The Independent View: The richest 1% will soon have a record share of our national income

Just before the general election Nick Clegg complained that the gap between the mean average incomes of the richest fifth as compared to the poorest fifth in Britain had risen from 6.9 to 1 in 1997 to approach 7.2 to 1 towards the end of Labour’s 13 years in power. This shift took the UK one quarter of the way towards becoming as unequal in income as the world’s most unequal large affluent country, the United States.

Within the last 15 months the emergency budget, the March 2011 budget and the comprehensive spending review combined have moved Britain far faster towards becoming the most unequal affluent nation in one year than Nick Clegg complained New Labour managed in thirteen. The High Pay Commission confirmed this in their new report. They showed that if current inequalities continue, the best-off 1% will soon see their earning rise to a share of national income so high that such excess has never been recorded before.

The International Monetary Fund estimate that the current plans of the Chancellor of the Exchequer, George Osborne, for cuts to public spending will result, by 2015, in the UK spending a lower proportion of its GDP on public goods than any comparable European country and, for the first time since records began, a lower proportion through government expenditure than is spent in the United States of America. Far right members of the Republican Party and “Tea Party” activists have started to single out the UK as a country they would like to emulate.

Meanwhile the new Sunday Times Rich List has revealed the best-off 1,000 people in Britain saw their wealth rise by 25% during the first year of coalition government, each receiving, on average, an income of £60 million on their ‘investments’. The year before, their wealth had risen by almost 30%, admittedly having slumped with the crash. However, what is key today is that as many people see their incomes fall or stagnate, those nearer the top are still receiving pay rises, and the nearer to the top you get the higher those rises tend to be.

So what do you do about it? The last time there was a Liberal-Tory coalition income inequalities fell. It was a long time ago but it is worth remembering. They fell almost every year from 1918 through to 1974. Wealth inequalities fell even faster. Lloyd George can perhaps take more credit than most. Death duties helped reduce the power and greed of the aristocracy far more than calls on them to perform their ‘historic duty’. In around eighty local authorities in Britain almost no-one is rich enough to qualify to pay death duties today. Meanwhile, in a tiny handful of other areas, a large proportion of the population fear these ‘duties’ and many work hard to avoid paying their taxes.

Britain reduced income and wealth inequalities before. Most affluence countries in the world manage to have far lower inequalities in income and wealth than we do. The only conclusion I can reach as to why inequalities in Britain under the last government, and even faster under this one, are being allowed to rise so quickly is that those in power care very little about inequality – or are incompetent.

Bankrupt Britain: An Atlas of Social Change by Daniel Dorling and Bethan Thomas is published by Policy Press and available from Amazon.

The Independent View‘ is a slot on Lib Dem Voice which allows those from beyond the party to contribute to debates we believe are of interest to LDV’s readers. Please email [email protected] if you are interested in contributing.

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30 Comments

  • The only solution to poverty is education and opportunities, not benefits.

    The gap between rich and poor is a false measure. I’d rather live in a rich country with a large gap between rich and poor and no “absolute poverty” than a poor country where everyone is poor and therefore the gap is very small.

    The only way to decrease the gap between rich and poor is by making everyone poorer. Higher taxes and benefits will never change this. If I gave the million poorest British families £1000 tomorrow where would that money end up? On their mortgage? At the supermarket? In shops in town? These are all owned by the rich and successful and therefore for every £1000 you give the poor the rich gain £10000. That doesn’t mean those at the bottom are poor by absolute standards though. I am proud to say there is no absolute poverty in Britain.

  • …..But is this not what the Conservative party (and therefore this government) is all about. Unfortunately, with this coalition, the LibDems are as culpable as the Tories. Perhaps we should ask Danny and Vince as well as Osborne, to explain what exactly is going on. If lots of other countries are “more equal” why not us?

  • ‘Tommy’ says ‘there is no absolute poverty in Britain.’

    Unmitigated rubbish. There are thousands of homeless people in the country and children are born every day into absolute penury.

    Furthermore, income inequality perpetuates social division, exclusion, and crime. Read The Spirit Level by Wilkinson and Pickett.

    If you don’t think that income inequality widening even further than its already eye-watering levels is a problem, then the Tory party is your spiritual home. As the article author states, working against income inequality is in the finest liberal tradition of Lloyd George et al.

    That income inequality has increased more in one year than in New Labour’s 13 years is something that should shock anyone who believed Nick Clegg when he castigated Labour over this very issue prior to the election.

  • Sorry Tommy, I work in Housing Benefit and I see absolute poverty most days.
    People living on £67.50 JSA a week and having to pay their gas, electric, water, travel, food and quite often £10 to £20 a week on their rent that Housing Benefit doesn’t pay and on sub standard appaling properties that are not fit for habitation.
    And that’s getting worse with Housing Benefit reforms that are taking place at the moment. LHA rents are have gone down but rents haven’t.
    Would be nice to think that there wasn’t absolute poverty in a country as prospserous as the UK but until a decent housing policy is developed there always will be.

