The EU thread

[Sheilbh]

I agree with your post in general, but wanted to submit the following idea in response to this part: we need to figure out ways to get the money to sustain our social models. States need to get that money where it actually is these days, and increasingly it is not (barring the odd trillionaire) with the general population. We need to tax financial transactions and we need to tax corporations more.

Something like this could be a start:
https://en.wikipedia.org/wiki/European_Union_financial_transaction_tax

So I'm not totally sold because I think the level of revenue to sustain a social democratic system is far higher than you can get from soaking the rich, or corporations. And what worries me is that I think there is less buy-in for the broad based, everyone pays sort of system you need to sustain it - in part, I think, because fewer people feel like they benefit. I'd also add that the estimate for that FTT tax is that it'd raise €55-60 billion a year which is not nothing but split between states is not huge - it's also significantly less than the €150+ estimated revenue EU states could generate by ending the internal tax shelters (Ireland, the Netherlands, Belgium, Cyprus, Luxembourg and Malta). I think building new complex taxes may be more work than it's worth, especially compared to reforming and properly enforcing existing ones (but this is my answer to everything: build back state capacity).

But I also think the bigger challenge is that it slightly hits into the challenge of globalisation. Because we've spent the last 40-50 years encouraging the free flow of capital - it is one of the EU's four freedoms - and part of moving to an economics-dominated world. So in the same way as I don't disagree with the idea of a wealth tax, taxing corporations or financical transactions - all of that seems sort of meaningless if we're still committed to allowing the free flow of capital. It's like using a sieve to bail out - we need less free flowing capital, more control by states with coercive powers to police and punish.

I'd add to the point with Valmy - as I think this is true across Europe - that our discourse is very Americanised on this (it reminds me of the campaigns in the US pushing for a $15 minimum wage, which got pickd up by campaigners here who wanted a £15 minimum wage ). In the UK, income inequality has basically plateaued since the 80s. Wealth inequality for longer - so the share of wealth held by the top 1% in the UK is just over 20%, it was at about 20% in 1980. In the US it's gone from below 25% to over 35%.

[Tamas]

Yes it's too americanised but also the whole world economy depends on how America is going to handle wealth inequality and the billionaire ketaminite ruling class they have created, so to some degree it should be.

[Valmy]

In the UK, income inequality has basically plateaued since the 80s. Wealth inequality for longer - so the share of wealth held by the top 1% in the UK is just over 20%, it was at about 20% in 1980. In the US it's gone from below 25% to over 35%.

Really? I thought the UK was the money laundering capital of the world with a disproportionate number of billionaires and millionaires hiding out with their ill gotten gains.

But maybe those people don't count because they are not UK citizens?

[garbon]

In the UK, income inequality has basically plateaued since the 80s. Wealth inequality for longer - so the share of wealth held by the top 1% in the UK is just over 20%, it was at about 20% in 1980. In the US it's gone from below 25% to over 35%.

Really? I thought the UK was the money laundering capital of the world with a disproportionate number of billionaires and millionaires hiding out with their ill gotten gains.

But maybe those people don't count because they are not UK citizens?

Also income inequality isn't the same as wealth inequality.

[Valmy]

Also income inequality isn't the same as wealth inequality.

Ah. Good point.

[Tamas]

Ah yes I missed that as well. A key distinction.

[garbon]

Not surprisingly the equality trust says the UK isnt great on income inequality and worse on wealth inequality.

https://equalitytrust.org.uk/scale-economic-inequality-uk/

[Sheilbh]

Right but my point - which I think that link largely supports - is that it's broadly plateaued in the UK over the last 40-50 years (on both income and wealth) as I think is common in the rest of Europe. There are fluctuations within a range but, we've not seen a huge shift in the type or scale of inequailty in that period, while there is a change in the US since Reagan:


I think the key reason is that the driver is the emergence of tech as a new industry and we don't have an equivalent tech sector driving that change. Neither does most of the rest of Europe - France is an exception as they have huge luxury goods companies, who've hugely grown serving the new global elite, with significant family stakes. Of the ten richest people in the world I think all of them (except for the Arnaults) are from tech in industries that did not exist 30-40 years ago and overwhelmingly based in the US. If we had billionaires like the US, there'd be problems but we're exposed to those anyway we just don't have a tech sector that means we can easily avoid reliance on American big tech (to Jake's point on Palantir).

