Liberal Vision

The sterile politics of distributionalism

Labour bloggers at Left Foot Forward have written a thorough post with their take on the distributional impacts of today’s Budget. They make a case that in percentile terms the Budget is marginally more regressive than progressive.

Nick Clegg conversely has written to Liberal Democrat party highlighting how the budget lays the foundations for a “fairer society”.

What is gripping about both articles though is… not a lot.

The main issue with distribution rhetoric is that it very hard to relate any sense of good, bad, right or wrong to the shape of the Lorenz curve, an economists tool for assessing income distribution, and the associated language of progress and fairness. Equality of income does not tell us whether a society is fair or not. You can have a highly equal society with very little political freedom, and all high tax and spending systems limit your options to choose the good life for yourself.

The quality of political decisions for the long-term cannot be judged coherently on micro-shifts in percentages of averages applied to collectivised deciles today.

Left Foot Forward for example have made a great deal of noise about the fact that raising income tax thresholds does not immediately help the poorest in society. This is self-evident, the very poorest in society don’t have an income, they live on benefits. But what does that tell us?

In substance all it tells us that for LFF it is a better world if more people live on benefits than if they work. They want to entrench poverty. A nonsense position in direct contradiction to the aspirations of the Labour movement to create full employment.

For distributionalists like LFF and in the Liberal Democrats the Social Liberal Forum, it matters not whether gaps between benefits and jobs encourage people to work, or whether allowing people to keep more money they earn, or from investing what they earn, creates more jobs. All that matters is the Lorenz curve looks as straight as possible.

Or at least it matters inconsistently. LFF ‘s negative reaction to the decision to cut an £80m loan to a private nuclear business in Sheffield that would have cost £450,000 per potential job created, on Monday, suggests their progressive principles are disposable when other sectional Labour interests are at stake. The Social Liberal Forum believes the poor should subsidise the children of middle-income parents through university.

In that respect the Clegg missive is more instructive, looking at the actual impact of the budget on real people. Low-income workers for example will take home more of what they earn. But it is all still couched in language that implies there is some end goal in sight where society will be fair.

What a fair society is for most people has very little to do with the Lorenz curve and much to do with their own subjective perspective of what is fair to them.

Income distribution can be an indicator that something is very wrong; in Saudi Arabia for example where a tiny elite control most resources, and restrict the life chances of the rest through authoritarian control mechanisms. But the marginal 2% difference between what the bottom and top 20% of UK society pay in tax (ignoring benefits) tells us little, other than, in that case, that booze and fag taxes disproportionately impact the poor (without that it’s about the same).

There are elements of society that are brutally unfair, that can be tackled, stamp duty for example penalises those wanting to get onto the housing ladder, and the mobile, to the benefit of those with homes staying put.

There are elements that seem unfair and cannot; smart healthy caring parents will more likely (but will not automatically) have smart healthy well-adjusted kids, whatever you do to the education and social support systems. Excellence and success often requires talent, not just a great work ethic and attitude.

And there are many things where it depends entirely where you are standing. The abolition of a flat rate of CGT and replacement with a 28% rate on higher income earners is either progressive social justice or an imprudent imposition on success that will encourage poverty by dissuading investment, depending on your point of view.

But all these matters are best addressed by understanding them discretely and considering the real impact of change on real people, not distributionalist tinkering.

Political debates on the basis of who is the most progressive leave most of the public cold. Nor are distributionalists a factional interest that can ever be satisfied. Child poverty as currently defined, for example, will never be ‘abolished’ ; and if it were, the campaign group would simply change the definition to an ever higher percentage.

The Budget in that regard should be welcomed. In the main it does more good than harm, and the outcome over time should be to put the economy in a better shape for job creation, aspiration, and future growth. That matters. The immediate micro-distributional impacts around it are a footnote not the story. The distributionalists should be ignored.