Welcome back the taxman

February 25th, 2009 by Administrator | Posted in Articles |

Watching the debate about the RBS bonuses over the past week, I’ve been waiting for someone to utter the T word. When the executives pleaded that any claw-back would penalise the vast majority of their high street staff who earned under £17,000 per year, I began shouting this word at the telly. When Vince Cable came on to condemn the bonus culture and didn’t even mention it as an option, I lost my rag.

It is some reflection of how much we have allowed the financial establishment to dictate the agenda over the past 20 years that not a single frontline politician from any of the mainstream parties was prepared to advocate an increase in taxation as the mechanism for giving the executive bonuses back to the taxpayer.

Previous Labour governments have not shown such timidity when confronted with the unacceptable face of capitalism. In the past, Labour chancellors introduced a surtax to curb earnings that were excessive.

Alarm bells will be ringing at the Adam Smith Institute at the sight of that last sentence and a flash mob of free-marketeers will doubtless assemble in the comments section below to parrot the old saw that we now live in a globalised marketplace and that our tax rates have to be low in order to attract the best talent. But that’s what we’ve been doing since the Big Bang in 1986, and where has it got us? The public mood is turning. Those who were handsomely rewarded during the deregulation boom must be seen to share the pain along with everyone else now that the bubble has burst.

Surtax offers an immediate remedy to excessive bonuses and, by linking it to average earnings, it could play an important part in setting the tone for the new economic model. The Treasury should set a limit on what we as a society believe to be the maximum that a person should earn in any single year – 20 times the average wage might be a fair place to start. Below that level, taxation would remain as it is now, but above the threshold, surtax would kick in and any remuneration would be taxed at 95p in the pound.

Those whose memories stretch back to the days before decimal currency might recognise this as the 19 shillings in the pound that the Beatles whined about having to pay in their song, Taxman. “Let me tell you how it will be / one for you and 19 for me / cos I’m the taxman,” wrote George Harrison on finding out where his earnings were going. Surtax was as much a part of the swinging 60s as the Fab Four, playing a key role in a decade that saw the gap between the rich and poor in this country narrow significantly.

Its reintroduction now would allow the banks to pay their contractual bonuses to employees, while only those earning more than £500,000 would be hit. Rather than attracting the kind of “talent” who have treated the financial markets like their own private casino, such a move might produce bankers who value that quintessential British characteristic of restraint.

This article first appeared in the Guardian newspaper’s Comment is Free section, on 19 February 2009.