Analysis: Spectre of social tension as top earners become a class apart

Survey reveals that past four years have seen the number of people on six-figure salaries increase 50 per cent, to more than 300,000
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"Two nations between whom there is no intercourse and no sympathy; who are as ignorant of each other's habits, thoughts and feelings as if they were dwellers in different zones or inhabitants of different planets. The rich, and the poor."

"Two nations between whom there is no intercourse and no sympathy; who are as ignorant of each other's habits, thoughts and feelings as if they were dwellers in different zones or inhabitants of different planets. The rich, and the poor."

Benjamin Disraeli said this more than a century and a quarter ago. Then, a rich few governed, dominated, employed and, in many cases, exploited the poor masses. Domestic service was the best many could hope for, while millions lived, toiled and died in appalling conditions.

After two world wars came decades of economic growth and the rise of the Labour movement, whose aim was to sweep aside inequality and injustice.

Now with a Labour Government in power and a Chancellor committed to channelling billions of pounds into reducing the poverty gap, who is enjoying the benefits?

According to an analysis of Inland Revenue statistics compiled by the Financial Times, the number of people earning £100,000 a year has increased by 50 per cent in just four years.

Startlingly, 326,000 people now earn at least this much and, in many cases, much, much more.

While many public sector workers in London and the south-east find it impossible to afford even a one-bedroom flat, and while employees of most private companies are seeing their pay pegged to inflation or even below, a select few are racing ahead in the pay stakes.

The questions are who are they, and what will their growing presence mean for the rest of society?

"These are probably the most talented people, not just in a few professions or areas, but in many," said John Philpott, chief economist of the Chartered Institute of Personnel and Development.

"Differentials in pay have been breaking down over the past 30 years, allowing employers the freedom to tailor rewards to the talents they require.

"Even during a downturn, the best people are immune from the economic realities, because if your company is having a hard time, then you will spend extra to get the best person, the best finance director or the best marketing director to get you out of trouble.

"It applies to the arts or sport, too. In bad times as well as good, the best talent helps to improve business, so you will pay extra for it. And the phenomenon has been boosted by the dawn of the global market. There are now many more businesses competing for the top people in every field. It is the winner-takes-all phenomenon."

Although many fields can afford their own superstars, Mr Philpott identified financial services, the law, financial directors, company executives, City workers, sports and entertainment stars and the media as areas where high-fliers are flying highest.

In the long term, however, their success may have a negative impact, not just on the people enjoying the smallest slice of the economic cake, but also on the companies prepared to pay their record salaries.

"Differences in pay between people doing the same job have never been greater," said Mr Philpott. "In the short term, the success of an individual might be overlooked by the team, but in the long run it will be interesting to see what effect resentment might have.

"At the very least, it could breed stress and low morale among the workforce."

In society as a whole, resentment is already there over "fat-cat" salaries. But it is not at levels where social unrest could be a problem.

Professor John Hills, of the Centre for Analysis of Public Exclusion at the London School of Economics, helps compile the British Social Attitudes Survey each year. He said: "In the year 2000, 82 per cent of respondents said they thought the gap between rich and poor was too great, and the majority of those thought it was the responsibility of the Government to do something about it. Evidence suggests that the gap between the bottom and the middle could be reducing, but the gap between the rich and everyone else is growing faster.

"There used to be social norms in place that kept pay differentials in check, but over the past 20 years these have broken down, resulting in the sort of pay rises we have seen some company directors give themselves.

"It would seem people don't mind huge pay packets for characters like Posh and Becks, but fat-cat pay rises are still unpopular."

It is an unpopularity that is likely to grow, according to the New Policy Unit (NPU), the left-leaning independent think-tank. As the number of people at the top grows into a significant minority, their disproportionate spending power could have a serious impact on the economy and the way it affects ordinary people.

John Kenway, director of the NPU, said: "There is no doubt the Government has done an awful lot for the people at the bottom end of the scale, but only enough to keep them from falling further behind. Now the Government must also keep its eye on the people on middle incomes, because they are being hit by the high earners who middle-income workers can see racing ahead of them.

"They are the ones being squeezed out of the property market, particularly in the south-east. The increases in property to a level where ordinary people can't afford to buy are being fuelled by the high-wage earners. And those in the middle will be hit harder if these high pay levels result in higher inflation. This is bad news for the Government."

Meanwhile, the new super earnings class could be having a disproportionate and perverse effect on employment patterns, particularly in and around the capital. Top civil servants and even the highest-earning head teachers can now demand salaries approaching £100,000 because, they argue, that is the going rate for talent in the private sector.