  • I’m not sure why some people focus so much on the richest in society when talking about inequality as a problem. Why does it matter to me that Mittal or the Duke of Westminster is getting richer? Short answer it doesn’t. It in fact probably has a positive effect on us non-millionaires and billionaires because they might be able to provide more jobs. Also I think the author has slighlty misread the point of inheritence tax. Its there as a fair and economically non-intrusive way of raising revenue. Its not there to simply spite the rich and arbitrarily make them poorer.

    Overall surely what matters is whether the living standards of the worse off are improving not that relative inequality is increasing or public spending is falling?

  • “In my opinion it would be a terrible legacy of the Coalition government if at the end of it inequality has widened further from it’s already unacceptable levels. I believe most Lib Dems would agree with me on that as well.”

    Pretty much I do. However comparators using the very top Ultra-rich can produce a massive distortion. Eg if Abramovic and the Mittals were to leave the UK tomorrow it would produce a narrowing of inequality, similarly if Bill Gates and Warren Buffet came to live her it would produce a widening. No-one at the bottom would be worse or better off in any real terms but the figures would change.

    A thought – If the figures above are correct then each of the wealthiest 1,000 people should be contributing an extra £30m in tax – a total of £3bn extra between them (@50% income tax). Of course they won’t be (when you are that rich paying tax is largely a matter of choice) but there will be additional tax revenues that come as a result.

  • “Overall surely what matters is whether the living standards of the worse off are improving not that relative inequality is increasing or public spending is falling?”

    If you’re an adherent to the theory put forward in The Spirit Level, you adhere to the idea that the living standards of the worst off (and everybody else) are inextricably linked to relative inequality.

  • @Hywel
    “comparators using the very top Ultra-rich can produce a massive distortion”

    And they always have done. This is where the Lib Dems will need to brace themselves for some significant incoming flak. This is due to the Leadership using this blunt tool to attack Labour, who will undoubtedly return fire in kind. Tony Blair used a similar argument when discounting the most wealthy and he was mocked for doing so. The story can be put to bed by admitting it was wrong to highlight this figure before.

    The truth is that like you I don’t care how much the super rich earn (I do car ethat they avoid tax), but I care how much the lowest in society earn and the spread of income ignoring the top x%. If we concentrate on that figure we will have a better yardstick then taking into account those whom Government policy rarely affects.

  • There are some complicating factors in the comparisons with Labour and the USA that need to be extracted before they are meaningful:

    1. Remember that the private sector recession hugely dented the wealth of the top of society, but much less so the bottom. This means that wealth and income inequality dropped sharply in the last 2 years of Labour. The incoming public sector recession (i.e. the “cuts”) will hit the income of the poorest, because the poorest use the public sector more. This will further distort the comparison since it will be happening under the coalition’s watch.
    2. The comparison with the USA needs to take account of the fact that the two economies are out of step in their dealing with the Great Recession. The USA has not started its attempt to reverse the massive Keynsian stimulus and growth of the public sector. Because we will be starting several years earlier, that is the only reason the UK will drop below the USA in public sector share, and that is still only true if the USA doesnt start cutting its deficit sharply soon, which in all probability it will.

  • Ed Maxfield 25th May '11 - 3:34pm

    Why should equality of income be, intrinsically, something that liberals should aim for? Surely we should be more concerned with removing the barriers to opportunity – isnt that one of the things that distinguishes us from socialists?

  • Could I just remind people of our manifesto :-

    We propose the most radical tax reform in a generation, cutting taxes for
    millions paid for by closing loopholes at the top and increasing taxes on
    polluting aviation. No tax system should try to create total equality of income
    – but it can and should help redistribute wealth and power, to alleviate the
    worst excesses of inequality.

    Enough said I think

  • Anyone who says absolute poverty does not exist in the UK needs to come look at what the charity I work for does for disabled people every day. There is a hidden epidemic of disabled and sick people living in poverty in this country which is never reported. And the benefit cuts have just made things worse for the most vulnerable people in the UK.

    I mean this. Come have a look. It is to the shame of our country that in wintertime some sick and disabled people have to choose between food or heating their home. It is sickening.

  • @Simon McGrath- in fact, the so-called ‘critiques’ of the Spirit Level are themselves barely disguised ideological attacks, wilfully blinkered and deeply selective in their use of evidence. See the debunking of the Policy Exchange rebuttal for example- which relied on removing certain data from the SL calculations, in order to produce different results.

    Secondly, working against income inequality does not mean reacting to the departure of one rich man, but dealing with long-standing trends. The departure of Abramovich would barely dent the inequality measure. And no, clearly it would not reduce crime. But the long term, seemingly inexorable trend towards greater income inequality has a pernicious and deeply-felt effect on society.

  • Tony Dawson 25th May '11 - 5:01pm

    “I’d rather live in a rich country with a large gap between rich and poor “. . . .

    And I’d rather you lived there too. ;-)

    It is not tenable to say that re-distributive measures would always end up benefiting the rich. There are many many European countries where wealth is distributed more evenly than the UK, including countries better off than we are per capita. Also, happiness is NOT proportional to wealth.

