The four inequality horsemen of the apocalypse
Ahead of Thursday’s autumn statement, the (managed) expectation is that the ‘hole’ in the public finances will be filled more with spending cuts than with tax rises, although the ratio is likely to be less steep than the 80/20 that George Osborne opted for during austerity 1.0. This time around, there are also more people pushing back against the idea that ‘there is no alternative’ to spending cuts, including bond traders.
A fiscal ‘black hole’ can be made larger or smaller with the click of an economist’s mouse. The black hole in ordinary people’s finances (the househole?) is harder to patch over. And things are getting bad. Hence this week’s cheery theme. But the good news it that there are real solutions, many of which could be put into practice later this week if the Chancellor so desired.
So, who are the four inequality horsemen of the apocalypse?
The first is wealth. Rising asset wealth and falling real wages are making wealth inequality in the UK higher than ever, and making it harder for people to get ahead through hard work alone.
The second is income. We are seeing soaring CEO pay while millions are having to turn to food banks to survive, including increasing numbers of key workers.
The third is health. Inequality and poverty are undermining health outcomes, which is of course bad in itself, but also undermines productivity and growth - a classic vicious cycle.
The fourth is carbon. Yet more figures are being published to show the hugely unequal impact of people at opposite ends of the economic spectrum on the planet’s future.
There are others, too, of course. Not least the ‘horizontal’ inequalities between particular groups, such as racial, gender, regional and disability inequalities…
Last week, the Institute for Fiscal Studies published a set of papers on trends in income and wealth inequalities. The key finding? It is getting harder and harder to get rich - or even to get by - through hard work. Instead, the key drivers behind increasing levels of wealth inequality are the rising prices of assets (property, and stocks and shares) and falling real-terms wages. This means that inheritances play an increasingly important role in determining future wealth (further reducing already-low levels of social mobility). Unearned income matters more than earned income. The Fairness Index covers some of the related arguments. And absolute wealth inequality is increasing, because of the increased amount of household wealth, even if relative wealth inequality is fairly stable. This has real consequences for intergenerational fairness, with “those born in the 1980s or later both suffering from the UK’s poor record on productivity, and having missed out on falling or low interest rates that have caused a surge in the value of wealth that has principally accrued to those in previous generations”.
When we published the Fairness Index, the statistic that most surprised the public in our polling was that the median FTSE 100 CEO is paid 79 times more than their median employee (courtesy of the High Pay Centre). A recent article from Lancaster University points out that this year, CEOs in this group saw pay rises of nearly 25%, while many employees are seeing real-term pay cuts because of inflation, and that while official statistics show that income inequality in the UK is higher than many other developed countries, they probably underestimate it by failing to account for low-paid contractors or workers on zero hour contracts. And there’s no shortage of the evidence for the scale and the consequences of low pay. Last week, the Trussell Trust reported that 320,000 people are using food banks for first time, including nurses. The head of Greenwich food bank in south-east London said that “anyone on under £25,000 a year is in danger of using a food bank.”
Kate Pickett and Richard Wilkinson showed, in their seminar 2009 book The Spirit Level, how health and social problems (physical health, mental health, drug abuse, education, imprisonment, obesity, social mobility, trust and community life, violence, teenage pregnancies, and child wellbeing) are between twice and 10 times as common in more unequal societies, and that economic inequality is bad for everyone’s health. Last week we covered the findings of research into health inequalities by the Institute of Fiscal Studies, which found that gains in life expectancy slowed considerably after 2010, as did progress in closing the “large differences in mortality rates between less and more educated adults, and between less and more deprived places.” This week, the Office for National Statistics published the latest iteration of its Health Index, which also uncovered evidence for gradual declines in health outcomes beyond those directly attributable to the COVID pandemic.
In the Fairness Index we cited research showing that someone in the top 1% of people in the UK by income produce 25 times as many carbon emissions as someone in the bottom 10%. Looking at absolute numbers, and at the global level, the same research found that the bottom 50% of the world population emitted 12% of global emissions in 2019, while the top 1% emitted 17% of the total. What’s new about this research is that it includes the carbon emissions of people’s investments, as well as of their direct consumption. New global research published by Oxfam builds on this approach and shows that 125 of the richest billionaires emit more than a million times more carbon each year than the poorest 90% of the world’s population (and the same as the total annual CO2e emissions of France). It also found that if these 125 people moved their investments into low-carbon equity funds, their emissions would be reduced by up to four times, and recommended reforms including taxing wealth and taxing polluting investments.
Looking on the bright side
As we said when we published the Fairness Index last month, there are plenty of effective, affordable and popular ways of facing down the four horsemen. We can do so by fixing the broken markets that trap people in poverty, deny them opportunities, reward them inconsistently, undermine the social contract, and fail to treat people equitably. We chose to focus on three market failures in particular: making jobs better, making the essentials affordable, and taxing wealth better.
A new campaign called Stop the Squeeze is echoing these demands; if you work for an organisation, please consider signing up your organisation to support them.
Pressure for taxing wealth is coming from an increasing number of places; just this morning the former chairman of Greggs came out in support.
And on the economics of taxing wealth, Arun Advani at Warwick University and colleagues at the London School of Economics have published an online wealth tax calculator, which proves that it’s a myth that we can only raise substantial revenue from increasing income tax, national insurance or VAT.
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