I admire Jeremy Corbyn. No, really. I do! He’s such great entertainment value. A bit like Donald Trump only considerably less consistent and without the logic or practical aspects. Our Jezza is just priceless…
His latest idea is a cap on wages. This is, of course, not a new idea. It’s been done before by the Wilson government. In those days there was a 98% top rate of tax comprising 83% income tax plus 15% investment income surcharge. My memory of the time is a bit hazy so I looked it up. I was a teenager at the time but remember my father complaining that Labour were taking 105% of his top slice income. As it turns out that was a bit inaccurate but nevertheless 98% is bad enough.
So what happened? Well, high earners fled the country in droves. Reportedly 750,000 British taxpayers were liable for a 98 percent tax rate in 1974. Take, for example, the Rolling Stones. Reflecting on the time, Bill Wyman said in the band’s DVD “Stones in Exile” that if a band member made a “million quid,” he would be taking home only £70,000. “It was impossible to make enough to pay Inland Revenue. I had to get out of the country to pay the tax that was incurred on me,” Keith Richards remembered.
The Stones weren’t the only ones. Actors left in drove too. And top business people. The rich have the power and the means to just go off to places where the tax is less punitive. The problem is that they takes jobs and investment with them. No wealth, no job creation or entrepreneurship. It’s all gone abroad – and at the end of the day, it’s a global marketplace we’re living in.
So how about the so-called ‘John Lewis model’ where the top man’s pay is pegged to a multiple of the lowest paid worker? Better, but still bad for business. Top companies will just move their headquarters to other countries, killing the UK jobs in their offices and factories. There they can still pay high salaries to attract top people.
There is only one country in the western world that has a maximum wage in place, and that’s Cuba – but before my old friend Longrider starts kicking off about Cuba again, I’m forced to point out that Cuba has a rather curious dual currency system. It’s been said that the maximum Cuban wage equates to about US$30 a month but there is a an external currency and an internal currency, so the equivalence is meaningless. Locals are paid in local currency and they buy stuff in local currency. It’s worthless outside Cuba. As I said, a curious system…
Also, the wages paid to top executives in private companies is a matter for the shareholders, not the government. Corbyn reckons he wouldn’t give government contracts to companies who pay excessive executive salaries. He won’t put a figure on it and it’s unworkable because there’d be nobody left to give the work too!
So, maximum wages pegged by punitive taxation doesn’t work. Government interference in executive pay doesn’t work. In fact, the entire premise of 1970’s socialism on which Corbyn bases Labour policy doesn’t work.