That the vast majority of us don’t grasp the intricacies of economics is fine, just fine. The vast majority of us don’t grasp theoretical physics either, most of us not having caught up with the fact that it’s not all just quantum these days. And Britain has been famous for a millennium on how the vast bulk of the nation is rather behind the curve on cuisine.
However, when it comes to writing about the subject it does help if those doing so have a clue. Which isn’t obviously the case here with Rob Davies trying to tell us something about inequality.
But then, you know, if the people who produce The Guardian knew anything about either inequality or economics then they wouldn’t approach the two subjects as they do, would they?
The background here is an interesting report from the Institute for Fiscal Studies. The UK’s direct tax system is progressive. The UK’s indirect tax system is broadly neutral – the finding is in contrast to ONS’ view that it’s regressive. The difference being whether you count taxes as a percentage of income or of spending.
Then add in the immensely progressive effect of the benefits system and you get a lovely progressive tax and benefits system:[perfectpullquote align=”full” bordertop=”false” cite=”” link=”” color=”” class=”” size=””]Benefits reduce UK income inequality more than direct taxes do. Before redistribution, the highest-income fifth of individuals, on average, has an income that is 12 times as large as the poorest fifth. Adding all cash benefits and deducting direct taxes (including income and council taxes as well as employer and employee National Insurance contributions) brings this figure down to 5. Benefits account for around 80% of this reduction, while direct taxes account for 20%.[/perfectpullquote]
OK, and those findings are broadly in line with an old finding from the TUC. Who then went one better and added in the effects of government spending on things like the NHS and education which are, obviously enough, progressive again. For the spending is equal per head, that being a higher portion of low incomes than of high.
All well and good then. At which point we get Davies:[perfectpullquote align=”full” bordertop=”false” cite=”” link=”” color=”” class=”” size=””] The UK tax system does help reduce the country’s wealth inequality problem, according to a report released on Monday by the Institute for Fiscal Studies, but benefits still do most of the heavy lifting. The findings were seized on by the shadow chancellor, John McDonnell, who said the IFS’s evidence showed that the government was wrong to plan tax cuts. The IFS analysis, funded by the government-backed Economic and Social Research Council, contradicts a report published last yearby the Office for National Statistics, which found that the tax system has a “negligible effect on income inequality”. [/perfectpullquote]
How can we tell Davies is ignorant? Or, of course, an idiot?
The IFS report doesn’t at least in its headline incarnation, look at wealth inequality at all. It’s all about income inequality. The two are not the same thing, not at all. And yet here we’re a reporter saying they are, in a report about the details of matters economic.
Sigh. The Guardian, wrong about everything, always.