Market failure exists when the competitive outcome of markets is not
efficient from the point of view of the economy as a whole. This is
usually because the benefits that the market confers on individuals or
firms carrying out a particular activity diverge from the benefits to
society as a whole.
Ashley Seager (Economics,
28 September,) argues for "sharpening taxes as well as axes". This
should read "instead of axes", with tax reform being the alternative to
cuts. Tax increases should be targeted very specifically on those
high-income households and individuals who have done so well over the
past quarter of a century, during which the UK has become one
of Europe's most unequal nations.
This began with the radical reduction of higher levels of taxation by
the Thatcher government in the 1980s and continued through the Major,
Blair and Brown administrations, with minimal adjustments in tax and
national insurance rates for the most affluent 10% and especially the
top 1%.
The shifting of the tax burden from married couples to individuals
has been particularly beneficial to households in those top categories.
On the principle "the polluter pays", it would seem appropriate to use
the taxation system not only to fund services in cash and kind at their
current level, but to make a significant reduction in gross inequality
so that the UK moves towards the position of, for example, the more
equal and economically successful Nordic democracies.
Professor David Byrne School of applied social sciences, Durham University
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