
| £ 4,940 – 6,475 | 11% |
| £ 6,475 – 43,875 | 31 % |
| £ 43,875 + | 41 % |
2010/11
| £ 0 – 4,940 | 0% |
| £ 4,940 – 6,475 | 11% |
| £ 6,475 – 43,875 | 31% |
| £ 43,875 – 100,000 | 41% |
| £ 100,000 – 106,475 | 61% |
| £ 106,475 – 140,000 | 41% |
| £ 140,000 – 146,475 | 61% |
| £ 146,475 + | 41% |
2011/12
| £ 0 – 6,535 | 0% |
| £ 6,535 – 43,875 | 31.5% |
| £ 43,875 – 100,000 | 41.5% |
| £ 100,000 – 106,535 | 61.5% |
| £ 106,535 – 140,000 | 41.5% |
| £ 140,000 – 146,535 | 61.5% |
| £ 146,535 – 150,000 | 41.5% |
| £ 150,000 + | 46.5% |
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Obama the Swede
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The 'Onset' of madness
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The current debate on the ever Quote of the day
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The Turner Review: a case of poacher turned gamekeeper?
Adair Turner, the former McKinsey consultant who now heads the FSA, published his much-heralded regulatory response to the global banking crisis last week. By all accounts, Gordon Brown will use the report as the basis for his initiative to re-regulate the world’s banking markets at the G20 Summit due to be held in London next week. While the report includes some telling insights into the current credit crisis, described in the opening paragraph as “arguably the greatest crisis in the history of finance capitalism” it is fundamentally flawed in its approach to the daunting task ahead. The report sets out a raft of new initiatives: higher capital adequacy margins; closely monitored liquidity regulation; greater oversight of hedge funds; curbs on bankers’ bonuses; rating agency oversight; and what is referred to as “intrusive and systemic supervision”. Yet in truth what is needed is not so much a stack of new regulation, but a regulatory regime that enforces the existing rulebook while eliminating regulations that are either unnecessary or unenforceable.
Turner, very much a New Labour technocrat, has been undertaking a tour of the television studios to pronounce that markets cannot be trusted to be self-correcting. In this context, he likes to refer to recent academic work by behavioural economists, notably Robert Schiller, and the self reinforcing herd effects observed by Nobel Laureate Daniel Kahneman, Paul Slovic and Amos Tversky in their classic work, Judgment under uncertainty: heuristic and bias.
However, a crucial factor contributing to our current financial malaise was the fact that the regulator, in the shape of the FSA, which has a payroll of over 2,500, did not fulfil its statutory role in providing robust regulatory oversight. In the case of Northern Rock, for example, the FSA failed to monitor the bank’s increasingly risky activities. Indeed, FSA officials did not even bother to write up notes on meetings with the bank, nor did it conduct any benchmark comparisons with the way in which the bank ran its business.
Lord Turner wants to implement a raft of new regulatory controls on banks and other financial institutions operating in London. He also favours hiring many more regulators – 200 specialists have already been hired – and paying them handsomely. This threatens to encourage many firms in the sector to move to more congenial jurisdictions. It would be far wiser to implement the existing regulations and jettison the rules that proved redundant or incapable of rigorous enforcement.
From 2000 to 2006 Turner earned a good living as Vice Chairman of Merrill Lynch Europe, a leading investment bank that was rescued from bankruptcy last year by Bank of America. It is noteworthy that neither the American or British regulatory authorities intervened to curb the risky strategies pursued by Merrill, which never missed an opportunity to promote its brand image as the ‘thundering herd’. Nor for that matter does one remember Lord Turner speaking out at the time about the apparently remunerative business initiatives followed by his well-paid colleagues.
While bankers have certainly demonstrated that markets are rarely perfect, there is also such a thing as regulatory failure. The FSA in Britain and the SEC in the US demonstrate that regulators were often asleep on the job, and that the panoply of rules and regulations were simply not applied. Before heading down a path triggering many new and costly statutory requirements, regulators would be well advised to focus on how they can implement existing regulations in a more effective manner.
