Leading article: Forget "fat cats" and focus on fighting inequality

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The Independent Culture
IT IS tempting to cheer on John Edmonds and the TUC as they lay into managers on huge bonuses and salaries as "greedy bastards", despite the crude nature of this language. For one thing, TUC members, many of them having their pay held down by the Government, must have been glad to hear someone give vent to their frustrations.

Mr Edmonds's comments have a deeper resonance. The widening gap between rich and poor is a legitimate concern. Only last week, a UN report ranked Britain one of the most unequal societies in the developed world: nearly a fifth of the population live below its measure of the poverty line. Meanwhile, there can be little doubt that the rich have become very much richer.

There have been abuses, especially in the privatised utilities. Sell- offs of those firms at prices below their market cost kept their monopoly position intact. This has meant that directors' share options have risen far beyond improvements in performance can justify. Hence, the public anger at the pay of directors of rail and water companies.

Concentrating on a few abnormal cases, however, clouds our view of the big picture. In a classic example of British class politics and envy, the country has for too long focused on those cases, to the exclusion of other issues of pay and inequality. Increasing access to new technology, education, and jobs is the key to reducing poverty: shouting at the rich will not improve the situation on one so-called "sink" estate, or save one family snared in poverty.

There are no easy answers to the problem of inequality. Edmonds's call for higher taxation on top earners is an emotional, not a rational response: such measures would do little to bridge the gap between rich and poor. There are simply too few really high earners to pay for a sustained attack on poverty. If the public really does want to tackle social exclusion, it will have to pay more in taxes - and that includes those earning what many would consider relatively modest wages.

The Government is already taking action to make sure that utilities can no longer abuse their market dominance. The regulators appointed by government are to be merged, given more power, and given a role in relating pay to performance. More competition is opening up the gas, telecoms and electricity industries, preventing them reaping easy profits. This, in particular, should have a restraining effect on wage settlements.

As for "fat cats" in the private sector, there seems little the Government can do directly. It can, however, make sure that corporate governance is reviewed. Remuneration committees and company boards are notoriously weak when it comes to standing up to powerful employees, many of whom are friends of those who sit in judgement on their salaries. They need to be tougher. They should ensure that losses are punished in pay packets, just as much as profits are rewarded.

More broadly, it seems as if the Government will have to look again at the fetish it has made of refusing to raise direct taxes. There seems little doubt that Labour's terror at tax rises, driven by memories of the 1992 election, is now outdated. Whatever caution we need in approaching the evidence of opinion polls, they consistently show a huge drop in the numbers of those resisting tax rises since then.

There needs to be a vigorous debate on taxation: new ideas are desperately needed. To take just one, the tax burden could be lifted at the bottom end of the scale, helping millions on low incomes escape the poverty trap of losing most of their wages in tax and benefit withdrawals. Only such measures, along with higher taxes across the board, could pay for a real attack on inequality. That would be better than a mere spasm of anger, aimed at an unpopular minority.