I don't think the key point in the UK is that the 1% are hoovering up more wealth or income - because they're not. It's broadly flat within a range. The issue is our inequality interacts hugely with time/generation and location. The biggest chunk of wealth in the UK is property so if you were able to buy a place (including your council flat) in London or the South-East before the boom in property values then you'll have done very well. You see this even in existing council homes where Reeves has said that council homes will not be hit by the "mansion tax", because there are council homes worth over £2 million (and there should be).

So I think the challenges in the UK is more about how young people are able to access wealth, how we generate it more in all regions (and I say generate because there's already huge redistribution - the UK redistributes more North-South than Germany did East-West - FWIW I think devolution is key as I believe Manchester and Scotland are the only regions actually closing the gap) and also after the massive sell-off under Thatcher (which reducd wealth inequality as it hugely increased the number of people who owned stocks and shares or their own home) how to build state, common assets back up (and I think part of that should be tech - nationally owned cloud infrastructure and nationally owned open LLMs for domestic companies and research and public sector etc).

Edit Not least because we've got the bigest wealth transfer in British history on its way with older people who are now sitting on £1 trillion + property assets in often run of the mill suburban homes in outer London/South-East dying and passing that on which will create deeper and more entrenched inequality. Again it's not necessarily about billionaires but becoming a day-to-day Jane Austen/Regency society not Edith Wharton/Gilded Age.

[garbon]

That's fair enough as I think totally true that the US and UK have different relationships to inequality.

If we focus on the UK and look at top 10%, I don't think I'd say things have stabilised but gotten worse since 1990.


This suggests that for top 1%, while property is important, pensions are a bigger factor:


Back on income, I saw it shows while income distribution has for the most part remained fairly the same that still puts the UK in a position worse than most of Europe.

[Sheilbh]

I think that's fair.

I think the UK is between the US and Europe on a lot of this - but fundamentally European. So our economic challenges: persistently low growth, persistently low productivity growth, vulnerability to supply shocks (particularly as seen on energy costs), growing share of spending going on an ageing populaion and genuine fiscal constraints. The US has a lot of very different problems but basically none of them.

I've mentioned it before but I'd add there's been a huge shift on minimum wage in the UK. This shows it from the time it was introduced and there's basically three phases, I think, in this chart:


That means that between 1997 and 2016, the minimum wage was basically about 40-45% of median wage (which is in line with the Netherlands, Germany, Ireland). From 2016 we've increased it to over 60% of median wage (second only to France). I think that's a big shift that just happened without much thought. It means we're currrently experiencing a really, really high level of wage compression - so not only does the UK have higher income inequality than most of Europe but it's also really distinctive (both within Europe and internationally). Basically income inequality in the UK is largely because of the gap between high earners and middle earners because the gap beween middle and low earners is low and has been shrinking pretty consistently for a decade.

I do worry about that trend - in part because I think it was thoughtless or accidental rather than purposeful. I worry the government's not thought through how various policies interact - in particular a very high minimum wage, stagnating productivity, increased employer costs (particularly increasing emloyer NI/payroll taxes) and a state enthusiasm for AI. I know that it's absolutely brutal for hospitality and retail.

And on all of that I think about Nick MacPherson (now Lord MacPherson), who gave a speech on the "Treasury view", a couple of years before his retirment as Permanent Secretary of the Treasury after 40 years in the Treasury. Because on us being not quite as fully social democratic as Europe or as liberal as the US, he had this to say on tax (worth noting as we hit the highest levels of tax since the war):

That takes me to my fifth proposition which is that governments in the United Kingdom find it difficult to raise revenues beyond a certain point. This is not a value judgement about the size of the state, on which the official Treasury does not have an opinion. It is purely an empirical point. Over my working life I have seen all sorts of tax regimes. When I joined the Treasury, the top rate of tax was 60 per cent. Now it is 45 per cent. The basic rate was 30 per cent. Now it is 20 per cent. The combined rates of employer and employee national insurance contributions has risen from 19.45 per cent to 25.8 per cent. The main VAT rate was 15 per cent; now it is 20 per cent. I have seen new taxes introduced; old ones abolished. Reliefs and allowances have come and gone.