Keith Boyfield is the chairman of REG, the ASI’s regulatory evaluation group.
A short history of the social rights myth
Today, many industrialized nations have developed a multitude of social programmes, and these have become so entrenched that theorists, and politicians alike, claim the ‘right’ of citizens to their services. We are told we have a right to health care, education, unemployment insurance, and so on. Indeed, Jack Straw, the UK Justice Minister, recently proposed to codify these entitlements in a new British Bill of Rights. But do we, as citizens of developed nations, actually have these rights?
The development of ‘rights’
The term ‘right’ has come to characterize anything to which either the government or the citizenry feel they can make a fundamental claim to – but this is to express a deep misunderstanding of rights and their traditional link to civil liberties. Instead, a definition of rights has evolved which people almost universally accept but which remains false and untrue to their original intention. Rights began as protections against what the state could not do to a citizen; now they have become what the government must do for an individual.
The concept of rights first developed with 17th and 18th Century writers such as Hobbes, whose argument centred on the natural rights of humans to their own life and a freedom to socially contract with one another for protection, and Locke, who argued for non-interference by the state. People found themselves under physical threat from others and formed states to provide mutual protection. They knew that they could better secure themselves collectively than individually. Naturally, given that the state was formed to protect the right to life, the state could not remove that right without the due process. Locke’s contribution was to add liberty and property to the list of natural rights.
Manifestations of these rights appear throughout the great documents of western civilization. By the time of the American Revolution and the publication of The Wealth of Nations (1776), fundamental rights of citizens against their government had been established in England; and soon after enshrined in the United States’ Bill of Rights. These were the rights outlined by a nation newly free of unrepresentative rule, a clear example of the potential abuses of the state. They outlined and reiterated the liberal rights against arbitrary imprisonment and the interference of the state.
By this time, however, a sense was growing of further capabilities of cooperative efforts, beyond national defence and internal policing. Ideas began to form around other activities that people could agree to better achieve collectively, rather than singularly. These were often services that, by their implementation, would benefit the public at large and retained the original spirit of the state as a cooperative effort of individuals to better achieve their idea of the good life. By this time, education and provisions for the ill were often seen as beneficial to society and socially desirable; even Adam Smith, in Book V of The Wealth of Nations, called for a rudimentary education ensured by a government.
Smith paints a picture of a parish tutor, perhaps subsidized by the community coffer but employed primarily by the student’s parents to ensure his effort. Smith’s mention of education might be used to advocate the universal policies of today, but we must remember that his vision of education was drastically different. Smith saw education as a public good that served not just the individual, but also the community: the major benefit being a more educated populace. He argued that, “An instructed and intelligent people besides are always more decent and orderly than an ignorant one.” The education of the populace was so important for the proper functioning of society that public funding may be beneficial, when properly directed.
Smith, however, and the writers of the liberal cannon which followed, never would have referred to education or any other public good as a ‘right’. It was a service that the public had decided would be advantageous to their community, and its benefits were aimed more at the community than the individual.
Over time, however, states began to implement policies and programmes intended to ease the pressure on individuals from certain negative externalities of early capitalism and the Industrial Revolution. In its infant forms, England’s Poor Laws and ‘poor houses’ provided a minimal level of care to keep people from complete destitution. The US had enshrined traditional liberal rights in the Constitution, but by the end of the 19th century many of the newly formed Western states included in their constitutions a guarantee to social services like education, disability and old age care. While these were not federal programmes (not yet), states had enshrined in their constitutions the guarantee to citizens of social services, indicative of the populist sentiment of the day. Although populist ideas were growing, the classical conception of rights continued to have strong advocates. In the 1830s, Jeremy Bentham referred to classic rights not as ‘rights’ but as ‘securities against misrule’. This is perhaps the most accurate characterization of rights in the liberal tradition, disallowing the confusion that has occurred today in the idea of social rights.
