"Political leaders within the 1% promise to reduce inequality just before they gain power, but then increase it" - Danny Dorling
For the first time in generations, there is now serious debate over the cost of the superrich. The debate rages in the US, where 66 per cent of the population in 2012 believed rich and poor were in conflict, compared to just 47 per cent in 2009. Only 43 per cent of Americans still thought that people became rich ‘mainly because of their own hard work, ambition or education’. Some 46 per cent of Americans believed that to be untrue, leaving 11 per cent unsure. More and more people are learning how the rich reduced their tax rates, weakened trade unions and – for a time – made the idea of avoiding tax acceptable.
To qualify to be a member of the top 1 per cent in the UK, you need a total household income, before tax, of about £160,000 a year. This estimate is for a childless couple. Should you be single, you can enter the 1 per cent with a little less; should you have children, you’ll need a somewhat higher household income. These statistics and evidence of a recent contraction of inequality within the 99 per cent all come courtesy of the Institute for Fiscal Studies (IFS). According to that respected body, as the very richest become richer, the rest of us are becoming more equal. However, growing equality within the 99 per cent does us little good when those at the very top keep on taking more and more.
In the UK members of the general public are now surer that the gap between rich and poor is unwarranted than ever before recorded, and they are becoming more sure of this with every year that passes. Dwindling numbers believe the rich generate wealth which all the rest of us get to share, but among them are some prominent people who use their position to promote this belief. There are many multi-millionaires who financially support right-wing think tanks to argue on their behalf. An even smaller, richer group with great influence are the megarich owners of newspapers and television channels, but they all now face growing opposition.
Around the world, a majority of the global protests that have occurred since January 2006 have centred on issues of economic justice. In 2006 there were just 59 large protests recorded worldwide. In just the first half of 2013 there were 112 protests of a similar size. The rate of large-scale global protest has increased almost fourfold in six years. And these protests are ‘more prevalent in higher income countries’ – countries where most of the 1 per cent live. Why is this?
People in the UK are beginning to understand that the 1 per cent really are now extraordinarily rich, and very different to themselves. Most people are entirely excluded from the top 1 per cent, no matter how well they do in a career. The most expensive head teachers in Britain are paid around £112,181 per year – about 70 per cent of the annual income of the lowest-paid of the top 1 per cent. The top pay of General Medical Practitioners (GPs) in the UK receives a great deal of attention. But in 2011/12 the average GP received £103,000 a year; only 2 per cent of GPs earned over £200,000, and just 160 of those earned over £250,000.20 The remaining 520 members of this tiny group of top-earning GPs earned below a quarter of a million pounds a year. That might be far too much for someone who is essentially a public servant, but it is very low by the standards of the top 1 per cent whose ranks they have joined. In short, almost all people who now have jobs that would traditionally place them within the best-off 1 per cent of society – head teachers of large schools, the local doctor – are now among the best-rewarded of the 99 per cent, rather than being members of a group apart.
The figures used above that show how few doctors are members of the 1 per cent are based on GPs’ income tax returns, and include all their taxable earnings. An investigation by the general practice magazine Pulse found that one in five of the GPs who sit on the boards of England’s 211 Clinical Commissioning Groups (CCGs) – the boards that decide how NHS budgets are spent locally – also had a stake in a private healthcare firm that was providing services to their own CCG. It is extremely unlikely that the GP you get an appointment with is in the top 1 per cent, but we need to be aware that a few people who are paid to be GPs are also profiting greatly from the privatisation of the NHS and becoming rich enough to join the 1 per cent.
The reason we need to be acutely aware of current trends is where they might take us. In the US the top 1 per cent now receives almost 20 per cent of all income – a figure they last ascended to in 1928, the year before that most infamous stock market crash. Today, making it into the top 1 per cent in the US requires an annual income of at least $394,000. This is higher than the £160,000 in the UK because inequality in the US is greater. Getting into the top 10 per cent in the US requires an annual salary of at least $114,000 – more similar to that required to enter the UK top 10 per cent, but a little higher in real terms.
The US is very unusual. In most affluent countries in the world, the best-off 1 per cent get by with far less, the top 10 per cent are much more like everyone else, and everyone else tends to be much better-off. In Japan, which is one of the most economically equitable countries in the world, the best off receive roughly half as much as in the US – just under 10 per cent of all national income, a share very similar to what the Japanese richest 1 per cent secured in 1944; in 1945 the income share of the richest 1 per cent in Japan dropped to 6.4 per cent, and has remained within those bounds ever since – less than half the equivalent figure in the US.
Today the UK sits halfway between Japan and the US. The British top 1 per cent last secured a share of UK national income as large as they do today back in 1937. Between 1976 and 1979, less than forty years ago, their share had fallen to below 6 per cent, to what had been the Japanese post-war minimum; but these were the four years when Britain was most equal.
