High Pay is inextricably linked to poverty

By 12.03.13BlogSeptember 2nd, 2020No Comments

Luke Hildyard blogs about our new report on wealth redistribution, for the Shifting Grounds website

The EU bankers bonus cap, the Swiss Referendum on executive pay and the colossal bonuses awarded to the senior staff of failing, taxpayer-backed banks have brought the issue of high pay back to public prominence. But as talk radio phone lines buzz and comments multiply ‘below the line’ of news reports, supposedly enlightened commentators, who have never had to endure the sense of powerlessness or injustice that fuels this anger, are too ready to depict it as some kind of impotent populism, a misguided rage against the wrong target and on the wrong side of history.

In a blog for the Centre Forum think tank, Nick Clegg’s former adviser Richard Reeves suggests that those progressives concerned with inequality would do better to re-focus their energy on raising the living standards of those at the bottom of the income distribution, rather than lowering those at the top. But whatever else the last 5 years have or haven’t taught us, we have learned that growing the economy (even before any consideration is given to how the proceeds of growth are distributed) is far from easy.

In which case, the question of how existing wealth is captured becomes more pertinent. The High Pay Centre’s recent paper Top to Bottom outlines the scale of inequality that currently exists in the UK. In the decade leading up the 2007/08 financial crisis, the income of the top 0.1% grew by 62% compared to a rise in median incomes of just 7.2%. While there are 26,000 earners on £500,000 per year, making more in a month after tax than the average person takes home in a year, there are 6.75 million workers, the bottom 25% of earners, who receive less than £800 a month (full time equivalent – in the current economic climate many are unable to find as much work as they would like). In most cases their low wages are subsidised by tax credits, at a cost of £4 billion to the Government. Greater inequality also leads to higher indirect costs as a result of health and social problems including teenage pregnancy, obesity drug addiction and low educational attainment which are higher in more unequal societies. Income concentrated in the upper-reaches of society, who can afford to horde it, rather than low or middle earners, who spend it in the productive economy, is likely to lead to economic problems.

A redistribution of 10% in the income of those earning £150,000 (about 0.9% of taxpayers) to the lowest paid 25%  – achieved by taxation, ‘pre-distribution’ or another form of transfer – would represent a 55p per hour pay increase, taking the average pay in this quartile to £7.35, just short of the £7.45 living wage. The money would hardly make a difference to those losing out, but would greatly improve the living standards of those doing some of the hardest, most unappealing work for very little reward. Instead, however, from April top earners will receive a further tax cut. In this context, the struggle to control excess pay at the top and raise the income of low-paid workers at the bottom are one and the same.

(This article originally appeared on the Shifting Grounds website)