The rise of the welfare state
A real turning point in welfare policy came in the first half of the 20th century and in the subsequent changing conception of the state. Before both the world wars, economists like JA Hobson and LT Hobhouse had begun advocating economic interventionism and ‘welfare economics’ – plans to alter the workings of the economic system itself to benefit the poor. After the Second World War this thinking took hold most strongly in Europe and the UK and, to a lesser extent, in the US. Nationalized medicine, pensions, and welfare handouts became the norm in Europe while in the US the policies of the New Deal and Great Society implemented a number of programmes for the very poor or very sick. These programmes reflected a growing thought in the western world that the state could, through planning, could perhaps change the material relations of society to the benefit of all. State planning became paramount, and the belief spread that a proper government could not just alleviate problems, but potentially solve them.
In 1938 Harold Macmillan wrote The Third Way, in which he pushed for an expansion of social programmes. This would become indicative of the post-war political consensus. He outlined what he called the ‘human charter’ of social programmes of the state: “the items [the charter] contained might be presented either as rights that the individual is entitled to demand from society or as obligations that society owes to the individual.” Here is one of the first manifestations of social rights, representative of the perversion of the rights originally formulated by liberal theorists, as well as the ‘public good’ writers such as Smith outlined. Smith advocated a social good, like the education of children, that might be recognized as important to the population as a whole but perhaps not best achieved individually, so that it could be subsidized by a local government to ensure its provision. Examples like the subsidization of medical care, based on the notion that a country is undeniably better off when the populace is healthy, do not stray far from the original intent of Smith’s writings. However, perceived rights to health care and its provision through a centralized and hierarchical system do. They misunderstand the difference between a social good and a right.
The problem with ‘social rights’
The problem emerges when programmes such as the government provision of health care or education become so entrenched that the populace cannot imagine a different state of affairs. The programme is institutionalized and centralized to such an extent that private alternatives seem inconceivable. Soon, people are claiming a ‘right’ to these services, because it has become something which a western liberal government cannot exist without providing, much like a guarantee to free speech or the freedom to practice a religion. Today, many services have been provided for so long that the people begin to see them not as a good public service that the government has endeavoured to provide, but a service to which they hold an intrinsic claim; something no government can deny them.
Macmillan himself, albeit inadvertently, laid out the problems of social rights. In defending the increase in welfare provisions, he argued that the increase isn’t a new idea, but the logical conclusion of an old one – the obligation of a state to its citizens. But as soon as one decides a state has material obligations to its citizens, the possibilities for extension are endless. To what will we have a right next?
A further problem is that the material involvement in the life of an individual opens up that life to state inspection and interference. If the state pays the rent, is the home still a private residence free from intrusion? If the state provides health care can it order you not to smoke, or drink, or eat fatty food? Issues similar to these are arising today because of the heavy involvement of the state. What happens when a right to non-interference and the obligation of a state to interfere collide?
Conclusion
Social programmes and ‘rights to them’ represent a fundamental change in thinking about the state that had begun in the early 20th century but took its true form in the post-war years: that the state could and should manipulate economic conditions and provide social programmes in order to improve the lot of the general citizenry. Macmillan advocated the idea of social rights in 1938. Today, social rights are so accepted that no one need advocate for them, and challenging them has become politically unacceptable. This is a cause for real concern.
The provision or subsidization of locally accountable public goods intended to benefit society as a whole might fall under the natural role of the state, assuming the community agrees to their value. But claiming a right to a centralized and hierarchical programme involving massive state control does not. Indeed, it threatens the legitimate rights citizens have against their government.
Ultimately, people have rights to life, to liberty, and to property. The provision of public goods is simply a matter for the populace and, latterly, the government of the day.
Tories must face the taxing realities
Where do the Conservatives stand on the issue of tax? With the increased possibility of a Conservative Government in power by next June, Dr Eamonn Butler looks at how Cameron could deal with the mess we find ourselves in.
Another week, another Tory tax pickle.
Last week, David Cameron said that the top rate of income tax might have to go up to 45 per cent. His core supporters were not best pleased – add national insurance, and top earners would be seeing two-thirds of their incomes disappear in tax.
