By Anna Brennan
After more than a decade of relative stability in the UK, inequality is on the rise once again – the COVID-19 pandemic has acted as a catalyst event intensifying existing inequalities due to its disproportionate effect on the UK’s most deprived communities. Throughout the pandemic, we have been constantly reassured that COVID-19 does not discriminate and that we are all in the same boat. After almost two years, however, these words of comfort have fallen flat – share prices have risen, property prices have surged and the 10 richest men in society have doubled their wealth.
It is now increasingly difficult to comprehend the disparity between the ‘haves’ and the ‘have-nots’ in the UK. Social thinker Danny Dorling draws attention to this emerging trend of internal inequality in his book Inequality and the 1%, where the gap between the top 1% of earners and the rest of the UK’s population is widening exponentially1. For example, the most recent (pre-pandemic) edition of the Wealth and Assets Survey for the Office of National Statistics concluded that the wealthiest 1% of households had a minimum of £3.6million per household, while the most deprived 10% of households had an average wealth of £15,400 or less. The pandemic has exacerbated this disparity: the UK’s richest man Sir Len Blavatnik increased his wealth by an exponential £7.2bn in 2021 alone, as reported by The Sunday Times Rich List. There has also been an unprecedented increase of 24 new billionaires in 2021. At the same time, social distancing measures and multiple lockdowns have hindered the ability of low-earning people to work and low income has contributed to the deaths of 21,000 people per day, Oxfam reports. Furthermore, the cost of living in the UK is on the rise, resulting from increasing energy prices and a shortage of workers and supplies caused by Brexit and COVID-19. The recent confirmation of a National Insurance rise in April, and Ofgem’s announcement that energy prices will rise on February 7 has created the perfect storm for exacerbating inequality. The average income for families is set to fall by £1,200 and household bills expected to increase by upwards of 50% from April. Already, families are flocking to food banks and having to choose between heating their homes or running freezers and washing machines. Squeezes like this are always felt most acutely in the lowest earners, which leads us to question: how is this possible? Or, more importantly: how is this fair?
In short, this shouldn’t be possible, and it is not fair. The exponential generation of wealth in the top 1% of UK earners, at the cost of the rest of the population, is an indication of a failing economic system that needs rectification. Economic inequality leads to a whole host of other issues – Dorling notes that the “mere accident” of being born out with the top 1% has a negative impact on life expectancy, education attainment, career prospects and mental health. Furthermore, he questions the tangible benefits of the super-rich… with their wealth shored up in property and tax havens across the globe, their existence has little positive effect on the UK economy. Left unchecked, rampant inequality harms economic growth, as reported by the International Monetary Fund. Having a drastically unequal society limits the educational opportunities for children from more deprived backgrounds. This has a domino effect on hindering social mobility and skill development, which will slow economic growth in the long term. It creates a concentration in the low-skilled workforce, which could push many of these workers into unemployment. Inequality is, therefore, bad economically, and morally unethical.
Unfortunately, there is no doubt that a degree of inequality will always exist in society – it can be traced back to multiple ancient cultures in our world, and in today’s capitalist society, inequality and poverty are integral facets, according to Marxists2. It is not sufficient to simply love your job, profit motive and work incentive are driven by the desire for higher income. So, for as long as the capitalist system prevails, inequality will be an important driver of profit. Solving inequality is complex while maintaining a capitalist system .The answer is not as simple as increasing tax for the super-rich – the UK government does not want to drive away any more of the 1% to tax havens. And, in fact, the UK tax system already appears to be top-heavy, with the 1% contributing almost a third of all income tax revenue.
One possible solution is a wealth tax that is based on an individual’s assets as opposed to income. This has been implemented in Switzerland, Spain and Norway with some success. The Wealth Tax Commission report published in December 2020 concluded that the UK government should implement a one-off wealth tax, which would raise over £250 billion that could be used to mitigate the large-scale government spending during the COVID-19 crisis. Another solution, proposed by French economist Thomas Piketty, is a reduction of the advantage that inherited wealth gives people. Piketty proposes that welfare programmes should be expanded and job guarantee schemes put in place to do so.
Whatever approach the government takes, inequality is set to become a hotly contested political issue, and the wise decision would be to address it before it is all too late. It has very real impacts on a larger proportion of society, and for many, it is increasingly difficult to stand back and watch the chasm between the ‘haves’ and the ‘have-nots’ grow ever wider. Unless the inequality gap is addressed by appropriate fiscal policy, it will continue to grow, causing a greater proportion of the electorate to grow restless. However, Boris Johnson famously quoted that “some level of inequality” was an essential mechanism for increasing economic activity, so while he clings to power it will be interesting to note whether anything worthwhile is done to address it.
The views expressed in this article are the author’s own, and may not reflect the opinions of The St Andrews Economist.
References:
Image: Unsplash
1 Dorling, D. 2015. Inequality and the 1%. Verso, London.
2 Peet, R., 1975. Inequality and poverty: a Marxist-geographic theory. Annals of the Association of American geographers, 65(4), pp.564-571.
The St Andrews Economist 