It is through the actions of the rich, the influence of their corporations and the politicians they support that the top 1 per cent in the UK fuel growing income inequality between themselves and everyone else, leaving so many with so little because a few think they must have so much. We know that it is because of the huge cost of the top 1 per cent that there is more poverty in the UK than in any more equitable rich nation. Reducing inequality will not necessarily be sufficient to reduce poverty greatly; but poverty cannot be reduced while high levels of inequality remain, because a large part of what it is to be poor is being valued as near worthless.
The total annual cost of the top 1 per cent is £110 billion; this is their average of earned plus unearned income of £368,840, shared between around 300,000 people – 1 per cent of the UK’s workforce of 30 million. That figure is much higher than the mean of what the top 1 per cent of employees earn a year in basic pay, which is £135,666, and it has more than doubled in real terms since 1986.30 This is because so many of the 1 per cent also secure annual bonuses on top of salary, or have other sources of income.31 And when their bonuses are threatened by European law they find ways of circumventing the legislation, even with the connivance of the UK government and tax authorities.
Of those within the top 1 per cent who are receiving the bulk of their income from earnings, we know that more than 80 per cent are men, and that, as the income share of the 1 per cent has grown, so too has the share taken by those men within the 1 per cent. The 1 per cent are also getting older, now mostly being between fifty and sixty-four; and the largest, fastest-growing, and best-paid group within the 1 per cent work in finance. The few that regularly appear on our TV screens are typical of the group as a whole: old, male, white and – very often – bankers.
To believe that it makes sense that just a tiny proportion of people deserve such a huge slice of the cake, you have to believe that there is something very special about the 1 per cent group that justifies their income and wealth. Unfortunately many people do, even though an increasing number see the extent of their riches as unjustified. The effects of those beliefs in the worthiness of the rich are corroding the fabric of society. A majority has begun to believe that the poor have no right to live near the centres of our most expensive cities, and it becomes possible for prime ministers to claim that cutting benefits to the poorest in society is part of some moral mission. Inequality and the top 1 per cent are not the same phenomena; they are not even the same thing measured in different ways. There will always be a top 1 per cent, but there can be more or less inequality. When some of the 1 per cent use their resources to suggest that increasing inequality is good, a toxic feedback loop can result. They suggest that you only have to earn more to go up the ladder. That is not true. You can only go up the ladder if someone else comes down it. The number in the top 1 per cent is fixed. Few people are prepared to accept a fall in income except on retirement, and in the UK and the US the top 1 per cent have recently shown themselves to be the most able group at ensuring their incomes continue to rise in defiance of the economic crisis.
Today, similar levels of excess to those seen in the 1930s among the rich are only found in a few very unequal countries – places that have forgotten their past. The US, Canada and the UK lead the rich world’s inequality league table. The countries of the rest of Europe and Japan show that the opposite is possible. In places like Switzerland, the best-off 1 per cent receive only half the proportion of income they receive in the UK. It is possible to have many bankers but not to pay them so much; and Swiss bankers don’t appear as accident-prone as their US and UK counterparts, despite their much lower average remuneration.
Although the rich can fuel a particular kind of ‘wealth creation’ – one of ever more wealth for themselves – there is no perpetual-motion machine causing the top 1 per cent to become richer and richer and take an even greater share year on year, with their salary reviews and property value escalators. There is no iron law dictating that everyone else must step down in times of austerity, with those at the bottom drowning.
What matters most is that the wealth of the richest 1 per cent has a great impact on the rest of us. In the UK today, the poorest couple could double their annual income and the median households could be 10 per cent better off if the richest 1 per cent took just five times the average income rather than fifteen times, and the excess was shared out more equally. Some might argue that the 1 per cent pay their way in tax. In a highly unequal country where the richest 1 per cent take a huge amount of the income, they will often inevitably end up paying a greater share of the income tax. In the UK it is widely reported that the top 1 per cent pay between 25 per cent and 33 per cent of all income tax received by government. Before the 2008 crash it was nearer a quarter; now it is nearer a third.
A spokesperson for the Treasury recently insisted: ‘The government has taken action to protect those on low incomes from the challenging economic circumstances we face: 2.7 million people have been taken out of income tax altogether as a result of increases to the personal allowance.’
The truth is that most people have so little money that their income is insufficient to pay much direct tax. Despite this, the poor often end up paying the most tax relative to their measly incomes, due to indirect consumption taxes; but still their taxes are only a small proportion of what the government needs. Often the reporting suggests that the rich do us a favour by paying tax. Rarely is it pointed out that they take too much income, or that the government currently collects only 26 per cent of its revenue through direct income tax. Value Added Tax and National Insurance account for 35 per cent of government revenue. Today one of the most closely comparable countries to the UK in terms of income and taxation inequalities is Russia, where the best-off tenth of the population now take sixteen times the annual income of the worst-off tenth, compared to around fifteen times in the UK. But rich Russians still flee to the UK because they are even better off here, benefiting from lower UK taxes on the rich and especially on their residential property.
In the UK a similar degree of inequality to that now seen in Russia has been attained but it was attained at a slower rate, so it is easier to present current high inequality as natural. Nevertheless, in 2013 it was revealed that the richest person in the UK was the Russian billionaire Alisher Usmanov, whose fortune was estimated at £13.3 billion. Twenty-five years ago the list had been topped by Queen Elizabeth, whose wealth was then estimated at £5.2 billion.
