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Edward Fullbrook
© Edward Fullbrook 2008
Ultimately, class and culture depend on a society’s economic resources
and how they are divided up. It used to be that political parties, especially
in the UK, differed when it came to their policies on income and wealth distribution.
For generations this was the defining difference between the Conservative
and Labour parties. The former undertook policies that promoted income inequality,
the latter the opposite. Not anymore. From 1979 onwards governments of both
parties have overseen the same upward redistribution of the nation’s
income and wealth.
When quantifying income or wealth inequality, economists use a measure of
statistical dispersion called the Gini Coefficient. Its values run between
0 and 1, where 0 corresponds to perfect equality (everyone receives the same
income) and 1 corresponds to perfect inequality (one person gets it all).
So when a country experiences a rising Gini, it means that its income is being
redistributed upwards and vice-versa. With notable exceptions, rich countries
generally have low coefficients and poor countries high ones.
When in 1979 Thatcher led the Conservatives into power, the UK’s Gini
was high by Scandanavian standards but nonetheless a respectable .25. From
the early days of Thatcher’s government, one felt that increasing income
equality was a primary goal. Even so, its success in redistributing the nation’s
income upward exceeded most expectations. By the time Thatcher left office
her government had raised the UK’s Gini Coefficient to .33. [Institute
for Fiscal Studies Briefing Note No. 73, http://www.ifs.org.uk/bns/bn73.pdf]
Major’s government kept to the middle of the road. Although handicapped
by redistribution measures already put in place by Thatcher, the new government
first slowed the Gini’s rate of increase and then even decreased it,
so that at the end of Major’s term the inequality level was the same
as it had been when he took over from Thatcher.
The return of a Labour government after nearly 20 years had the opposite effect
from that expected. Instead of reversing some or all of the upward income
redistribution effected under Thatcher, Blair’s and now Brown’s
governments have increased it. By the tax year 2005-05, the last for which
I have data, Labour had increased the Gini from .33 to .35. The elimination
of the 10 per cent tax band and, much more importantly, the decrease of the
capital gains (the main source of income for the very wealthy) tax from 40
to 18 per cent means that further and steeper increases in income inequality
are now in the pipeline.
It might be tempting to attribute the upward redistribution of income experienced
under Thatcher, Blair and now Brown to global forces rather than government
policy. However, the experiences of other countries over the same period show
this cannot be the case. In roughly the same period, the income Ginis of Australia,
Denmark, France, Germany, Ireland, Netherlands and Spain decreased. [OECD
Factbook 2008]
A graph of real income change between the tax years 2004-05 and 2005-06 illustrates
the way redistribution works on a yearly basis. If there had been no UK income
redistribution in the period shown, then all the rectangles would be the same
height above the 0.0% line. Or if there had been redistribution toward less
inequality, then the rectangles on the left would average higher than those
on the right.
Real income growth by quintile group, 2004–05 to 2005–06
(quintile = one fifth section)
Source: Institute for Fiscal Studies Briefing Note No. 73, http://www.ifs.org.uk/bns/bn73.pdf
But dividing the income spectrum into fifths hides the true nature of income
redistribution under Labour. It is not the moderately rich or even the middle
rich, but the richest of the rich and, most of all, the richest of the richest
who have been the big redistributive winners under New Labour. Between the
1996-97 and 2004-05 tax years, the income of the richest 1% grew at an annual
rate of 3.1%, compared to 2.3% for the population as a whole, and the income
of the top 0.1% grew by 4.4%. [BBC, 18 January 2008, http://news.bbc.co.uk/1/hi/business/7193904.stm]
This pattern of redistribution reflects the evolution of British class structure
away from considerations of education and accent to merely those of wealth
and income In today’s Britain the Beckhams rank equal with the Windsors
and the Blairs. With wealth and income (and celebrity) becoming ever more
important as determinants of class and power structures (and with the threat
of an end to economic growth in rich nations because of a need to stop catastrophic
climate change) it seems inevitable that income and wealth distribution has
and will continue to be the primary lever by which the nature of British society
is, for better or worse, manipulated. The super rich understand this. The
middle class tend not to or, if they do, they don’t want to think about
it as it induces feelings of guilt for what has happened under New Labour.
But the upward redistribution begun by Thatcher, curtailed by Major and resumed
by Blair will not stop without political opposition. People who participate
in political forums must be willing to speak openly about income and wealth
distribution and, most important of all, to spell out certain minimum positions
to which they require the leaders of their political parties to publicly pledge
their full and unreserved commitment. Here are four possible positions.
1. We will not undertake further upward redistribution of wealth and income.
2. We will undo the redistribution achieved by the Blair government.
3. We will restore income distribution to what it was after Thatcher had been
in power for five years.
4. We will restore income distribution to what it was when Thatcher took office.
Even the first of these, if embraced by a major political party, would be
a radical break with the UK’s recent political history.
Edward Fullbrook is editor of the real-world economics review.
Its current issue is available free at http://www.paecon.net/PAEReview/issue46/whole46.pdf
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