The richest 1 or 2 per cent are becoming increasingly removed from everybody else.
The richest 1 or 2 per cent are becoming increasingly removed from everybody else
This week, the High Pay Centre produced a short animation outlining the scale of inequality in the UK. The animation sets out how increases in average earnings have lagged far behind pay for top executives.
On Wednesday, Paul Johnson of the Institute of Fiscal Studies told a Resolution Foundation seminar that the growing inequality within society isn’t a 1980s-style widening between top and bottom and middle.
Instead, the richest 1 or 2 per cent of the population are becoming increasingly removed from everybody else. The Labour Party has also recently highlighted figures showing that the share of post-tax income captured by the richest 1 per cent leapt from 8.2 per cent to 9.8 per cent in 2013/14.
From the HMRC figures, we can calculate that total post-tax income increased by about £37 billion last year. Of this, £16 billion went to the richest 1 per cent, with just £11 billion shared across the poorest 50 per cent. This doesn’t seem the most sensible or efficient kind of ‘recovery’ possible.
What is interesting about our animation is that it compares the situation in the UK with other countries. The richest 1 per cent of the population take around 6 per cent of total incomes earned in Denmark or the Netherlands, according to the World Top Incomes Database, less than half the 13 per cent taken by the richest 1 per cent in the UK.
The Database notes that total incomes in the UK add up to about £1 trillion (see the ‘methodological note’ via this link), so the 13 per cent share taken by the 1 per cent is worth about £130 billion. If this was reduced to 6 per cent, the same as in Denmark or the Netherlands, it would leave £70 billion for the other 99 per cent of UK households – nearly £3,000 each, as discussed in the animation.
Of course, if the UK might need very different social and economic policies over a period of years to achieve the kind of equal distribution achieved by the Dutch and Danes (and other Northern/Western European societies like France, Sweden, Norway and Finland). In which case, total incomes in the UK would probably be different. It is not as simple as saying there is a fixed income pool and we decide how it is allocated
But these are all modern, prosperous societies where people enjoy the same technologies and consumer goods as in the UK. They have historically enjoyed similar of higher levels of GDP per capita to the UK.
So there is little to suggest that measures designed to make us a more equal country would reduce economic growth so drastically as to make poor and middle-income households worse off in absolute terms, even if the gap to the top 1 per cent was smaller.
There are perhaps two lessons from this.
Firstly, our economic growth and GDP relative to other countries is largely meaningless if we don’t also consider how the proceeds of growth are shared across the population. Secondly, there are probably a lot of people whose incomes are lower than they could be, because we have created such an unequal society.
Luke Hildyard works for the High Pay Centre and is a Left Foot Forward contributing editor
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