Will anyone stop the rise of Britain's super-rich?

Neither Brown nor Cameron appears willing to tackle the ever-widening wealth gap by means of taxation, writes Tessa Thorniley
Click to follow
The Independent Online

"The prince should try to prevent too great an inequality of wealth."

Erasmus (Dutch humanist scholar, 1465-1536)

Britain may appear to be a richer country than a decade ago but the gap between the rich and poor has reached levels not seen for more than 40 years.

The highest earners are being dubbed "the new Victorians" as they take an ever-greater slice of the wealth pie, leaving mere employees and white-collar workers sharing the crumbs.

Government statistics show that the richest 10 per cent of the population control more than half the wealth (53 per cent) of the country, with the 1 per cent jet-set elite controlling no less than 21 per cent.

Social divisions caused by rapidly rising house prices have already seen millions of people in poorer parts of Britain, particularly in the North, trapped in a wealth gap, while those on the property ladder in the South have become millionaires several times over.

In the City, fat-cat pay awards, with top executives earning 100 times more than their employees, are merely the most obvious examples of where the balance has become skewed. The kingpins of Britain's opaque private equity and hedge funds are earning considerably more while simultaneously paying "less tax than a cleaner", according to Nicholas Ferguson, chairman of private-equity and fund management group SVG Capital.

And the rich are growing richer faster than ever before. In the US a report from the Institute for Policy Studies last week showed that the average chief executive of a Fortune 500 company now earns 364 times the pay of a typical US worker, while four hedge fund and private equity bosses took home more than $1bn (£500m) in the past year.

On both sides of the Atlantic, the upper echelons of the business world have started to become self-conscious about the unbridled wealth they have accumulated. The investment guru Warren Buffett, the third richest man in the world, has criticised the US tax system that allows him to pay less tax than his secretary. In the UK, Peter Taylor, chief executive of Duke Street Capital, has admitted that the tax paid by private equity companies such as his is "unnecessarily low".

Glaring inequalities of this scale in the business world are unlikely to persist for long if they generate enough political heat. In the UK, the forthcoming pre-Budget report is tipped to address the low capital gains tax (CGT) rate levied on private equity earnings, with a possible rise from 10 to 20 per cent.

At the same time, opposition parties are gunning for a clampdown on the "non-domiciled status" used by the mega-rich to avoid paying UK tax on overseas income.

Lord Oakeshott, the Liberal Democrat Treasury spokesman, says: "Gordon Brown should hang his head in shame that Labour has presided over this explosion of wealth at the top when they are too mean to pay a decent state pension."

The Lib Dems maintain that income is taxed too highly while wealth is not taxed enough in the UK. "We want to see taper relief scrapped on capital gains tax," Lord Oakeshott adds.

The Conservatives meanwhile have spoken out widely about the need to tackle child poverty and the possibility of abolishing both CGT and inheritance tax and replacing them with short-term CGT. However, the proposals have been criticised as likely to entrench social inequalities. In the case of inheritance tax, critics of Mr Cameron note that it will be the wealthiest who will benefit the most from any such move.

As part of a lengthy study from the Institute for Public Policy Research in the UK, Sonia Sodha, a research fellow at the institute, emphasises that wealth tax is currently a "little-used method of redistribution" that raises only a fraction of the huge gains in personal wealth seen over the past decade thanks to the booming property market.

A glance at the charts that measure distribution of wealth, known as Gini coefficient graphs, show that wealth inequality is almost twice as high as income inequality in Britain – a result of the runaway housing market.

In the tax years 2004-05 to 2005-06, UK residential housing stock rose in value by £400bn, and now stands at £3.8 trillion. With 70 per cent of UK residents owning their own home, a chasm has sprung up between those on the property ladder and those who are not. Similarly, the North-South divide has become ever more pronounced, with prop-erty owners in the central London borough of Kensington and Chelsea reaping millions.

The Joseph Rowntree Foundation, the social policy research organisation, says that society is becoming polarised. Its latest report states that "wealthy households in already wealthy areas are becoming disproportionately richer compared with society as a whole."

Income inequality means that the average take-home annual income per head of population in England is around £13,486 while in the North-east it stands at £11,407. The level of social mobility in the UK – the ease with which the next generation can expect to become more affluent than their parents – is among the lowest of any developed nation.

Eye-watering corporate pay packages and the presence of the super-rich are helping to fuel house price inflation in the capital, which has a knock-on effect across other parts of the country, although the 30 per cent rise at the top end of the London market this year has not been replicated elsewhere.

The Prime Minister and opposition politicians have thus far shied away from radical thinking over higher tax rates. Mr Cameron said this week: "What really matters is the gap between the poorest and the middle, not the richest people."

It is a view shared by the free-market think-tank the Institute of Economic Affairs. Its editorial director, Philip Booth, says: "The state must address the tax rate of the cleaner, not the super-rich. The marginal tax rate of income, including direct taxes, employers' national insurance contributions and indirect taxes, is around 50 per cent in the UK. The answer is to reduce the tax rates and government spending more widely so the poor benefit from lower rates of tax too."

Yet amid the political dithering and in spite of a big increase in welfare payments to those at the bottom end of the income scale, inequality is still rising.

The number of billionaires born, living or making their money in the UK has trebled in the past four years, and the number of millionaires is expected to quadruple to 1.7 million by 2020. Sir Ronald Cohen, one of the UK's richest men, founder of private equity group Apax, whose non-domiciled status has caused controversy, has said the wealth gap could lead to rioting in the streets.

It may not be the poorest taking to the streets but the middle classes, who receive few benefits in return for the taxes they pay. Having left university with huge debts, the younger members of this middle-income band are currently struggling to buy homes in the neighbourhoods they grew up in. When they finally retire, they can look forward to meagre pensions.

Gordon Brown's cosy ties with the City and the business community make the "politics of equality" a difficult issue for him to tackle. Yet, as Erasmus stated, the task of redressing the imbalance falls to him.

Comments