Why Rising Inequality Matters
"Inequality is not a natural phenomenon; it is the direct result of government policies. Inequality fell when government policies spent money on building new homes (cheaply rented by councils), founded the NHS to improve health, and improved education for all"
Inequality is rising in the UK to unprecedented levels. For most of the 20th Century income inequality fell but over the last decades inequality has risen back to the levels of the Victorian era when a few lived in luxury and most lived in squalor and slums. This rise in inequality is a concern for society and the economy with many organisations and people, like the OECD [1], Christine Lagarde, the managing director of the IMF [2], Bill Gates [3], Archbishop of Canterbury Justin Welby [4], Pope Francis [5], Jim Yong Kim, the president of the World Bank [6], and Mark Carney, the governor of the Bank of England [7], speaking out against the dangers of high inequality.
The results of inequality can be seen all around. More people are living in poverty including over 20% of those in work [8]. Reduced social mobility, and the increase in mental illness and other health conditions that are overrunning hospital A&E departments are all signs of inequality [9]. And while most people are worse off the concentration of wealth at the top is immense: five families in the UK have the same wealth as the bottom 20% [10]. The cost of the top 1% in the UK, who currently receive 15% of the national income, is estimated to be a 10% increase in costs or decrease in wages compared to more equal societies, such as Switzerland or the Netherlands [11]. Unsurprisingly, the OECD’s research noted that inequality slowed down the economy: "rising inequality in the two decades after 1985 shaved nine percentage points off UK growth between 1990 and 2000” [1].
New laws that regulated bosses’ and bankers’ salaries, taxed the richest more and increased workers' wages reduced inequality before 1980. But government policies since 1980, based on “trickle-down” neoliberal economic theories - based on free markets and light-touch regulation, have increased inequality. This is through the deregulation of industries, permitting the increase of boss’s salaries [12, 13], and changing tax laws to encourage transfer pricing and the use of tax havens. Also governments diminished the corporate bargaining power of workers by weakening trade unions. These policies result in astronomic CEO salaries [14, 15, 16] and unprecedented levels of corporate tax-avoidance [17]. Most people’s wages have stagnated [18], housing costs have risen greatly, along with fuel and food costs. This has created a cost-of-living crisis. Most are worse off. The poorest rely on food banks because they cannot afford to heat, clothe and feed their families due to benefits cuts, caps or sanctions [19], or high levels of debt from taking out high-interest payday loans.
References
[1] Larry Elliot, “Revealed: how the wealth gap holds back economic growth”, The Guardian, 9 December 2014.
[2] Jason Douglas, “IMF Lagarde Urges Tax Overhaul to Tackle Inequality ”, The Wall Street Journal, 27 May 2014.
[3] Bill Gates, “Why Inequality Matters”, 13 October 2014.
[4] Press Association, "Welby speaks out over inequality”, 20 January 2015.
[5] Andrew Brown, “Pope Francis condemns inequality, thus refusing to play the game”, 28 April 2014.
[6] CBC News, “World Bank head Jim Yong Kim takes Thomas Piketty to heart”, 30 May 2014.
[7] Russell Lynch, “Bank of England chief Mark Carney warns of rising inequality as average US chiefs’ pay tops $10m”, 27 May 2014.
[8] Gwyn Topham, "Record numbers of working families in poverty due to low-paid jobs", The Guardian, 24 November 2014.
[9] Wilkinson and Pickett, "The Spirit Level", Penguin Books, 2009.
[10] Larry Elliot, "Britain's five richest families worth more than poorest 20%", The Guardian, 17 March 2014.
[11] Danny Dorling, "Inequality and The 1%", Verso, 2014.
[12] Faiza Shaheen, "The NEF blog - Watch: the shocking truth about UK income inequality”, New Economics Foundation, 13 May 2014.
[13] Giles Fraser, "We cap benefits but not bonuses. How on earth are we 'all in this together’?", The Guardian, 1 March 2013.
[14] Kasia Delgado, "They earn £12,000 an hour – but is life in the bubble of the top 0.01 per cent about to burst?”, Radio Times, 8 January 2015.
[15] Lucy Draper, Top Executives Earn the Average Annual UK Salary in Just Two Days”, Newsweek, 6 January 2015.
[16] Luke Hildyard, "Fatcat Tuesday: Executive pay has already overtaken your earnings for the entire year, Left Foot Forward, 6 January 2015.
[17] James Ball, “FTSE 100's use of tax havens – get the full list”, The Guardian, 12 May 2013.
[18] Jamie Doward and Gaby Bissett, "Pay squeeze worst since Victorian age, study finds”, The Observer, 11 October 2014.
[19] Patrick Wintour, "Food banks: Duncan Smith promises positive response after critical report”, The Guardian, 8 December 2014.