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‘Incentivising an ethical economics’. Winning Entry for the IPPR Economics Prize 2019

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A radical plan rooted in history

H&P’s co-founder and managing editor, Simon Szreter, is the co-author, with Hilary Cooper, an economics consultant, and their son, Ben Szreter, a charity CEO, of a submission that has jointly won the IPPR Economics Prize 2019. This is the third largest economics prize in the world. Two winning teams from over 200 entrants have been announced today on July 10th.  

The challenge set by IPPR was to present in 20,000 words ‘A radical plan to force a step change in the quality and quality of the UK’s economic growth’. The UK is currently afflicted by low productivity, low investment, high asset prices and housing costs, high inequality and rising child poverty, despite high employment and a regionally-unbalanced prosperity confined to the south-east.

The entry by Szreter, Cooper and Szreter was thoroughly infused with the ethos of History & Policy.  Fully one-third of the submission presented a detailed, revisionist account of the relationship between economic productivity growth and the two highly innovative initiatives in universal social security provision which characterised England’s history 1601-1834 and UK history 1945-1973. The submission then drew from this the generalisable lessons which could be applied in the different predicament in which the UK economy and society finds itself today, after a decade of self-impoverishing austerity measures.

The premise for the radical plan, emanating directly from history, is that generous and inclusive universal welfare provision should be reconceptualised as an absolutely crucial, inclusive economic growth promoter, by facilitating labour and social mobility, not as merely a ‘tax burden’ on the productive economy. It has been proven to perform this function twice before in our history in the two above periods and its abandonment has twice led to faltering and then disastrous declines in national productivity, as is being currently experienced with the much-vaunted ‘productivity puzzle’.

History also shows that the policy key to unlocking this growth-promoter is to devise the correct policy architecture, which incentivises the wealthier and more prosperous individuals within the nation to see it as being in their own interests to devote a significant proportion of their resources and ingenuity to nurturing the productivity, mobility and opportunities of all of their fellow citizens and their children, through investment and participation in the nation’s social security, training, education and health provision.

This winning proposal therefore advocated commitment to two new, incentivised altruistic social contracts to encourage the release of resources from the more prosperous to facilitate opportunities and mobility for the rest of society.

The policy proposals

Firstly, to address both poverty and productivity, corporation tax should be returned to 28%, where it stood before the financial crash and more like the OECD norm, but with the incentive for it to be gradually reduced in the future. This can only happen, however, when national economic targets – agreed with business and trade unions – for productivity improvements, decarbonising the economy, and regional re-balancing of investments are met. Associated with this, incentives to reduce pay disparities with a 60% marginal tax rate on earnings above 10 times the national median. This helps focus attention less on personal pay packets and more on the long-term success of enterprises – the incentive is that, as pay gaps close, fewer people will be subject to the highest rates of tax.

Secondly, an intergenerational contract to set up a National Care Service, modelled on the universalist, free principles of the NHS. This would be supported by a Social Care Citizens’ wealth fund based on reform of inheritance, housing and wealth taxes. The great advantage for all, including the prosperous themselves, would be the liberation of both older and younger generations  from the current ‘dementia lottery’, which can see either substantial inheritances consumed by care needs or the younger generation having to organise their lives around the care needs of declining parents sometimes for many years.

The net effect of implementation of these policies would be a transformational and pro-democratic refocusing of incentives within the economy away from private accumulation of their personal assets in housing, pay and bonuses by a minority of the population, heavily concentrated in the south-east. Instead the resources of society and of individuals in positions of corporate leadership can be released to systematically enhance the sense of security of all members of the population, young and old, so that all children in Britain can grow up in households where there is income security  and in regions of the country where there are genuine and widespread opportunities to pursue their talents in an economy which is working towards green, sustainable growth.

More on the IPPR prize, including the winning entries in full.

Please note: Views expressed are those of the author.

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