At the bottom end of the scale, the kind of "trickle-down" employment that Reagan and Thatcher foresaw is also emerging. While there are people with money to throw away, there are those willing to pick it up. Domestic service is, therefore, re-emerging with a vengeance.

According to market research from Mintel, the UK market for domestic help is worth £500m a year, an estimate thought to be low because of the amount of work paid for in cash. In London, the average amount spent on nannies, maids, butlers, people who clean, wash, iron, cook or shop (on the lowest of wages) is now more than £5,000 a year.

If the pay gap grows any larger, Disraeli's sad description of Britain as a nation of haves and have-nots will be as apt today as it was in Victorian times. In Understanding Exclusion, a Centre for the Analysis of Social Exclusion book published today (Oxford University Press), Professor Brian Barry of Columbia University paints a bleak picture of the future, predicting it will not just be the poor who are cut off from society. The rich, he writes, will become increasingly isolated in gated communities behind high walls.

"While it may be said that the very rich have the opportunity to exclude themselves from common institutions, what has to be added is that their wealth enables them to erect barriers that keep out their fellow citizens," he writes. "Hence, the situation is one in which a minority is in a position to exclude the majority."

What would Disraeli have made of that?

New faces in the £100,000 club

MICHAEL MURPHY, HEADTEACHER

Michael Murphy is thought to be the highest-paid state school headteacher in the country.

He became the highest-paid "superhead" in 2000, on a salary of £92,000 a year, when he was hired to turn around the capital's largest school – the 2,300-pupil Crown Woods School in Eltham, south London – after it was criticised by Ofsted inspectors.

Mr Murphy, 47, already earns twice the national average for secondary heads. Estelle Morris, the Secretary of State for Education, hopes he will be followed by an elite group of "super-heads", who will be rewarded with six-figure salaries for running clusters of schools. Such rewards for teachers were unthinkable until now.

Mr Murphy admits his 70-hour working week can take its toll on his home life and result in him barely seeing the youngest of his three children during very busy periods.

"Being a head is a tough job," he has said. "But I wouldn't want to do anything else. Most heads are massively underpaid for the responsibility and skills they have."

Headteachers in state schools have been ranked among the workers who can command salaries of up to £100,000 a year under a pay deal agreed by the Government earlier this year.

Ministers hope the high salaries will enable schools to retain the best staff and attract more graduates from the private sector.

KABIR ALOM, STATISTICIAN

A highly successful statistician from the Midlands, Kabir Alom was not surprised more young people have broken through the £100,000 salary barrier.

At the age of 27, he earns up to £120,000-a-year at an international insurance company, where he specialises in valuing pension funds.

He said that, while he might have been regarded as a rarity a generation ago, he has many twentysomething friends and colleagues who share his level of income.

"I don't think the £100,000 mark is anywhere near as extraordinary nowadays. High-earning jobs aren't only in finance or City any more – I have friends who are party organisers who are on similar money," said Mr Alom, of Guildford, Surrey.

He thought higher incomes had become more accessible to young professionals through increased opportunities in training and education, as well as the entrepren-eurial, 'on-your-bike' ethos left over from the 1980s yuppie generation.

He also thought there was a greater pressure among his educated, competitive and ambitious generation to become affluent in their youth.

While he is from a comfortably middle-class background, with a businessman for a father, he insists: "I made all my money myself through working extremely hard."

He studied statistics at London University and went on to specialise in actuarial science at City University to give him access to a high salary.

"I think the training and education is out there for people who want to earn big bucks. You just have to know what training will facilitate a big income."

SUMA CHAKRABARTI, CIVIL SERVANT

Suma Chakrabarti, 42, is typical of the new breed of high-flying civil servants running Whitehall. He will earn about £120,000 a year as Permanent Secretary at the Department for International Development (DfID).

Not only has he benefited from the private sector-style salaries now paid at the top levels of the Civil Service. He has also agreed with Clare Short, the Secretary of State for International Develop-ment, that he need be at his Whitehall desk for no more than 40 hours a week and will be allowed to work alternate Fridays from home. It enables him to eat breakfast with his young daughter and to attend her school assembly once a fortnight.

Indian-born Mr Chakra-barti, whose family moved to Britain when he was five, is both the first Asian Permanent Secretary and the youngest holder of such a post.

Educated at the City of London School for Boys and Oxford and Sussex universities, he has worked for the Overseas Development Agency, the Treasury and the Cabinet Office. He joined the DfID as director general of regional programmes in September.

Case studies by Sarah Cassidy, Arifa Akbar and Nigel Morris

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