Brown Will Have to Crack Down on This Rampant Greed

Tessa Jowell’s confident performance yesterday leaves her looking set to survive, having preserved her own probity by divesting herself of her husband and his offshore affairs. But the whole saga revives Labor’s old problems. How does government stay safe from the dangerous seas of megamoney swilling about?

Wherever there is power, there is money too. The two worlds swirl together in a marble cake of interlayered interests and temptations. There are rules to keep power and money apart - but these rules are often interpreted too flexibly.

Last week The Lavender List, Francis Wheen’s eloquent film, showed there is nothing new about New Labor’s money problems. Harold Wilson’s reputation never recovered from giving unsavory millionaires disreputable peerages. Tony Blair’s first bold promise to be "purer than pure" was swept away all too soon by a succession of ministers’ questionable dealings with super-wealth. Tories are traditionally destroyed by sex, Labor by cash. (It took David Blunkett to manage both at once.)

Gordon Brown is determined to bring the morals of the manse back to Westminster, but how can he restore trust? The way he deals with the very rich will matter a great deal. Silence will no longer do.

The first lesson he has probably learned is not to promise to be "purer than pure": it only asks for trouble. But he should murmur stern warnings to his ministers to avoid the temptations of dizzying social circles far above their own already generous pay grade. Expect him on day one to announce a ban on large donations to political parties, with some form of state financing. After all the trouble caused by dubious benefactors bearing gifts, it is extraordinary that Tony Blair did not do this long ago.

Expect him to try to re-establish a firm red line between the culture of the private sector and the culture of public service. It won’t be easy. The two have blended together, instead of the public realm being insulated from commerce. Civil servants are distressed by management consultants selling them the same bottle of used snake oil for preposterous fees; or they gasp with envy at the sums paid to business moguls called in to run government functions. Brown needs to restore old purdah rules that stop top Downing Street special advisers on health jumping straight into a job selling private health services back to the NHS, or ex-defense supremos selling weapons back to their old department.

How do you stop soaraway private salaries contaminating the public realm? Start with more celebration of public service for its own sake. Keep honors for those who have forgone cash, not to glorify plutocrats who already have everything money can buy. Shame those in the public, charity and not-for-profit sphere who are now starting to pay themselves fat salaries to mirror the private sector. There is no shortage of good candidates to head the BBC, so why is the director general paid £500,000 - so much more than the prime minister’s £178,000? What is anyone worth? There is no answer: relatively few rewards are set by any genuine market. Senior journalists are certainly overpaid for our easy jobs. Chief executives are overpaid. The Work Foundation’s expose of the market in top FTSE companies finds most chief executives are British, in little demand abroad and mainly promoted from within their companies: not much market there.

Up in these stratospheres, one top chief executive recently admitted to me that things were out of control - but status demanded he be paid the max. He didn’t need the money, he needed the headline. Taxing a fairer slice back would not dent his prestige.

The top people are now taxed hugely less of their income than the average and the bottom, and people hearing hundreds of thousands of pounds talked about as peanuts are indignant. Of course it alienates the governed from those in power. John Hills’s research in Inequality and the State shows people already underestimate what top people are paid, yet even then think they should get less. Those surveyed think an average corporate chief executive gets £125,000 and should get only £75,000 - but were shocked to hear he gets £550,000. Ditto cabinet ministers, who get twice as much as people think they should. However, it was agreed that the low-paid should get more.

So Gordon Brown has plenty of leeway to express disapproval of unjustified excess. Politicians underestimate how far they can change the climate of opinion. People may be in favor of aspiration, but there is a strong distaste for greed. To suggest a fairer tax regime where the broadest shoulders support a fairer burden would restore that trust that government is for all.

The gap between the top 10% and the rest is growing unchecked every year. A 50p income-tax rate starting at salaries of £100,000 is a modest step. Beyond that, it is time property taxes reached the richest; again the poorest pay too much council tax, the richest too little. The top band is capped at £320,000 in 1992 prices. Even in America there is no cap, so the man in the $35m house pays 35 times more than the man in the $1m house. Why not here, dropping council tax for the poorest? High taxation on top property in other countries has stopped prices distorting the economy.

Other extraordinary tax breaks for the megarich damage the economy. Take zero inheritance on family firms, unknown in the US. When Richard Branson dies, he hands Virgin (a private company) to his children who pay zero inheritance tax - a very strong incentive never to make his company public. New LSE research shows that children run companies very badly and grandchildren even worse. After the first entrepreneurial generation, Britain’s family firms are least productive. Warren Buffett asks acidly if the right way to pick Olympic winners would be to choose children of previous winners. Favoring the rich often damages the whole economy.

By talking about fairness and wealth, Gordon Brown might stir up a hornets’ nest in overpaid newsrooms whose occupants imagine they are middle England. But he would shake off the idea that Labor no longer lives in the world of ordinary people where half the working population bring home wages of under £22,000 a year. Labor’s series of financial embarrassments oblige Gordon Brown to restore some sense that taxes are not just for the little people.