Rodney Schwartz: Perfection as the enemy of the good

There are ways the tax system could be revolutionised if we were prepared to try these ideas out, says our columnist

Rodney Schwartz
Rodney Schwartz

In my current role, I get invited to join committees to "foster impact investment", or such-like. These committees are normally chock full of well-intentioned, intelligent and experienced professionals, and are invariably interesting. Inevitably, one of the recommendations always seems to be to collectively ask the government to "do more", which usually means funds, grants, tax credits, or some series of goodies from the Treasury.

There is no doubt that the funding provided by successive governments has helped to enable the impact investment sector here to become the most diverse, innovative and developed in the world. But enough is enough. In fiscally constrained times it feels indecent to ask for more. ClearlySo has routinely opposed impact investment tax credits in particular, because they generally benefit wealthy investors, which feels inappropriate.

But the tax system is a very powerful policy tool, so recently at one of these committees I made a recommendation to use this tool in a fiscally neutral fashion to encourage more positive impact and simultaneously discourage negative impact. It is what I call "fiscal tilting". Its premise is this: tax things we want less of and shift those revenues, or a portion thereof, to things we want. As the Compare the Market meerkat says, "simples".

Organisations creating negative externalities, such as pollution, would have to pay and the funds would be recycled to entities that generate positive externalities, creating a new source of income for charities and high-impact enterprises that are currently doing their good work "for free".

In fact, such a change would probably be revenue-positive because government would need to spend less as charities and others did more, and firms would generate less mess for taxpayers to clean up. Capital markets would respond to these policy changes and amplify the effects by further penalising firms that did bad things and favouring those doing good.

Some were supportive, but other colleagues seemed nervous. "What exactly would you tax?" they asked. "Who would decide how it was spent?" The truth is that I had no idea, but figuring out what we want more or less of, as a society, does not seem beyond the realm of human intelligence.

I do not know how such a system would work perfectly, but our existing tax system is a shambles. Surely an experiment is worthwhile: I feared that a search for the excellent was threatening the good. On reflection, I think it might be that or worse. My sense is that radical change is threatening. We operate in existing systems and normally they work especially well for people like me on such committees. We will fight hard for a bigger slice of the pie, but question how it is baked or if we should be having pie at all, and there is deep unease.

Simple ideas, such as the "Tobin tax" on financial transactions or a basic income, are derided as overly simplistic. The proposers are overwhelmed with objections and inundated with technicalities. In my view, let’s first decide if an idea has merit and then, if we believe it might, try it out in a small way. The fact that things as they are work poorly means our downside risk is limited.
However, this is not how things work, so in the spirit of moving things along, let me offer a specific, and very rough, proposal.

We manufacture far too much stuff and the strain on our natural resources is irrefutably unsustainable. So let us tax physical "stuff" by weight. I would exempt only residential homes and food. Let’s raise £1bn. Any less and it’s not worth the bother. The tax you pay is the weight of stuff you sell divided by the amount of stuff bought in the economy, times £1bn. The money is used to help eliminate homelessness and provide those without homes with food and shelter. If it works, the government announces that more of this is coming. Naive? Absolutely. Unrefined? Definitely. Arbitrary? Without a doubt. Feel free to improve upon it.


Rodney Schwartz is chief executive of ClearlySo, which helps bring impact to all investment

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