This summer marks 10 years since the beginning of the financial crash in the UK, when depositors lined up outside branches of a small British bank, Northern Rock, to withdraw all of their savings as quickly as possible, particularly since everyone else was doing the same. This led to the UK’s first bank run in 150 years. The global crash that followed saw panic, which seemed a prudent reaction. When the dust settled, it was clear the elites had failed to anticipate the near-apocalyptic events. They had placed too much faith in market liberalisation, deregulation and tax cutting that benefitted the very wealthy disproportionately. In an instant everything changed. Yet nothing did.
As research for the Resolution Foundation this weekend shows, the rich are back. While the rest of society have shared in an equality of misery following the crash, the top 1% – households with incomes of £275,000 – have now recovered all the ground they lost during the world’s worst post-second world war slump. The share of income going to the very richest is now 8.5%. That’s double their share in 1985. The question has to be asked: has the value of the 1% in society doubled in the last 20 years? What have all these higher earners – in the City or in the boardrooms – done that has been so socially useful to see their share of total wages go up so much?
It’s not that we are richer as a nation. The economy is about £300bn smaller than would be expected if the crash had not happened. Remember the recession was caused by the financial sector’s innovations – the excessive leverage; the perverse incentives; the fraudulent promotion of risky products as safe – and its promotion that greed was the ultimate good. While public spending as a proportion of GDP might be roughly constant since the crash, the country’s needs are higher, so there’s a feeling of less to go round. This has happened while there’s been a quiet secession of the successful.
All the rise in inequality is due to this group racing away with the goodies from the economy, while the rest of us are being squeezed closer together. For the very wealthy, rules are bent to suit their needs. When a dividend tax was readied for 2016-17, the very wealthy took their payments early and avoided £800m, money that could have been used for schools and hospitals. More than £100m of that tax saving was enjoyed by 100 people. Can you imagine a supermarket worker asking to bring forward his pay to avoid a tax charge? The richest in our society are not worth the rewards they give themselves. It’s because they have captured ideologically the political process that these absurdities continue. Studies show a decline in the influence of the middle-classes, compared with the wealthy, fuelling social and political instability. The rich mistakenly think all their power and money and success is down to their brilliance and hard work. This is why FTSE CEOs now earn on average £5.3m a year, 386 times more than workers on a national living wage.
The more as a society we have pursued meritocracy and “equality of opportunity” the more unequal we have become and the less socially mobile. That’s why the professions are becoming closed shops for the privately educated. Because politics is colonised by the thoughts of wealthy “meritocrats”, we end up advocating social mobility in unequal systems without thinking about who is going down when the clever are going up. Lots of debate about student debt but barely a squeak about the other half of the country that needs apprenticeships.
Because meritocracy is a myth used to forgive the vice of greed, university vice-chancellors and BBC stars end up being paid astronomical amounts. Both are workers whose wages are not very competitive because quality is hard to judge, particularly in advance, and it is worth paying a lot more for better outcomes. So they get paid whatever they can get away with. Labour have their answer: taxing the rich and spending to reshape the welfare state. The Conservatives understand the problem but do not want to intervene and regulate to ensure the stability that affordable homes, job security, educational prospects bring.
The prime minister has sought to portray the divide as one between “locals” and “globals”, who inhabit different economies. One linked by roadside chats; the other by FaceTime. Today’s Conservatism does not want to level relationships between poor and rich, to provide policies that allow workers to set bosses’ pay or tenants to hold their landlords to account or empower consumers over corporates. Be warned: if a party cannot stand with the country, the country will end up standing with someone else.