Reverse the rise in inequality!

Submitted by Matthew on 26 April, 2017 - 11:19 Author: Martin Thomas

The Resolution Foundation, a statistical think-tank, reported in March on the economic prospects if the Tories win on 8 June.

"If nothing is done to change [the] outlook... [2015-20] will go down as being the worst [period] on record for income growth in the bottom half of the income distribution.

"It will also represent the biggest rise in inequality since the end of the 1980s".

The toxic mix comes from low wage growth — which the government's own Office for Budgetary Responsibility predicts — and a great wave of pre-programmed cuts in working-age welfare benefits.

The percentage of children living in poverty, which soared from 18% to 33% in the Thatcher 1980s, then decreased from 34% to 27% in the Blair-Brown years, has been rising steadily since 2010 and is set to rise further. Meanwhile profits are rocketing. It is impossible to calculate the effects of hard Brexit in detail, but certain that it will add to the squeeze on the worse-off.

The pound's exchange rate falling relative to other currencies, as it has done already, will increase inflation. New trade barriers will increase costs and depress production. Loss of EU migrant workers who staff public services, and pay a lot more into public budgets, in taxes, than they take out, will increase pressure for social cuts.

Against that bleak Tory future, Jeremy Corbyn's Labour Party has proposed: ● Introduce a real Living Wage of £10 per hour and give all workers full rights from day one. ● Establish a new National Investment Bank and Regional Development Banks. ● Always give the NHS the money it needs... integrate health and social care. ● Reintroduce an Education Maintenance Allowance and maintenance grants for students from low and middle-income backgrounds. ● Build more than a million new homes in five years, with at least half of them for social rent.

Those are the points in briefing notes already put out by the Labour leadership, though deliberately sidelined by some right-wing Labour MPs for their local campaigns. They are entirely and immediately feasible, so long as: ● Labour wins the election ● the election campaign is used to expand and integrate Labour's working-class membership, and the party is opened up to make it a real workers' party capable of sustaining a Labour government against ruling-class pressure and pushing it to keep to its pledges ● the revival of the Labour Party is used as a lever to rebuild the labour movement from the workplace upwards.

The policy needs to be rounded out, in the first place by a clear Labour stand against hard Brexit. Some expansion of public spending can and even should be covered by government borrowing. John McDonnell has given more pledges of "fiscal responsibility" than he should have done. Unless a government is flexible with borrowing, economic shocks, certain in a capitalist world, can only be accommodated by social cuts. That approach is as destructive as an individual starving themselves into illness, and losing their home, instead of borrowing (if they can), when they suddenly hit misfortune.

The National Investment Bank means a publicly-owned bank able to borrow more cheaply than commercial banks, and lending for infrastructure and industrial projects. The Labour leaders say that would increase economic growth. It is not a bad idea, but it is very far from a cure-all. The model is probably the KfW, the German state's federal investment bank, set up under the Marshall Plan in the 1940s. It's a safe, conservative model, in no way anti-capitalist or socialist. The current chair of the Supervisory Board is German finance minister Wolfgang Schäuble, Europe's sternest austerity-hawk and central to the crushing of the anti-austerity rebellion in Greece.

Higher taxes will be necessary as well as borrowing and the NIB, especially if Labour also reverses planned cuts in school budgets and welfare benefits, the Tories' semi-freeze on public sector pay, and the cuts in local government, as it should.

John McDonnell has talked of raising tax rates for people on more than £90,000 or £100,000 a year. Since Thatcher, the top rates of income tax have been drastically cut, and taxes on consumption which hit the poor more than the rich — like VAT — have been increased. So by 2013-4 the bottom 10% in Britain were paying 45% of their income in tax; all other deciles, 30 to 35%; and the top 10%, 35%.

"New Labour" used to say that in a globalised world it is impossible to raise taxes on businesses or on the well-off, because they will move their money to a lower-tax area. In fact, even with globalisation, tax rates vary seriously between countries. Personal tax rates on high incomes range from 60% in Denmark to 19% in Slovakia; corporate taxes range from 45% in Japan to 12.5% in Ireland. "Globalisation" in general could not stop a British government raising its tax rates on the rich to the upper ends of those ranges. Labour should make a definite commitment to tax the rich, including taxes on wealth as well as income.

Labour has also promised to raise funds by cutting tax evasion and tax avoidance by the rich and by big business. That is good; but as long as the decisive piles of wealth remain in the hands of the plutocratic few, not under social control, the rich will always evade taxes, beyond a certain point. Really to secure the resources to quash inequality, a Labour government would need public ownership and democratic control over major piles of wealth. Public ownership of the banks has been official TUC policy since it was proposed by the Fire Brigades Union in 2012, but left dormant. We should fight to activate it, and make it active Labour policy too.

The banks and high finance are central to the economy's functioning, and their greed for profit has been central to the economic chaos which has engulfed us since 2008. Banking should become a unified, democratically run public service providing banking, pensions and mortgages for everyone who needs them, and funds and resources for investment in public services and all areas of social need – instead of acting as an engine to devastate them and promote inequality.

Labour is likely to pledge to renationalise rail. It should also renationalise utilities - for example, nationalise the Big Six energy companies, and renationalise Royal Mail. And a full charter of trade-union rights — not just the repeal of the Tories' Trade Union Act — is necessary if workers are to be able to reverse inequalities imposed over recent decades.

Does £70,000 make you rich?

Individuals who earn £70,000 are in the top 5% of UK earners. Yet when Labour’s Shadow Chancellor said that people earning over £70,000 were rich he was met with incredulity and was said to be “out of touch”.

Data published by HMRC in March show that the median pre-tax income in the UK is around £22,400. Someone working 38 hours a week on the government’s National Living Wage earns £14,800 before tax. Households in the bottom 20% of the population have on average an average “equivalised” income per head after tax of £10, 000 (2015-6). So who is really out of touch here?

Is it that labelling an income of £70,000 rich risks highlighting the uncomfortable truth of just how little most people earn by comparison? Perhaps it is also because we realise just how high some earnings are that we think £70,000 isn’t rich? How can £70,000 be rich when an investment banker takes home several million a year in bonuses on top of a basic salary?

Income inequality in the UK is higher than many other similar developed countries. But income inequality at the top of the scale is bigger than it is lower down the scale. The top 1% have incomes substantially higher than the rest of those in the top 10%. In 2016, the top 1% had an average income of £271,888 and the top 0.1% had an average income of just over £1 million. Incomes go up in huge leaps at the top of the scale. The bottom fifth of earners in the UK share only 8% of total income, while the top fifth have 40%.

But what sort of people earn £70,000? Is it really that out of the ordinary? Teachers not in management earn £38,250 (£46,800 in London) at the top of the pay scale. Nurses earn on average £23,300. Plumbers earn on average £30,000. Tube drivers (much derided by the press for their high pay) earn a maximum of £60,000.

That is not to say that standards of living for those earning £70,000 are at the super-rich yacht-owners end of the scale, or that the median earner has a comfortable level of living. The median wage gives you a low standard of living. The result of that situation — four million children in the UK are living in households in poverty. What those earning £70,000 consider normal are things we should expect to be normal for everyone — a secure living situation, enough money to have decent food, money for leisure activities, access to culture, education, holidays. But these things are not the normal for most.

There is no reason that more people could not be earning much closer to £70,000. Real wages in the UK are still 4% below pre-crisis level. In some sectors such as health and social care they are 6-7% below. To help us achieve that we need more and better paid public service jobs, increasing the minimum wage, and introducing a maximum wage cap.