The rise in UK national wealth has been put down to the increased property values – but we know which property rose most in value, both in absolute and percentage terms: the wealth of the superrich and the value of their land and property in London. If inequalities in the value of property continue to rise at current rates, the wealth of the 1 per cent would approach 1,100 times the wealth of the royal family. But is this really possible? Where will they get that huge amount of extra money from?
The top 1 per cent today have an enormous amount of money. They own newspapers and TV channels, and they spread myths to offset the growing consensus among the 99 per cent; stories about benefit scroungers are designed to rally people to their side. They spread myths of generating jobs through their ‘wealth creation’. They are treated with deference in newspapers and on TV and radio news programmes, just as clerics used to be treated a century ago. Business ‘dragons’ are presented as benevolent creatures, not destructive, scaly reptiles. The BBC Radio 4 Today programme has a business slot fronted by a former city executive, in which CEOs are rarely criticised.
If the National Minimum Wage had kept pace with FTSE 100 CEO salaries since 1999, it would now stand at £18.89 per hour, instead of £6.19 per hour. For some reason, however, BBC reporters rarely ask CEOs why the gap between their pay and the pay of the poorest staff in their organisations has grown into such a gulf in so short a time. The unstated implication is that the lowest-paid staff are lucky to have any job at all, and only have what they have thanks to the benevolence and fine leadership skills of the 1 per cent.
If the top 1 per cent actually created more jobs as they became wealthier, then ordinary people would be surrounded by employment opportunities in both the US and the UK. Instead it is in Germany, where the wealthiest 1 per cent receives half as much, in pay and bonuses, as their counterparts in the US, that unemployment is at a twenty-year low. Even in Germany, there is no minimum wage and many of the new jobs are insecure; but in countries that control their top 1 per cent, that group works more effectively for the good of all, or at least creates less trouble and a little less misery. The fact that both the UK and US are far less equal than almost all other affluent nations, and that inequality in both has in the past been significantly less, is not as widely recognised as it needs to be. We also need to begin to recognise how the top 1 per cent get away with taking so much, what effect a very rich 1 per cent has on society in general, and how 99 per cent of people are persuaded into accepting so much less.
The top 1 per cent differentiates itself from the rest in many ways. Inequality is more than just economics – it is the culture that divides and makes social mobility so painful, both for those dropping down the income and wealth scales and for those going up.
It has already been widely demonstrated that growing inequality and poverty have terrible effects on the health and well-being of the rest of society. What is not so well understood is how, as the inequalities grow, politicians who are members of the 1 per cent are forced to break promises such as that of not introducing university tuition fees – as Mr Clegg had promised – because they do not wish to acknowledge the alternative of stopping the 1 per cent taking so much. A much greater promise than ‘no tuition fees’ has been broken by the leader of the Conservative Party. That promise was made in 2006. Some political leaders within the 1 per cent have become very good at promising to reduce inequality just before they gain power, but then increase it.
Foremost in the race to the heights of hypocrisy is David Cameron:
‘We need to think of poverty in relative terms – the fact that some people lack those things which others in society take for granted … In the next twenty-five years, I want my party to be in the vanguard of the fight against poverty.’
In the United States, after one-and-a-half terms in office, President Obama admitted that, even under his tenure, 95 per cent of income gains between 2009 and 2012 had been won by the 1 per cent.58 He has now left himself only two years in which to reverse that trend, in which to try at least to keep a small part of the promise he made to those who voted for him so enthusiastically. But even if he fails he may tell himself, and others, that he did not.
In May 1988 the then prime minister, Margaret Thatcher, told the House of Commons: ‘Everyone in the nation has benefited from increased prosperity – everyone.’ That, of course, was untrue. But some were more grateful than others. Twenty-five years later, when she died, it became clear that the very wealthy twins, Sir David Barclay and Sir Frederick Barclay, owners of the Daily Telegraph and Sunday Telegraph, had allowed her to stay in London’s Ritz hotel for nothing – presumably out of gratitude.
To this day, it remains unclear who had been paying for Mrs Thatcher’s £6 million home in Chester Square, Belgravia – although it appears not to have been her or her family.
Among the top 0.01 per cent are people who fervently believe that inequality is good, that the poor deserve nothing more than to be poor because they do not have it in them to be any better, and that the rich are worth their riches. Most of the top 1 per cent appear not quite as deranged and driven, but they are a hard group to survey, let alone tax, so it is time we took a closer look at life at the top and its effects on us all.
- this is an edited extract taken from Inequality and the 1% by Danny Dorling, currently 50% off as part of our UK Election reading list (until 8th May). See the full reading list and sale here.
See all our UK General Election extracts and articles here, including:
'Who will protect, provide, shelter, build?' - James Meek on the questions that should be at the heart of the election, but are not being asked.
Tariq Ali on "the triumph of finance" and the politics of Thatcher and Blair