John Penrose is MP for Weston-super-Mare and a former Cabinet Office minister. This article forms a chapter of his paper ‘A shining city upon a hill: Rebooting capitalism for the many, not the few’.

Making British capitalism work for the many, not the few, means dealing with a crisis of legitimacy. The sense that ‘the system’ is rigged in favour of a smug, global elite which has got rich while everyone else struggles with austerity.

Morals, merit and corruption

Most of us will ignore a twinge of jealousy if someone has worked particularly hard or skilfully to do well. They deserve their success. It’s been earned legitimately and, because they’ve done the right thing, we accept and applaud it.

But we feel very differently if successful leaders are neither admirable nor deserving; corporate or public-sector bosses whose organisations deliver third-rate performance. Charitable and religious leaders allowing exploitation of vulnerable people they are supposed to help. Oligarchs, kleptocrats and criminals openly enjoying fabulous lifestyles even though their wealth comes from looting publicly-owned assets, or from people-, drug- or gun-smuggling.

So legitimacy isn’t about whether our neighbours are earning more than we are, or own a bigger house. It is different and more fundamental than inequality. It depends on fairness, justice and morality instead: whether our neighbour’s success is deserved and fairly earnt, or not.

Shutting kleptocrats out of Britain

One of the most corrosive trends undermining the legitimacy of modern capitalism is a foreign criminal elite of human rights abusers and kleptocrats living ostentatiously bling lifestyles off their ill-gotten gains in Britain (mainly London). The answer is to make Britain far less welcoming by freezing their property and investments, and denying them visas so neither they nor their families can get into our country to enjoy life here, do business or send their children to our schools.

Naming and shaming

The thing which criminals fear as much as legal sanctions is the glare of a public spotlight exposing what they’re up to. If a previously legitimate oligarch appears on a list of people who have had property confiscated or frozen, and visas refused, it matters. Formerly-willing business partners won’t sign contracts with someone they know they can’t trust. Banks will close their accounts and turn them away. Lawyers and accountants, too. The law firm at the heart of the Panama Papers, Mossack Fonseca, went bust because their name was so tainted.

So to shine a spotlight into the shadows, we must produce and publish the list of people whose assets we’ve frozen, whose property we’ve confiscated, and whose visas we’ve refused. We already do it for suspected terrorists who are subject to financial sanctions, and for proscribed terrorist organisations as well. If we don’t, people will rightly ask if oligarchs and kleptocrats are quivering in their boots, or planning their next shopping trip to Harrods. And whether the unfair system is really going to change.

Grabbing dirty money

The spotlight must reveal precisely where the criminals and kleptocrats have stashed their cash, too, because you can’t freeze or confiscate assets you can’t see. That’s why the new public registers of who owns what shares in British companies are so important, so oligarchs can’t hide behind dodgy, anonymous shell companies. But those same arguments mean we should be just as open and transparent about Trusts as well, so they can’t be used to launder dirty money either. And why the equivalent public register for real estate is so vital; it’s due to start being implemented in 2021 but, until then, it will be hard to spot British homes or offices which have been bought with dirty money.

Fighting fake news

Citizens and consumers need honest, accurate information about the choices they’re being offered, so the decisions they make are well-informed. This matters for pretty much all decisions in a free and open capitalist society, whether they are as simple and mundane as choosing a brand of toothpaste, or as important and strategic as voting in a General Election. Societies which are truthful, where most people and information can be trusted most of the time, tend to be more economically successful (because the costs of corruption are lower), as the graph below shows, and – given the popularity and widespread popular support for anti-corruption campaigns – happier too:

In the modern world, most of the information we use to make these choices is accessed online. But it is much harder to know whether online data is reliable and trustworthy compared to the much more limited, old-economy analogue sources, because our legal frameworks are out of date. For example:

  • In the pre-digital analogue world, the long-established distinction between authors and publishers, with clearly-understood responsibilities in each case, made it fairly easy to spot and stop fakes. But this distinction doesn’t work well for new digital platforms like Google or Facebook, which don’t fall neatly into either of these two old-economy categories.
  • Some pre-digital laws don’t cover information when it is published online, so it doesn’t have to satisfy the same standards. As an example, all election campaign literature has to include information about who printed and published it if it is printed on paper, so someone is always accountable if it isn’t true. But the same rules don’t (yet) apply to everything that’s provided online.

Unsurprisingly, online information is far less trusted and reliable as a result. Crimes, scams and cons which have been both illegal and rare for years in the old economy have been given fresh life in the digital world. Fake news and disinformation have eroded trust in previously-admired institutions, and fuelled the sense that Britain’s free and open capitalist society is rigged.

This won’t do. If the old legal framework can’t deal with new digital channels for dishonest or inaccurate information which is corroding the legitimacy of Britain’s entire society, then we must update it quickly. We need solid, reliable foundations of fact and truth once more.

