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Follow The Money

You may not immediately be able to place Paul Johnson, the Director of the Institute of Fiscal Studies, but you would know him if you saw him, which would usually be on the news commenting on government economic policy. He is clearly an intelligent man with a very good grasp of how it all works – or, just as often, how it does not work – but he has a voice that sounds ideally suited to discussions about taxation and spending plans. However, it is his impartiality and wisdom that matter rather than the style of his delivery, and we should all be grateful that people like him are around to hold government to account.

After the firebrand style of Bernie Sanders that I highlighted last week, Johnson’s book ‘Follow the Money’ was a rather more sedate read, but one which was nevertheless compelling in its arguments about why the current system would benefit so much from an overhaul. He also makes it clear why so many of the claims by politicians turn out to be detached from reality, whether through their own ignorance, the shortcomings of the information available to them or the deliberate will to mislead.

He says that it would be possible to change the way we do things, but it would almost certainly take too much political capital from an individual or a political party, and it would anger too many of the vocal pressure groups – not least those who own, write and read the Daily Mail and the Daily Express – for any meaningful restructuring to take place. As Johnson argues throughout, this just leaves the politicians to tinker at the margins, and for all the inequality and unfairness built into the system over so many years to continue.

Johnson is unequivocal in his judgement that the grim reality is that we will all end up paying more taxes in the years ahead if we want to maintain anything like a decent level of public services, but he argues that we should nevertheless be able to raise taxes in a way that is fairer on one hand and causes less economic damage on the other. That we do not do better is not just the fault of politicians, though they certainly bear much of the blame. It is our fault too, because we tend to kick up quite a fuss when changes are mooted. Perhaps more than any other area of policy, tax suffers from what he calls ‘a tyranny of the status quo’.

He highlights that there has never yet been a female chancellor of the exchequer – though this may be about to change if the Labour Party wins the election. When the men therefore stand up on budget day and assure us they are making big and important changes to the tax system, Johnson points out that the truth is they are not. The tax system as a whole has proved remarkably difficult to shift over the years. There are so many ways in which it could be improved, yet in so many ways nothing really changes.

If, like me, you think you know the basics about how government works, I would still recommend this book as a useful refresher. For example, the author reminds us that within the tax system as a whole it is income tax that does the heavy lifting when it comes to reducing inequality. The richest pay at a marginal rate of forty-five per cent. More than a third of adults pay no income tax at all. We are now in the remarkable position whereby the top one per cent of income taxpayers contribute thirty per cent of all income tax. The top five per cent pay half of all income tax, and the top half pay ninety per cent, which means the bottom half pays just ten per cent. Given how many do not pay income tax at all, that means that ninety per cent of income tax is paid by just a third of the population. The rest, a little more than two thirds, pay just ten per cent between them.

I found the chapter on healthcare to be particularly interesting. For example, did you know that NHS hospitals carry out more than 10 million surgical procedures every year? They deal with around 100 million outpatient appointments and there are over 25 million GP appointments every month. No wonder that it costs so much, struggles to be efficient and needs so many managers.

Looking back in history, infant and child mortality more than doubled between the sixteenth and the middle of the eighteenth centuries – for rich and poor alike. In the middle of the eighteenth century, two thirds of children, rich and poor, died before the age of five. As Johnson says, those days are thankfully well behind us, but with better health and longer lives have come big divisions between rich and poor.

Life expectancies went up from 40 years for men born in 1841 and 42 for women, to 45 years for men and 59 years for women for those born in the 1920s. For men, life expectancy at birth had hit 66 by 1951, crawled up to 70 over the next 30 years to 1981, and then shot up by a further nine years in the three decades to 2011. Despite a sharp slowdown in improvements since then, by 2019 life expectancy had reached 79.9 years for men and 83.6 years for women. The health service has played its part in all this, not least through lifesaving vaccinations, but lifestyle changes, including a dramatic reduction in smoking, have also been important.

There is clearly scope for further improvement in life expectancy, but it is the inequalities where Johnson focuses his attention, making the point that men in the wealthiest areas of England (for example, Kensington in London) can expect to live to be nearly 84, almost a decade longer than men in the most deprived areas (for example, Kensington in Liverpool). For women, equivalent life expectancies are 86 and 79.

The gap in healthy life expectancy is even bigger – almost two decades. Those living in the most deprived areas spend nearly a third of their lives in poor health, compared with about a sixth for those in the least deprived areas, and these inequalities are growing. Johnson references Michael Marmot, the world’s leading expert on health inequalities, who concluded in his 2008 review commissioned by the then Labour government, that ‘inequalities in health arise because of inequalities in society – in the conditions in which people are born, live, work and age’. Or, as he put it, ‘Catch the Jubilee Line east from Westminster and life expectancy drops for one year for each station’ (for about six stops).

Johnson also highlights that it is not the case that the poor are concentrated in the north. They are pretty well spread across the country. In fact, London has more than its share of people with very low incomes. There is more inequality within regions than between them, and London is far more unequal than any other part of the country. The big differences between regions are among the rich, who mostly live in London and the Southeast. Around a third of full-time workers in London earn more than £50,000 against just 10% in Yorkshire, the Northeast, Wales and Northern Ireland. The top 1% are hugely geographically concentrated, with very few living outside London and the Southeast. Inequality between the regions is not an inequality of misery, it is an inequality of plenty. The misery, as Johnson concludes, is well spread out; the plenty is not.

I will round up a few other ideas from various financial sources after half term, but I will finish this week with Johnson’s comments on the policy of Levelling Up. He tells us that in different contexts, he is often asked how he would measure whether this much-trumpeted ambition has been a success. He always gives the same answer, directing us to look at the health and mortality figures. We will know the country is Levelling Up when there is a levelling up in healthy life expectancy, which is very far from happening at the moment.

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