The wealth gap may not be growing, but wealth continues to be redistributed upwards

Rentoul is wrong to pity the rich their "burden". The big divide in the UK is less between the top, middle and bottom, than between the super-rich and everybody else

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The Independent Online

In the last week, John Rentoul has written three articles which argue that ‘the income gap between rich and poor has not changed significantly for about 20 years, not since the increase in inequality that occurred when Margaret Thatcher was Prime Minister in the 1980s.’ (26 Dec) He then makes a second claim - that during the last four years of crisis, the rich have done as badly as the poor: 'And even now, as we all get a bit poorer again as a result of the bust, the losses are spread pretty equally with, if anything, the rich bearing the greater share of the burden.'

Static but unequal

Rentoul is correct in part. For the bulk of the population, the income gap has remained pretty static both up to 2007 and between 2008 and 2010/11 ( the latest year of available data ). Incomes amongst the well off ( just below the top one per cent ) have increased at roughly the same pace as those in the middle and those at the bottom. But this only tells part of the story. First, it still means the income gap is much higher than it was in the 1970s so that we are still a much more unequal country than for the whole of the immediate post-war era. Secondly, the capping of the jump in the growing income divide of the 1980s has only been achieved through a substantial, public-spending sucking process of redistribution (especially since 1997) to the lower third of the distribution financed largely by a tax hike on those on middle and slightly higher incomes. Without this, the income gap would have continued to widen.

Thirdly, and most importantly, Britain has been building a new form of inequality, close to the searing gap of the Victorian era. Along with the United States and a number of other countries, Britain has in the process, turned itself into a near-plutonomy, a society where spending power and economic decision making has become increasingly dependent on the unpredictable and capricious actions of the few.

The 'super rich' swindle

As shown in Figure 1, the  gap between the very rich and everyone else has continued to rise since the end of the 1980s. Between 1978 and 2007, the share of total income taken by the top one per cent rose almost threefold from 5.7 per cent to 15.4 per cent while that of the top 0.1 per cent rose fivefold to reach 6.1 per cent. Though these top shares dipped a little in 2009 (the latest year for which data is available) at the height of the recession, they will almost certainly have risen since then. Over the last thirty years, the top one per cent have grabbed a tenth more of the pie, a substantial squeeze on everyone else. (Moreover, because of the way the rich have been able to hide their incomes, these figures are likely to understate the growth in incomes at the top over this period).

Other evidence suggests the very rich have continued to pull away since 2009. Figure 2 shows that while the gap between the earnings of FTSE 100 chief executives and the middle earning employee dipped slightly in 2009, it has continued on its upward path since then. That the rich have got richer through the crisis is also confirmed by the wealth of the richest 1000 from the Sunday Times Rich List ( figure 3 ). Again, after dipping in 2009, the wealth of the top 1000 grew by a further £60 billion to reach a record high in the 2012 List.

A weakened economy

The big divide in the UK is less between the top, the middle and the bottom than between a small group of the super-rich and nearly everyone else. Rentoul’s answer to the way the over-sized rich has been accumulating larger and larger fortunes and securing a bigger chunk of the economic pie is to dismiss them as ‘untypical’. This may be true in a literal sense, but viewing them in this way is a grave error. The behaviour of the super-rich has a greatly leveraged effect on the rest of us. Most of the rich's income surge has come not from the building of a more robust economy triggered by an entrepreneurial leap forward but the very opposite - a clever process of wealth and income transfer from the bulk of the working population.

This sustained process of upward redistribution is not just a matter of social justice. By stifling demand for productive output while fuelling the asset bubbles that took us over the cliff in 2008, it has made the economy weaker and less resilient. Until this gap begins to close, and Britain loses its unwelcome plutonomy status, the economy is likely to remain locked in crisis.

Stewart Lansley is a visiting fellow at Bristol University and the author of The Cost of Inequality, Gibson Square.