But over that period the share of national income accounted for by taxes and national insurance contributions has remained stubbornly stable: 36.4 per cent in 1985-86 and 34.9 per cent in 2012-13. Its lack of variation is particularly remarkable. Never higher than the 36.4 per cent it was in my first year at the Treasury, and never lower than the 31.8 per cent it reached in 1993-94. Perversely, over the last decade when we have witnessed the biggest economic and financial crisis in generations, the tax take has been more stable than ever: with a low of 33.9 per cent in 2002-03 and a high of 35.6 per cent in 2006-07. (Of course, there is more to the receipts side of the public finances than tax and NICs – interest and dividend receipts account for a further 2 per cent of GDP and historically have been much more variable, accounting for 6 per cent of GDP in 1985-86. But on the face of it they are in secular decline.)

Now, there are all sorts of explanations for the stability of the tax take. It may simply reflect public choice, with taxpayer resistance setting in above a certain point. It may reflect arbitrage domestically between taxes and internationally between tax jurisdictions. It may reflect diminishing returns, in terms of the effectiveness of the Inland Revenue and Customs and Excise, as was, HMRC, as is. It may just be coincidence.

[Josquius]

I was having weird thoughts the other day of maybe in a way its 'too little' inequality. There being little to work for as formerly solid middle class salaries of 50k+ don't really put you in a different league to minimum wage people, just more comfortable in the same place.
Further expanding could it loop back around to 'everything is housing'? You save up all your money and you get to afford to own a regular terraced house whilst your neighbour earning half as much has to rent it for twice as much.
Have more, and more diverse housing, and maybe more of a tangible physical point than financial security can come from earning more.


Also... I'm not sure top 10% vs. bottom 10% is where to look for the key difference. Top 10% kicks in with 60k a year, which even without the compression and housing issues isn't massively different to 20k a year.
Its with the 1% or higher even that the difference really comes in.  Where you're talking not 3x more but 30000 times more.

I suppose it comes down to we're lacking a solid 'middle'.

[Jacob]

Interesting read from the European Council on Foreign Relations:  Get over your X: A European plan to escape American technology

Summary

• Foreign technology companies cannot be entrusted with meeting Europe's growing digital needs. This includes American big tech firms.
• Trump rarely hesitates to weaponise technological dependencies or attack the EU's digital rules. A change of president in the future is unlikely to alter these dynamics.
• The EU should build an independent "stack" of technologies to shield itself from other powers weaponising tech against it. Building this "EuroStack" must begin where such risks are greatest, namely in the domains of space, chips, cloud computing and AI.
• The EU does not need to construct an entirely independent new tech ecosystem to strengthen its defences. Instead, it needs to build "just enough" capabilities in these key areas to extricate itself from its dependencies.
• American backlash against this effort is likely. But Europeans can make strategic concessions where necessary while keeping their eyes fixed on the sovereignty prize.
  
  ...
  
  
  
  

Full article in link above

[Jacob]

So apparently the US National Security Strategy calls for:

• Pulling Poland, Austria, Hungary, and Italy away from the EU.
• Forming a new grouping of countries - the C5 - consisting of the US, Russia, India, China, and Japan as an alternative to the G7 (and unconstrained by G7 rules).

Link here: https://notesfrompoland.com/2025/12/10/fuller-version-of-trump-security-strategy-reportedly-calls-for-pulling-poland-away-from-eu/

[Josquius]

Trouble I see is there are European firms operating I most of those spaces.
Eutelsat, STmicroelectronics... But these tend to be also rans at best. Something is stopping them ever reaching the heights of the American companies.
When we do get genuine world leaders like Arm, we sell them off.

[Jacob]

Relatedly, the Danish Military Intelligence Agency in its most recent threat report has the US listed as a threat to national security in some areas.

It seems the US - European alliance is in its dying days.

In the short term, I have no doubt that the leaders of the various "nationalist" oligarch funded parties in Europe will happily join in dismembering European power and become American (or Russian) satrapies, but I do wonder how long that will last.