On tax policy I find I am now a Liberal Democrat. This is a bit of an identity crisis for me. A bit like coming out. Or waking up as a giant insect. But I just really like Gloria Gaynor — sorry, I meant not taxing earnings under £10,000 a year. And the musical theatre — sorry, mansion tax. It just feels instinctively right.
It’s this fairness thing that works for me. The same for the tycoon tax. I like the principle. After all, it is not the only function of a tax system to increase revenue — you must also preserve the consensus that the system treats everyone equally.
Sweetheart deals with multinational corporations or loopholes for billionaires violate this principle. They may be financially expedient for the Exchequer, but this comes at a hidden cost — loss of respect for the system. When a bank threatens to move its HQ unless it receives tax concessions, you need to ask, ‘What if everyone tried to do this?’ When every tax bill is reduced to individual haggling, you end up with the Greek tax system.
This philosophical distinction is at the heart of the European crisis. Rule-bound societies, especially Germans, instinctively act according to the Kantian categorical imperative — tacitly asking ‘What would happen if everyone did this?’ Other societies have a different imperative: ‘Everyone else is probably doing it already, so why don’t I join them?’
One of the failings of economics is that it is largely blind to considerations of this kind. But new technology raises new questions about the role of fairness. Especially concerning prices.
The first people to print fixed retail prices on consumer products such as chocolate bars were Quaker manufacturers, who chose to do so for moral reasons, since ‘plain dealing’ was — and is — a central principle of Quakerism. Before this, shopkeepers would haggle or try to charge a high price to richer customers.
Surprisingly, this ethically driven move turned out to be good business. People liked the fact that there was one price for everyone: it just seemed fair. And since everyone paid the same price, you could make inferences about product quality from that price.
A few hundred years later, Coca-Cola tested a vending machine which varied the price of a drink according to the weather. On hot days the price went up. The idea was logical and economically efficient, matching supply with demand. People hated it. Activists later also demanded that Amazon stop quoting lower prices to new customers than to regular buyers.
Airlines have solved the problem well. Although people pay a different price for a seat on the same flight, there is an underlying rule that is perceived to be fair — ‘the earlier you book, the less you pay’.
But one place where the problem remains is in mobile phone network pricing. No one has worked out a way to charge for 3G data that is clear, fair, reflects the value of the service and provides mobile phone networks with an incentive to invest where it matters. The system is a total mess. People who switch handsets annually are being subsidised by those who don’t. The lack of a decent price mechanism means network coverage is provided not where it is most valued but where it is most used (it’s on trains, roads and remoter areas we really need 3G — in cities you can find Wi-Fi everywhere). Regulators have worsened the problem by driving down prices rather than driving up call quality and coverage.
Before 4G is launched in the UK, unless we want the whole 3G debacle to be replayed, Ofcom should establish a commission to work out a just and equitable pricing framework for 4G data. It should contain technologists, behavioural psychologists and ethical philosophers. And a Quaker.
Rory Sutherland is vice-chairman of Ogilvy Group UK