Increasing Social Mobility

Reform has a paper out today abouthow to increase social mobility:

The UK’s dismal record in educating and motivating the poorest in society (whilst having some of the best elite education in the world) has been a central cause of low social mobility. The UK will not make progress until this problem is resolved. Strikingly, the countries with high social mobility – the Scandinavian countries – also contain some of the most reformed education systems. There is no barrier between state and independent schools since government funds pupils in both sectors according to parental choice.

That means vouchers I think, don\’t you?

Transfer payments have created a poverty trap both of finance (the UK has the highest marginal effective tax rates in the EU) and complexity. Public service performance is skewed towards the more affluent. An ever greater central grip on education (and major increases in spending) has not ended the massive disparity between elite and inner-city education. The rising burden of taxation, in particular on incomes, has “crowded out” individuals’ motivation to improve their own capability. For example, the higher rate tax rate now falls so close to average earnings that it acts as a “mobility block”.

The highest marginal effective tax rates in the EU? I knew we were bad on the tax/benefit withdrawal rates thing but the worst?

No wonder people don\’t bother.

6 thoughts on “Increasing Social Mobility”

  1. For example, the higher rate tax rate now falls so close to average earnings that it acts as a “mobility block”.

    WTF? If the higher rate tax rate was still 95%, there would be a point here. But as it is, the marginal difference between getting to keep 67% and 59% of your extra pound is not going to have a significant effect on your work decisions…

  2. “But as it is, the marginal difference between getting to keep 67% and 59% of your extra pound is not going to have a significant effect on your work decisions”

    I am not sure about that. In the first case you are being taxed 33% of your income, in the second case, 41%. 33/8=0.24. I can’t see how being taxed 25% more can fail to have an effect on incentives.

  3. “I can’t see how being taxed 25% more can fail to have an effect on incentives.”

    Imagine if income tax was 1% and it doubled to 2%. That would be a 100% increase in taxation, but the effect on work incentives would be negligible, because the marginal income generated from your extra unit of work would only fall by 1%.

    So the 25% figure isn’t relevant – what’s relevant is the 12% fall in marginal income per extra unit of work. Yes, this will have /some/ relevance, but I’d be amazed if it was substantial. YMMV.

    This argument is fairly pointless to take further without decent data on people’s real-life elasticity of output with reference to taxation *at moderate levels of taxation* (obviously at 70% or 90% tax rates, the effect will be real, as observed for low-income groups in the UK). Anyone know if there is any decent data on this].

    Tim adds: at “reasonable rates” as you put it I think the research shows that there’s not all that much effect for men. There’s much more effect on companies and investment for example, than there is on male hours worked. However, there’s a very much larger effect upon female hours worked. So much so that some advocate taxing women less as a result.

  4. That had actually occured to me, but by that point I had already typed my comment. I can see plausible arguments for either position.Where I really agree with you though is that without decent data, it is not really possible to resolve the question one way or another.

Leave a Reply

Your email address will not be published. Required fields are marked *