It’s not often I get overtly political in this blog, but perhaps it’s time to try something a bit different. What I’m going to do is sketch out a rough-and-ready policy idea. It’s not terribly well-considered or in-depth, but that’s not the aim: I’m not a political expert, much less a policy wonk.
This blog piece is simply a starting point for a debate. It doesn’t even necessarily reflect my own views. So, have a read, and use the Comments section to leave your thoughts. (Comments are moderated, and anything abusive towards me or any other commenter will be rejected straight away. Other comments are approved or rejected entirely at my discretion, but I’ll try not to be too censorious.)
There is a body of evidence that countries which are more equal – and by that I mean they have a lower differential between the richest and poorest in society – fare better on a number of important measures, such as health and crime. For the purpose of this blog post, I’m going to take that idea as read, and thus that it’s desirable to reduce income differentials.
So, how can we reduce the differential between the richest and the poorest? One answer is a more redistributive tax system. But while I believe that the richest should pay proportionately more in tax than the poorest, surely it would be fairer if the distribution could be evened out at source, thus reducing the requirement for highly redistributive taxation and the inherent problems it creates.
(For the record, I don’t advocate complete pay equality, because there needs to be room for social mobility and a link between contribution and reward. Just more equality than there is now.)
The public sector is taking steps to move towards a maximum differential between the highest- and lowest-paid in an organisation. Could this work in the private sector? Perhaps, though a government trying to inflict a maximum pay differential on business might feel the wrath of the business world!
But it strikes me that, as a business becomes more successful, the proceeds of that success are disproportionately distributed to those at the top. Without enforcing a maximum salary differential on the private sector, how might we ensure that those on the lowest salaries share equally in the success of a business?
Maybe, rather than enforcing a maximum salary differential, it could be incentivised through the tax system. So, businesses can operate with whatever salary differential they like; but as they reduce that differential, so they pay less corporation tax, on a sliding scale. A company with the median salary differential would pay the same corporation tax as they do now. Companies with lower differentials than the median would pay less corporation tax than they currently do, on a sliding scale, up to perhaps a 15% discount; and those with highest differentials would pay more, up to perhaps a 15% penalty. The figures would be weighted so that, overall, this mechanism would be revenue-neutral for the Treasury.
Given that corporation tax is a tax on profits, and given that companies have a responsibility to maximise profit for their shareholders, such a scheme could just encourage businesses to give more thought to pay differentials. And the idea would not be to drag down the pay of those at the top; but to pull up the pay of those at the bottom, making sure they share more fairly in the proceeds of the organisation’s success.
As I say, this is just a sketch of a policy idea, not a serious proposal, and I’m not suggesting I would endorse its implementation. It is merely a starting point for a debate.
Go!
Tags: pay differential, policy, tax
It’s an interesting idea, but is rather too dependent on corporation tax receipts, which by definition, lag behind business activity by 9-15 months, and not all businesses are in profit & paying it each year.
Tax hikes on the wealthy and redistribution by the state to the poorest are guaranteed to achieve the “desired” outcome of a narrower gap between rich & poor; which is precisely why successive governments haven’t and wont impose them.
This would lead to terrible unemployment. Think about companies with large numbers of low-wage service staff. For them to bring down their salary differential in a meaningful way would cost an awful lot of money, and it would make employing people on the lowest end an expensive thing to do. If a company wants to reduce its corporation tax, it could easily do so by stripping out all redundancy and leaving only the bare minimum staff at the lower end. These are people on the shop floors. These are people flipping my burgers. I don’t want the services I use to be impacted because of tax laws created because of some kind of moral high ground.
This would also be extraordinarily expensive to manage. Look at companies with low-paid call centres, for example. Generally the staff in the call centres are “self-employed”, paying fees to the call centre and receiving commission of some kind when they place calls, sales, etc. If you don’t incorporate these people, you’ll find more companies making the effort to set it up. If you do incorporate these people, you’re creating really massive amounts of work at IR, and they don’t like that at all, and they *will* make it expensive.