When the IMF and the OECD concede that the global economy is out of control, we know our world is in serious trouble. The economic crisis is compounded by political paralysis. A new paradigm, or world-view, is needed. Britain now has the historic opportunity to take the lead in charting a new pathway into the future as it negotiates its exit from the European Union.
The old models of social organisation – capitalism and socialism – have been utterly discredited. People realise this, which is why many of them have shifted their allegiance to new political parties that are chanting nationalist and patriotic slogans in place of policies.
Social, economic and environmental crises have converged into the perfect storm of the kind that was anticipated by America’s intelligence agency, the CIA, some 20 years ago, when it published its thesis on the dangers of megatrends. But the solution is not complicated, because all of the socially significant issues are the result of a single flaw in the structure of the economy. They are caused by the perverse tax policies employed by governments.
The £500bn deadweight losses
Communities can be rebuilt and relationships renewed by reforming the tax regime. The immediate effect would be to liberate people so that they can work to achieve their aspirations. Such a strategy, however, requires bold leadership. Few politicians are willing to consider such a strategy. But the opportunity to do so is now forcing itself on the UK. The referendum decision to pull out of the European Union means that the UK has to re-visualise its role in the world.
In Beyond Brexit: The Blueprint, I describe the timetable for how Theresa May’s government can expand the UK economy by slashing taxes imposed on people’s wages, and replacing the revenue with the one charge that does not distort behaviour. By raising revenue via an Annual Ground Rent, the size of the UK market would be expanded by more than what would be lost if the EU imposed tariffs on British exports.
How does this happen? Taxes such as those on corporate profits, consumption and most of the rest of the fiscal tools imposed on the people of Britain result in negative forms of behaviour. The cumulative effect of all those distortions can be summed in one statistic: £500bn. That is the additional annual wealth and welfare which the people of Britain would produce if they were not burdened by Treadmill Taxes.
In 2016, the UK’s GDP was about £1.8 trillion. If the government had substituted the Annual Ground Rent for the Income Tax, VAT and the other bad taxes, GDP would have been something like £2.3 trillion. That is because the incentives to work, save and invest would favour higher productivity in the way people went about their daily lives.
Correcting the last great injustice
When Mrs May sought election as Prime Minister to succeed David Cameron, she committed herself to an ambitious reform agenda. Her government would improve people’s life chances. The economy would be rebalanced to create jobs in the regions. Many fine things would happen – not least, a reduction in the premature deaths of low-income people.
In Beyond Brexit, I explain how Mrs May will fail. Under the current fiscal regime, it is not possible to achieve her goals, for the good reason that the items on her checklist of social woes are logical outcome of the current tax regime. She could succeed, if she adopted the Annual Ground Rent strategy. That claim may seem incredulous, which is why we need to locate the analysis in its historical context.
Tax reform is the modern mechanism for correcting the last great injustice inherited from the past: the theft of the common lands from the four nations that make up the United Kingdom.
- Before the 16th century, many of the commons to which the peasants had traditional access rights were enclosed by the feudal aristocrats. This moved Thomas More to write his famous Utopia, in which he chronicled how the feudal aristocracy had ejected peasants from their land in favour of sheep.
- The state-sanctioned theft of land began in earnest when Henry VIII smashed up the monasteries and abbeys and stole their land in the 16th century. He sold the land cheap to his courtiers. This led to the creation of the commercial land market in the 1540s.
- Through the remaining centuries up to the 19th century, common lands were enclosed by the landlord-dominated Parliament. People lost their access rights – the “commoners” used to graze cattle on or collect firewood from the commons. Ancient rights were wiped out when the aristocracy enacted parliamentary Acts of Enclosure.
This was a history of naked theft. The corrupted aristocracy cashed-in on their privileged positions within the monarchical hierarchy, slowly evolving a parliamentary process in which they became the Top Dogs. That enabled them to pass the laws which legitimised the theft of other people’s land. But to enrich themselves, they also had to scrap the traditional Land Tax, which they did by inventing new taxes (such as on beer and salt) which they imposed on the peasant population.
The outcome of this Grand Larceny was the transformation of the cultures of the peoples of the British Isles.
If traditional access rights to land had been retained, the increase in rents generated by the agricultural revolution in the 17th century would have made it possible for local communities to flourish. The rents would have been invested in community centres, on education, health and infrastructure. Instead of people being driven out of their rural communities in search of work, they would have remained in their home settlements and culture would have evolved in self-satisfying directions. The UK would have been a different society to the one incubated by the rent-seekers.
Instead, the rents were sucked out of local communities and congealed in the monumental county palaces of the petty princes. The landlords regarded themselves as noble characters. They soaked up the rents produced by the peasants and channelled them into their narcissistic escapades. Fabulous country mansions with up to 100 bedrooms were constructed for families of five or six people. Their needs were administered by servants recruited from surrounding villages.
A process of cultural apartheid emerged. This consisted of two layers.
- Layer 1: the nobility created their effete culture – they called it “manners” – in their leisure time. The “idle rich” class was born, which used clothing and language to distinguish itself from people whom they regarded as their inferiors.
- Layer 2: the peoples of the UK were socialised into doffing their caps to acknowledge the superiority of their “betters”. The subservient rural poor (who became “vagabonds”) became dependent on the goodwill of the rent-seekers.
The outcome, today, is a culture that cannot be regarded as an authentic expression of a free people.
Formal slavery and informal slavery
The theft of the land did not assuage the aristocracy’s appetite for rental income. Their lust became the impetus for grabbing land in the New World. With permission of the Crown, they staked out their plantations in Carolina, but in doing so they created a problem. They did not want to work the land themselves. But the indigenous population could not provide them with the workers they needed. The solution: purchase people from Africa. Deals were done with Arab slave traders, and Bristol merchantmen sailed their loads of human cargoes to the West Indies and America. Thus, slavery became embedded in the noble culture of Britain. Slavery was abolished by Act of Parliament in the 19th century. The slave owners were compensated for the loss of their property. The emancipated slaves received not a penny of compensation.
The land was not freed: its social status was not restored. But to achieve that belated justice, it is not necessary to take land away from anyone. All that has to be done is revert to the ethical pricing system: You keep what you create, and you pay for what you receive. By adhering to this principle, people’s wages can be untaxed. And the rents which are created by the services of nature and of society would end up in the public purse, to be shared equally by everyone. Thus would the last great historic injustice be terminated.
Attempts were made in the 20th century to correct that injustice (in the budgets of 1909 and 1931). Laws were enacted to reinstate the Land Tax, but Parliament failed to enforce its own legislation.
If Theresa May adopted tax reform as her mission, she would end a five centuries-old injustice. The peace and prosperity that would emerge in the British Isles would become the beacon of hope for the rest of our troubled world.
- Beyond Brexit: The Blueprint, London: Land Research Trust. Available online here