Christopher Snowdon is Head of Lifestyle Economics at the Institute of Economic Affairs.
As a new report from the Institute of Economic Affairs explains this week, the tale we are told about inequality in Britain is more fiction than fact. Again and again it is claimed that the UK is being crippled by spiralling inequalities of income and wealth, and that the rich are getting richer while the poor get poorer.
It is ironic that the near-hysteria about inequality has come about since 2008 when income inequality has been in decline and the rich have seen their incomes fall by more than any other group. Even before the financial crisis, inequality had not risen for many years and Britain, though less equal than many EU countries, was neither more nor less equal than the rest of the world.
What can explain this sudden emphasis on distribution at a time when growth has been a more pressing concern? Such books as The Spirit Level and Capital in the 21st Century have made a contribution, but they would not have become best-sellers had there not been a zeitgeist to tap into. Perhaps British commentators have unconsciously imported narratives from the USA where there has been a gradual, linear rise in inequality since the early 1970s and it is currently at a level that puts it high in the rankings of rich world countries? Perhaps the conspicuous consumption of millionaire celebrities has been a stark and inescapable reminder of the gap between ourselves and the super rich?
One possible reason is considered almost impolite to mention, though it is an obvious explanation when somebody becomes preoccupied with the wealth of other people. Envy is perhaps too strong a word. Resentment describes it better; resentment at what are perceived to be unjust rewards. For the past quarter of a century, the top ten per cent of earners in Britain have received a quarter of all income. This share has remained remarkably static since 1990 and yet we know that the share of income going to the top one per cent has increased quite sharply. We also know that the 90 per cent of the population who fall outside the top decile have not seen their share of income fall; it has held steady at around 75 per cent.
If the top one per cent has increased its share and the bottom 90 per cent has not reduced its share, it stands to reason that there is only one income group that has seen its share of income decline in relative terms: those who are inside the top ten per cent but outside the top one per cent. This is where the real divide has taken place – between the rich and the super rich. For those at the top end of the income ladder, the last 25 years may indeed feel like an era of growing inequality.
Who are these people – the rich but not super rich who are just outside the infamous one per cent? They are the people who earn between £50,000 and £150,000 before tax. They are the natural aristocracy of white collar professionals, academics, politicians, senior journalists, broadcasters and public sector bosses who see their peers making ever larger fortunes in business, finance and show business. This upper-middle class has seen the nouveau riche barge past them. Could this be a cause of resentment among our opinion formers? It is, I would suggest, a possibility.
Finally, there is the political dimension. It is no coincidence that the most vocal academics in the inequality debate – Richard Wilkinson, Thomas Piketty, Danny Dorling et al – are men of the left. The narrative of crippling inequality is most fiercely and enthusiastically expressed in the pages of the Guardian, the Observer, and the New Statesman. Equality of outcome has always been associated with socialism, but it has taken on a fresh importance since the economic arguments about production were won by the right. In the post-Soviet era, it is no longer tenable for the left to claim that a state-run economy is more efficient than the free market. Having grudgingly accepted that the cake is bigger when capitalism makes it, socialists instead complain about how it is sliced. The cake does not need to be any bigger, they say, it only needs to cut more evenly.
Since the fall of the Berlin wall, an alliance of left-wingers and environmentalists have found a way of making a virtue of socialism’s vices. Marxist leaders have often dragged their countries towards economic decline – most recently in Venezuela – but, in fairness to them, that was not their intention. Only recently has stagnation, under the guise of ‘steady state economics’, become a conscious policy objective.
Reducing inequality, on the other hand, was always a socialist goal. The problem is that it has tended to be achieved by levelling down rather than lifting up. Under the new egalitarians, none of this is a problem. They can do without economic growth because it is perceived to be bad for the environment. All that matters is evenly distributing the wealth that exists, by any means necessary. If that means levelling down then so be it.
This is an important change of emphasis but there has been no change in the political programme. The policies of the new egalitarians are indistinguishable from those of the old left: higher taxes, more public spending, a bigger welfare state and more powers for trade unions. At heart, the inequality agenda may be an excuse to reheat economic policies that were discredited in the 1970s. The self-styled egalitarians are counting on the public being so convinced of the urgent need to tackle ‘spiralling’ inequality that they will not ask too many questions of the zombie economics they are being asked to endorse.