Why Britain's inequality should keep the PM awake at night
The Prime Minister's take on economic inequality might not be surprising - but it is revealing
It was the week before Christmas. And the Prime Minister had an appointment to keep - and questions to answer. And one of those answers told us a lot about what the Prime Minister appears unable to see: the deepening inequality dividing our nation.
It is a ritual that dates back to Tony Blair. Every few months, the PM is hauled before the Chairs of Parliament’s Select Committees for a cross-examination. And with food-banks in my patch warning me once again that they were running out of food, I started with a simple question: did he ever lie awake worrying about the spiralling inequality now scarring our country? And I was taken aback by the answer.
Not only did the Prime Minister answer ‘no,’ but he then tried to tell me that inequality simply wasn’t a problem in Britain.
Well, perhaps new data from the Resolution Foundation - out this morning - might prompt him to think again. The UK’s best think-tank working on living standards doesn’t pull its punches. In fact, it explains how the poorest households in Britain are set to face a fall in income this year - while better-off households see their fortunes rise. Here’s what it says;
For many households, even in cash terms they will be worse off: the uprating of Universal Credit will mean around £520 more for a single, out-of-work parent with one child in 2024-25 than in 2023-24, but the loss of £900 in Cost of Living Payments will leave their total support in the next financial year around £380 lower.
The result?
Even as wage growth returns, incomes will be falling for lower-income Britain. For them 2024-25, will be worse than either of the past two years.
Annual real growth in average equivalised household disposable income for non-pensioners, after housing costs, by income vigintile: UK. Source: Resolution Foundation
These are figures that should worry everyone who cares about whether freedom, security and opportunity are fairly shared in our country. Because contrary to the PM’s smooth assurances, there are already plenty of signs that poverty and inequality are getting worse and worse. In the last few weeks alone, we’ve heard:
Citizens Advice warn that record numbers of people sought help in accessing homeless services, food banks and energy bill support this year, finding it ever “harder to find solutions”
A crisis of infant hunger that’s putting the health of babies from low income families at risk
More than 800,000 patients admitted to hospital with malnutrition and nutritional deficiencies - a threefold increase on 10 years ago
This comes as the world’s richest - according to UBS - are now making more money from inheritance than wealth creation. Indeed, Benjamin Cavalli, UBS’s head of global wealth management told the FT,
“New billionaires minted during this year’s study period accumulated more wealth through inheritance than entrepreneurship. That’s a theme we expect to see more of over the next 20 to 30 years, as more than 1,000 billionaires pass an estimated $5.2tn to their children.”
Cue the Conservative party launching into a debate about cutting inheritance tax.
So, what is really going on?
Well, in Birmingham, Trussell Trust tell me that the number of food parcels they’re issuing this year has risen 40%. And that is on top of the extraordinary national rise we have seen in the food banks over the last few years.
When we look at some of the underlying causes for this, we can see why. Here’s the latest data from I asked the House of Commons library to pull out for me, ahead of the Liaison Committee hearings. As you can see, when we look at the numbers languishing in relative poverty after housing costs, we have a sharp rise in both the number of children, and the number of working age adults living in relative poverty.
So, what was the Prime Minister’s case? I suspect he was resting his argument on the slight fall in the Gini coefficient for income over the last few years. The Gini coeeficient is a way of looking at the dispersion of income throughout society: the lower its value, the more equally household income is distributed - and this has fallen slightly since 2010, not least because incomes have on average remained so flat.
But when we look at Gini coefficient for wealth, we see two things. First, it is much worse than for income, and second, it hasn’t gone down. In fact, it has gone up. And this is likely to be an underestimate because as the Office for National Statistics tells me, it is very hard to collect data on either income of wealth for the very richest. Indeed, Arun Advani and his colleagues estimate some £800 billion held by the super-rich is missing from the calculations.
These shifts reflect a big change in the nature of our economy over the last decade as wealth and income from wealth has been transformed not least because we:
(a) poured into the economy nearly a trillion pounds of quantitative easing, which by keeping interest rates low boosted the value of assets, which are largely held by wealthier citizens, and
(b) kept tax on investment income at around half the rate of a top rate tax-payer, while providing big tax incentives for those who already own assets (what Richard Titmuss used to call ‘fiscal welfare’)
These shifts have overwhelmingly benefited the very luckiest in society far more than everyone else. Indeed, the top 1% have multiplied their wealth 31 times more than everyone else since the financial crash.
This is part of a wider story that tells us much about the way our economy has changed since the Berlin Wall came down. Despite the austerity since the Great Financial Crisis, as you can see in this final graph, the value of net household wealth in Britain has surged to around £13 trillion - and the value of investment income has to surged to nearly £80 billion. But an estimated 60% of that income flows the richest 10% of our citizens, while, as JRF remind us, a quarter of the population has less than £100 in savings.
Result? A wealth-driven inequality which is holding back our economy, poisoning our society - and destroying the chance to restore an old ideal that both parties, Conservative and Labour, used to hold dear: the wealth-owning democracy.
A few minutes of exchange at the Liaison Committee doesn’t provide much opportunity to get into the detail of this stuff. But, sometimes it can tell us everything we need to know about where the priorities of Mr Sunak might lie.