  • Perhaps rather than looking at a fixed number of individuals and their mean income, how about the median income of the top / bottom fifth? By measuring the middle value, the median helps to mitigate the impact of outliers (such as Premiership footballers and billionaires at the top of the scale).

  • David Allen 25th May '11 - 6:22pm

    “Can we leave the class warfare to Labour ?”

    Well, since Labour presided over an increase in social inequality and espoused the slogan that we are all middle-class now, I don’t think we can!

    Before Thatcher, we had militant unions, serious industrial strife, retarded business development, but also massive improvements in the living conditions of the poorer in our society. After Thatcher, the unions lost power, with both positive and negative long term consequences. British business began to thrive, but the balance of power was unhealthily tilted to one side. Hence the arrogance and follies of the bankers, the growth of a super-rich elite, and their political organisation to promote a quietly ongoing increase in social inequality.

    The “breakthrough” came when the City came together with Smith and later Blair to recognise that simply supporting one side, the Tories, would not achieve the long term shift towards inequality which the super-rich sought. How much better it would be to support the “New” Labour side as well, so that Thatcherite “gains” would not be reversed, but would become part of a bipartisan consensus!

    Then up spoke Charles Kennedy, declaring that Britain did not need three conservative parties. That would never do! The hedge funders and Orange Bookers were dispatched to make sure that social justice could not find a sneaky way back onto the agenda via the growth of the Liberal Democrats. With the (dishonestly promoted) election of Clegg to the Lib Dem leadership, and his success in forging an alliance with the Tories, that danger was pretty effectively headed off.

    I don’t want to see the return of union militancy, nor do I want to see violent rebellion by young people who cannot find work (as in Greece and maybe Spain). If we don’t want to wait for some such social explosion to take place, the alternative is to recognise that we must not be “intensely relaxed” about the super-rich, and that taking action to reduce social inequality must be our key principle.

    Which, of course, it won’t be, until we change the leadership.

  • Keith Browning 25th May '11 - 9:43pm

    I have just finished filling in my self-assessment tax form on-line. I have two simple forms of income, both from company pension schemes and nothing else. No investments – nothing.

    So most of my boxes were either empty or negative.

    There were a few boxes that seemed relevant if I was claiming social benefits of some sort but the majority seemed to be ways of rich people reducing their tax bill by claiming for all sorts of things that certainly haven’t entered into my life.

    Take away 99% of these avoidance or reduction measures and the rich might pay their fair wack.

    The difference between the tax I paid in 2010-11 and the tax I owe was £1-50 underpaid, so although I feel a little guilty it isn’t too much.

    In a recent conversation with the tax office about my current year’s eroneous tax code, I commented that when I was earning a decent wedge of £50k plus the tax office always UNDER taxed me but since I am now on a more meagre amount the tax office always OVER tax me. My wife has also been treated in the same way.

    The tax officer commented that his father had exactly the same experience.

    Even the tax office is trying to take from the poor and give to the rich.

  • Simon McGrath 25th May '11 - 9:51pm

    @Alex M -I’m afraid you are talking nonsense. the authors of the spirit level only choose measure which support their case. for example they use imprisonment not crime because crime isnt related to inequality. most of their correaltions depend on the US – if you take them out a lot of the correaltions disappear.

    can you explain the process by which taking money from people in surrey will cause people in Glasgow to commit less crime?

  • “can you explain the process by which taking money from people in surrey will cause people in Glasgow to commit less crime?”

    Easy. Use some of the cash to give the Glasgow area more jobs.

    Next.

  • Is Tommy a billionaire? Which would explain his example – and even more, his attitudes.

    Ed Maxfield – for a start it is disingenuous to suggest people may be aiming at exactly equal incomes. But it is historical tosh to suggest we are not an egalitarian party, or that Liberals and Lib Dems have not supported greater equality (and not just poverty relief) as a social goal. There are far too many (influential) people in the party today who do not, and we do not have the same profile as we did when I joined the Party (1964, I think).

  • Andrew Suffield 26th May '11 - 8:54am

    There were a few boxes that seemed relevant if I was claiming social benefits of some sort but the majority seemed to be ways of rich people reducing their tax bill by claiming for all sorts of things that certainly haven’t entered into my life.

    Most of that stuff is in relation to tax that has already been paid in other parts of the system., and hence it should not be taxed twice.

  • @Simon McGrath- we could accuse each other of talking nonsense all week. However having read the SL and the various rebuttals of it, it is clear that the SL produces strong evidence across a number of measures that inequality harms society. Even the many rebuttals that decide to take out the US data because it ‘doesn’t count’ were not able to eliminate the clear correlation between (eg) inequality and infant mortality. Or do the Lib Dems not care about infant mortality amongst the poor any more?

    The supposed rebuttals of the SL are ideologically driven and do not stand up to the merest scrutiny. The SL on the other hand uses an exhaustive and wide-ranging set of indicators and finds clear correlations between them and income inequality, both through international comparisions and comparisions of US states, for example.

    Income inequality has a pernicious effect on society. The evidence for that proposition is far stronger than the evidence against.

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