A new Information Act

We will need a new Information Act, which systematically updates and amends all our existing analogue information laws so they cover online and digital media as well. For example the section intended to fix the outdated rules for election literature would include:

  • Online election material should have the same information about who published it as is already required for printed material, so someone is always accountable if it isn’t true;
  • The existing election-day limits on radio and TV political broadcasts and news should apply to online channels, too;
  • The existing rules banning intimidation and pressure around polling stations should apply to online bullying as well.

Clearer responsibilities for digital platforms

We will also need a new legal framework to deal effectively with dishonest or inaccurate digital information, to stop it corroding the foundations of solid, reliable facts and truth which underpin Britain’s economy and our entire society.

The new framework must recognise that digital platforms like Google and Facebook are a completely new type of organisation. Through their search and selection algorithms they create a ‘filter bubble’ for each of us, which affects what we see, and (equally importantly) what we don’t.

The decisions in the filter bubble algorithms matter because they decide whether we are exposed to information which is mostly honest and accurate, or fake. The new framework should include:

  • Any factual or news content which is widely-distributed should have a factual accuracy rating, so everyone will know whether to believe it or not. The rating systems could be based on who had produced each item of content (for example, whether they had a track record of producing factually accurate information in the past) or whether other reputable providers were reporting the same facts, too.  The ratings systems would be developed by the digital platforms themselves, like the established eBay trustworthiness or Uber driver ratings systems, and their quality would be regulated by Ofcom, to make sure consumers can trust what they say.
  • Online news that’s provided by, or through the ‘filter bubble’ should be factually accurate, so the algorithms should give a low priority to any factual or news content with a low accuracy score, so the only people who see it are those who expressly seek it out themselves.
  • But factual accuracy is only part of reported news. A free press means that different editorial teams will, entirely legitimately, report the same facts in widely diverging ways. Currently, filter bubbles reduce variety by selecting news that matches our existing preferences, so we are only exposed to a single version of reality. In extreme cases this can mean a diet of exclusively alt-right, radical left or jihadist views. For everyone else the effects are more subtle, but just as profound, because it puts a spoke in the wheel of the debating process which forges democratic consensus in modern Britain on everything from sports to taxes, foreign policy or sexual morality, by allowing weak arguments, prejudices, assumptions and half-truths to escape being exposed or challenged.. It erodes Britain’s centre ground and creates a less cohesive, more splintered, factional and divided society instead. This matters because, in a world where online is often the only source of news for many modern digital citizens, it gives filter-bubbles the same control over what we see and hear as radio and TV news channel editors in the old economy. But the rules about ensuring balance and fairness which already – rightly – apply to British TV and radio news broadcasters don’t cover online filter-bubble digital news feeds at all. So the existing rules must be updated to apply the same principles of balance to filter bubble algorithms as to human editors, and then policed by Ofcom since they already have responsibility for TV and radio news broadcasters anyway.

Taxing the poor, to favour the rich

At the moment, the tax rates paid by people who work for a living are much higher than taxes paid by the very rich who have large unearned incomes from things like dividends on investments, or rents from property portfolios. Workers pay income tax at 20 per cent to 45 per cent, but the rich pay much less; between 7.5 per cent and 38.1 per cent on things like dividends or capital gains.

Things are even worse for the least well-off, because their benefits are reduced for every £1 they earn, on top of the taxes they pay. Depending on the types of benefits being claimed and the number of hours someone works, their combined rate can easily rise as high as 75 per cent.

This means Britain’s tax and benefits system is structurally unfair; the rich pay the lowest rates of overall tax, and the least well-off pay the highest. The ‘haves’ are being subsidised by the ‘have-nots’. The tax system lies at the heart of Britain’s capitalist system so, because it is rigged in favour of a rich elite, it’s hardly surprising that so many people feel the system is unfairly stacked against them.

Britain’s tax system used to tax earned and unearned income (although not benefits) equally from 1988 to 1998, when Nigel Lawson was Chancellor. Lawson argued that taxing different types of income at different rates was nothing more than political favouritism; a taxpayer-funded subsidy for whichever side has the best Westminster lobbyists.

The answer is to tax all income the same, whether it comes from benefits, work or wealth. The advantages of this would be:

  • Taxes would be simpler and harder to dodge, because we would have removed the incentives for self-employed people and high-paid bosses to use complicated schemes to reclassify income as capital gains or dividends to avoid higher tax rates.
  • It would be fairer, more progressive and more legitimate. The system wouldn’t be rigged in favour of a gilded elite because we would have stopped subsidising the rich at the expense of the poor.
  • It would create clearer and stronger work incentives. At the moment, less well-off families have weaker reasons than rich ones to apply for a promotion, or work extra hours of overtime, because they keep less of the extra money that they would earn if they did. This hampers social mobility and reduces social justice, because it cuts less well-off peoples’ chances of moving up the income ladder.
  • It would reduce in-work poverty, because it would mean less well-off families would keep more of any extra money they earned.
  • It would be more economically efficient, making everybody richer by raising Britain’s productivity and rate of growth because investment and jobs would flow to wherever they could be deployed most productively, without distortions from the tax system.