Closing the Gap

Why should the British middle-class instantly reach for their wallets whenever they hear a British politician talk about closing the gap between the rich and the poor? Nick Clegg, the U.K.’s deputy Prime Minister, demonstrated exactly why in London today with his speech on creating a more socially mobile society. The rich quickly morph into the middle class, and so what he really means is closing the gap between the middle-class and the working-class. The real rich, as we all know, will just move overseas, if there is too much redistribution out of their pockets.

Of course, Clegg can’t say that, especially as he is in coalition with the Conservatives, but that is what he means.

I am all for greater social mobility – that is one of the driving reasons I, British-born, embraced the United States – but “wealth” redistribution is not the way to do it, or shouldn’t be the main driving force. Britain has been trying that since the Welfare State was established in the wake of the Second World War and as studies have shown it hasn’t been so successful. The increased redistribution primarily from the middle-class to the working-class and tremendous subsidies to geographically poorer areas of the UK under the Brown government failed dramatically to close the gaps dividing north from south or the one separating the middle-class from the working-class.

The review the Coalition government is undertaking now of the universal benefits system is a good thing – the well off surely should not be receiving subsidies in the form of child credits and heating allowances they don’t need. But how much is going to get taken from the middle-class at the same time as they are facing higher taxes before they decide either that they have had enough of the Coalition government or decide to trigger a 1970s-style brain drain?

Social mobility comes with providing fine schools, access to excellent higher education and the economic, commercial and regulatory circumstances that encourage entrepreneurialism, wealth creation and prosperity. And as history has shown, countries that declare war on their middle-class tend not to do so well when it comes to economic growth.

Arguably, Margaret Thatcher did more than Brown or Blair for social mobility and encouraging working-class aspirations. She did it by allowing council houses to be bought by their occupants at below market value – a policy fought tooth-and-nail by the left and center-left in British politics. She did it by welcoming success, encouraging entrepreneurism, keeping taxes low, reducing public expenditure and ceasing the British industrial habit of propping up lamb-ducks. She was also more heavy-handed with high-blown, snooty and traditional institutions than many Labour ministers were before her and have been since. And aspiring working-class voters loved her for it – that’s why she was re-elected.

Obviously, it was good to hear Clegg saying that the Coalition government aims to assist social mobility by improving people’s lives rather than by providing hand-outs, but sadly missing from the Clegg speech was anything about lower taxes — just more stuff about “fairer taxes”, in short more taxes on the middle class.

And this on the day when an excellent economist, Danny Blanchflower, a former member of the Bank of England’s monetary policy committee, urged the Coalition government to cut taxes or face another recession.