This week, Ken Clarke put his Hush Puppies in it, saying that the Conservatives might abandon their pledge to scrap inheritance tax for most people. That didn’t go well with the core voters either. Nor with the millions of middle-class folk who see Gordon Brown grabbing 40 per cent of the family home when mum finally shuffles off.
Tax has troubled the Tories ever since David Cameron became leader. The focus groups told them firmly that the Great British Public simply doesn’t believe that you can cut taxes and improve public services at the same time.
Cameron was desperate to show that his party was caring, concerned, and committed to public services. So he and his Treasury spokesman George Osborne refused to talk tax cuts, however much their voters grumbled about it.
But with the threat of a snap election in autumn 2007, Osborne had to say something about tax. So, at the Conservative Conference, he muttered that, just possibly, and on a good day with a fair wind, he might, maybe, just think about potentially ending inheritance tax for anyone who wasn’t actually a millionaire.
That produced an immediate surge in Conservative poll ratings that took the leadership completely by surprise. They started to see the wisdom of keeping their core supporters sweet. And yet Ken Clarke’s gaffe shows they are still in two minds about tax.
Their problem is the huge hole in the public finances. Conservatives don’t like taxes, which they think stifle the work ethic and economic growth. But they don’t like governments being in debt either.
And this Government is in debt up to its ears. Taxes have gone up by half (in real terms) since 1997, but public spending has expanded even faster.
Gordon Brown has plugged the gap with borrowing, and then more borrowing – so much, in fact, that the International Monetary Fund has been warning him about it since 2003.
It’s profligacy, not prudence, and it’s left us in the world’s fifth largest public debt hole. The Chancellor, Alastair Darling, says that he owes 41 per cent of GDP – £41 for every £100 we earn. But then he and Gordon Brown have taken on lots of other commitments that he doesn’t mention.
I researched the figures for a new book, The Rotten State of Britain. They are truly staggering. There is the cost of all those new schools and hospitals, paid for on tick under the Private Finance Initiative. Guarantees to Northern Rock and Bradford & Bingley, plus other massive bank bailouts. A £21bn guarantee on Network Rail’s borrowing. A £70bn bill for decommissioning nuclear power stations. Those alone more than double the Government’s debt to 89 per cent of our national earnings.
But dwarfing all of these is £1,000bn of pension promises to public-sector workers, and even more for the state pension promised to every retired person.
All in all, I figure that the Government actually owes five times what Alastair Darling claims – a real national debt of £275,000 for every household in Britain.
Getting us out of a debt hole that size won’t be easy. The Brown-Darling policy of simply spending and borrowing even more in the hope of staving off the evil day is a bit like trying to cure a hangover by hitting the bottle all over again.
The Conservatives’ poll lead makes them pretty sure that, sometime around June next year, they will find themselves saddled with this problem.
The only ways of plugging the borrowing gap are to spend less, or tax more – or both. But they are anxious not to be branded as heartless cost-cutters, and don’t want to raise taxes either. Hence their confusion.
My advice would be for them to stick to their principles. They should say firmly that it was big government, big spending, and big borrowing that got us into this mess – and only less of all that will get us out. That Keynesian public works schemes actually cost jobs rather than creating them. That Brown’s cheap-money boom was a disaster and that we need sound money that keeps its value. And that if we are to create jobs and rebuild, we need less regulation, not more of it.
Cameron worries that bringing the public budget back under control will mean massive disruption and perhaps unrest, as it did in the early 1980s.
He’s right. But then the painful adjustment of the early ’80s was followed by a decade of enormous and real prosperity as the economy righted itself. The hangover cure will be unpleasant. But it is the past excesses that make it inevitable.
To order a copy of The Rotten State of Britain by Eamonn Butler from the Yorkshire Post Bookshop, call free on 0800 0153232 or go online at www.yorkshirepostbookshop.co.uk. Postage and packing is £2.75.
Dr Eamonn Butler is director of the Adam Smith Institute. His new book, The Rotten State of Britain, is published by Gibson Square, price £12.
Published in the Yorkshire Post here.
Blog Review 910
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