Political Promise

The economics of giving: an alternative big society

In Jonny Roberts on October 18, 2010 at 8:00 am

Jonny Roberts writes on his theory of charity, how individuals can replace the role of state in his “alternative big society”.

One of the most contentious elements of economic theory is that humans are self-centred, constantly driven by the goal of personal happiness. In this theory humans who give to charity to do not out of selflessness and a feeling of common good but instead for their own happiness borne out of ‘feeling good about themselves’ or their appearance in society of ‘being a nice guy’.

I’m not here to debate the rights and wrongs of such a theory but if we were to take it as true then there is an alternative option to the big society – voluntary tax.

The idea that the richer in society are willing to pay more, not less tax may seem ridiculous when the Daily Mail is so often outraged at the idea that so-called middle England (not the median average wage earners of £25,000 but those who earn £65,000+, aka the top 5% of earners in the country) pay a penny more in taxation. So often we hear of the country’s millionaires threatening to leave in mass exodus if they are made to shoulder the burden of additional taxation – yet the popular introduction of a 50p top rate tax saw no such exodus and only the most petty and pathetic of Premier League footballers dared speak out against it.

I’m no fan of punitive taxation, we should never return to the 90% tax rates and should always support ambition but certainly during tough economic times as David Cameron says, those with the broadest shoulders should bear the brunt of cuts. The trouble with Mr Cameron, as ever, is that his actions betray his words. Osborne’s economic plan will hurt the poorest and hurt the middle without afflicting serious damage on the wealthiest in our society. Council tax is ridiculous, how can someone living in a £350,000, 4-bedroom home in Buckinghamshire be paying the same rate as the person who lives in a 24-bedroom mansion, complete with acres of land, 10 miles down the road. National Insurance contributions being capped has long been a key cause of complaint from the Unions and they may well have a point – even if only as a temporary measure to support the honourable commitment to real-terms spending increases for the NHS. All of these changes would be enforced however and due to the nature of enforcement – highly unpopular with those who have to pay them.

The first counter to higher tax is to convince those paying that is it is worthwhile. Achieving this is two-fold in itself. Firstly the cause must appear worthwhile, speaking of plugging a deficit hole in the national interest is just as unappealing to the high-earning executive of a fairly ethically business as it is to the street cleaner struggling to get by. ‘The bankers caused this mess and we’re paying for it’ is a hard to argue with statement. Focusing the need for additional tax revenue on the real issues, what will have to be cut (or farmed out to an over-stretched voluntary sector and which raises issues of ‘postcode lotteries’, ironically another bug-bear of the Daily Mail) and making the poignant case strongly – services for looked after children, after school clubs, community support officers in your area, subsidised trainfares for your overstretched workers. The trouble is only the left can only truly make this case, the case that there are some in our society who are too poor and we need to protect them and you my rich friend, can do this. Professor Paul Piff at the University of California, Berkeley claims to have proved that (in the words of The Economist report on his findings) “the rich are capable of compassion, if somebody reminds them, but do not show it spontaneously”. In other words, the case must be made, as it is with things like Children in Need, or Live Aid, that they cause is worthy.

The second element, once you’ve convinced our wealthy friend of the reasoning for his high tax (and crucially convinced him or her not to avoid or evade it) is to prove that government will use the money effectively and efficiently. In this I praise the government for their moves towards increased transparency and hope they continue on this path, extending the publicised spending of all local government spending over £500 to central government too.

The case of voluntary additional contributions is the second stage of protecting programmes from cuts. Ethan Porter has put forward a good case for America, where higher taxes are even more vomit-inducing than in Britain. The idea is basically that people are able to sign up to paying an additional 0.5%-5% tax a year and decide which department or specific area of spending it goes towards. For example a particularly environmentally-conscious billionaire may care to put an additional 3% of his or her annual income towards the Department for Energy and Climate Change whilst a millionaire actor may choose to pay an extra 2% and spend it on the soon-to-be decimated (thanks to Jeremy Hunt’s masochistic inside job – see my previous post and look out for the huge cuts to DCMS in Wednesday’s CSR) Department for Culture, Media and Sport to protect the arts.

The theory goes that as long as people have control over where the money is  going they are much more likely to not mind paying a bit more. Charging people an extra 5% income tax and putting the cash in the general pot makes them angry as they see whatever project they particularly dislike being funded with ‘their’ money – for example our environmentalist billionaire watches their taxes wasted (in their opinion) on policing when he/she is also fairly liberal towards crime. This also opens an argument for more hypothecation in general. National Insurance has been destroyed from its original purpose in many senses, returning it to an entitlement to certain things – free healthcare, a state pension, unemployment benefit etc. would be a good step so that everyone can see the direct benefits of their NI, otherwise you might as well merge it with income tax.

Hypothecating alcohol duties so that 50% of revenue goes to the NHS and 50% to policing would make rises in alcohol duties more popularly acceptable as the funding goes directly to the health service that deals with the increased liver diseases and Saturday night trauma as well as the police who have to deal with the latter. Likewise hypothecating tobacco duties 100% to the NHS breaks down the old argument of smokers costing the NHS so much each year – not if they are paying for it.

But what if, as I mentioned at the beginning, alongside making ourselves feel good, as additional tax contributions mentioned above no doubt would, we want to pay more to charity because it makes us look good. Well tax could be treated the same. Each person paying more voluntary tax could also have the option of having their name added to an annually published list. Their goodwill would be on show for the newspapers to report and the world to see. If Sir Richard Branson gives 5% more, he ramps the pressure up on Sir Alan Sugar to do the same. Of course it becomes much more localised than that, Dave over the road with the new conservatory isn’t on the list but Ben (who already has a conservatory and has irked competitive Dave with his new loft conversion) is on the list as having paid 3% extra, you bet competitive Dave decides to pay 3.5% next time around. Speaking of Daves, Mr. Cameron should know all about this, its called nudge theory and comes from the ideas of Thaler and Sustein whom Cameron (and Obama) reportedly takes great inspiration.

All these policies have the effect of democratising economics from the Chancellor to the people, handing people more control over how we pay for the services we expect to receive, not simply choosing between which party will cut one particular tax or raise another when the money all ends up in the same pot in the end. It can end tensions, breaking down the barriers between smokers and non-smokers as I mentioned earlier, but between the rich and poor – now if that’s not The Big Society then I don’t know what is.

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