Right Up Mount’s Street
For one of Thatcher’s boys, Ferdinand Mount certainly has a social conscience, as his new book on inequality reveals. By Christopher Silvester
WE ARE CURRENTLY in a boom. Not an economic boom, but one in books about the perils of social inequality and the possible remedies for this adverse situation. Richard Wilkinson and Kate Pickett sparked a revival of interest in this long out-of-fashion subject with their 2010 book The Spirit Level: Why Equality Is Better for Everyone, while this year has seen three studies that have addressed the same theme: Stewart Lansley’s The Cost of Inequality, Ferdinand Mount’s The New Few, and Joseph Stiglitz’s The Price of Inequality: The Avoidable Causes and Invisible Costs of Inequality.
All these books bar one are written from a left-of-centre perspective. The exception is The New Few, whose author, Mount, was a Thatcherite political commentator in the late Seventies, ran Downing Street’s Home Policy Unit in 1982-83, and even wrote the 1983 Tory manifesto. So when such a figure as this weighs in on the subject of inequality, it behoves the most dyed-in-the-wool free-market apologist to take heed.
Since the book was published earlier this year, Mount has heard encouraging noises from MPs and policy-makers who claim to have read it, as well as positive endorsements from retired City grandees and company chairmen who believe that numerous British companies have been looted by their managements — one of the book’s key complaints. With the reaction to the Libor rate scandal and now the Kay Report on short-termism in the City, Mount detects a tectonic shift towards his point of view.
‘There’s a slight sharpening of feeling that we’ve got to go further than we’ve already gone, particularly where the banks are concerned,’ he says. ‘The Vickers Report putting in place this rather feeble little ringfence to separate the investment and retail divisions of the four major banks isn’t really enough. We’ve got to go the whole hog, back to something like the American Glass-Steagall system. I haven’t a clue about the technicalities of the Libor rate scandal, but I think it’s a very good example of what happens when everything’s in a steamy little cabal and you don’t have a transparent system.’
Still avowedly a small-government Conservative, Mount does not see raising the higher rate of income tax as the answer to the problem. Certainly, he regards the suggestion by Stiglitz that no harm would befall the US economy if the president were to impose a marginal tax rate of 70 per cent on incomes above $5 million as foolishness.
‘I think that’s pretty good nonsense,’ he says, while accepting that the picture in the UK is different from that in the US. ‘I don’t think that our income tax system is at all bad. It’s high enough to bring in a lot of money for the NHS and so on, but low enough so that on the whole the rich don’t fiddle their personal taxes and do pay them in a way that they didn’t used to. That’s not true in America, where the rates are lower and they seem to fiddle them.’
Transferring more money from private pockets into government coffers is only likely to breed a different set of problems. ‘We’re seeing some fine old private-sector cock-ups at present, but public-sector cock-ups are usually done on a gigantic scale and with no alternative,’ he points out. ‘We’ve got a perfectly high proportion of GDP being taken in taxes. Roy Jenkins said 40 per cent was a reasonable level. Anything over that and you’re going to see government piddling it away in all sorts of ways, and anything much under that and the public services are liable to be starved. The difference between Jenkins and a free-market enthusiast like John Redwood is only between 35 and 45 per cent. Also, if you start taxing at 70 per cent the entire population of Wall Street and the City will take up residence in the Cayman Islands.’
MOUNT PREFERS A different route. ‘The problem is not the higher rate of taxation, but pre-tax incomes,’ he declares. At the top of society, Mount believes, company executives are receiving excessive pay, especially in the banking sector, and he follows Will Hutton in believing that the highest-paid executive in a particular company should receive no more than 20 times the salary of its lowest-paid employee (which is, after all, only a reversion to the principle laid down by arch-capitalist financier JP Morgan around a century ago).
‘I’ve spoken to or had letters from quite a few people who were on the boards of big companies or on remuneration committees. Far from saying, “You’re a complete innocent,” they say, “You’re absolutely right, these people have been looting the companies for years.” Being on a remuneration committee is one of the most soul-destroying things, they tell me, because you discover that most of the executives are only interested in the size of their bonus or pension pot.’
Regarding the bottom of society, Mount is a supporter of the non-ideological Living Wage campaign, which advocates that large companies should pay employees more than the minimum wage in those parts of the country, such as London, where the cost of living is significantly higher. ‘The Living Wage is not a cure-all, but it is an interesting way of getting away from the state having to subsidise wages through tax credits. We were always taught at school that the 1795 Speenhamland System [of outdoor relief in rural areas to counteract the distress caused by high grain prices] was supposed to produce pauperisation and all sorts of ill effects. But I still don’t think it’s a bad system. Anything you can do to hike up wages at the bottom without prejudicing employment seems sensible to me.
‘We old Thatcherites used to think that the minimum wage was the work of the Devil and would create mass unemployment. But it turned out not to be the case, because it was set so low. Adopting the Living Wage in places such as the headquarters of HSBC, where it’s a very small number of people who are affected, is unlikely to distort the labour market. Again, I think it’s something where you don’t need to have a new law, but rather to encourage better practice. And it wouldn’t be a drain on the Exchequer.’
On the whole, Mount believes the coalition is moving in the right direction. He is glad to see Parliament regaining some of its bite with select committees acting as bully pulpits, especially now that most of their chairs are elected by fellow MPs rather than appointed by party whips.
‘My hero Andrew Tyrie [chair of the Treasury Select Committee] has proved you can regain a fair amount of power for parliamentary institutions. I think having a parliamentary inquiry into banking, with a few outside experts brought in as advisers, is the right way to do it — better than having these judges who sit there for years and years and having to hire expensive QCs to ask the questions for them.’
HOWEVER, ONE AREA where he sees cause for despair is in the low levels of party membership and the consequent effect on party funding. ‘What is depressing is not merely the complete decline of political parties, but the complete lack of interest of both party leaderships in thinking about how to revive them.’ He wonders if it would not make sense for government to make political donations to the main parties tax-deductible up to a certain limit, with qualifying thresholds to exclude extremists and attention-seekers.
So while Mount dismisses the need for a huge programme of legislative change or punitive taxation, he wants to see a spirited debate among the wealthy and those professionals who service them about how to counter social inequality. Greater control of boardroom salaries, more caps on bankers’ bonuses, a breaking-up of the big banking monopolies, some sort of mansion tax or a higher band of council tax — his is hardly a radical agenda, but for that reason it stands a better chance of being achieved than an increased higher rate of income tax or a Tobin tax on financial transactions. It goes against his political philosophy and belief in personal freedom to advocate equality as a goal, but similarly it goes against his political philosophy to tolerate an ever-diverging inequality that detaches the super-rich from the rest.
Read more by Christopher Silvester