Remember, "It wouldn't be happening without the Liberal Democrats"

The two strongest periods of growth for three years, 0.7% followed by 0.8% and the Tories and Lib Dems hangers-on are jubilant. Chief among the examples of this heady growth jubilation is Financial Secretary to HM Treasury Danny Alexander, who wrote in the Telegraph:

"Britain is on its way back. We need to stick to our plans to make sure this is a recovery that is built to last. That is the only way to improve living standards.

"Our economy is growing because of the hard work of people and businesses throughout Britain. But the coalition's economic plan is the rock on which our recovery is being built - so it wouldn't be happening without the Liberal Democrats."

On almost every count, he is wrong. This 'recovery' is doing nothing for living standards, which continue to fall. Wages are rising at just 0.7%, while inflation is four times that at 3.2% (RPI, 2.7% CPI).

For people on out of work benefits (and indeed those on low pay whose incomes are topped up by tax credits) benefit increases were capped by this government at 1%.

Put that alongside rents rising way above wage increases, energy prices rising at 8-9%, and the forthcoming 6% rail fare increase in January - and you can see the problem isn't being resolved soon. Figures show that workers have collectively lost £50 billion a year in real terms cuts in pay.

For many of the lowest paid - and those on out of work benefits - the impact has been devastating:

• an extra million people are, by the government's own figures, living in poverty since the coalition was elected;
• half a million people have had to use food banks in the last year;
• homelessness is rising, and the number of families housed in B&B accommodation now stands at a ten year high, and the number of households in rent arrears is increasing sharply;
• unemployment remains stubbornly high at around 2.5 million - with long-term unemployment and youth unemployment unaffected by failing privatised government schemes

So when Danny Alexander says that this 'recovery' is the only way to improve living standards, it is an evidence-free assertion, a delusion and, since he probably knows this, a flat-out lie. Of course living standards are improving for some people: the 1000 richest Britons increased their wealth by £35 billion last year (if you wanted to know where your missing pay rise ended up).

So where has the recovery come from? Mostly, debt. Consumer and mortgage debt to be precise. Yes, exactly what caused the crash, an unsustainable credit bubble. George Osborne (Danny Alexander's boss at HM Treasury) is huffing and puffing into that bubble with his Help to Buy scheme - re-introducing 95% mortgages at a time of rising house prices and falling wages ... what could possibly go wrong?

The "rock on which our recovery [sic] is being built" is that least rock-like of entities, a bubble. The question for the government is whether that bubble will burst before or after the 2015 election ... they may hope after, but the longer it inflates, the worse it will burst.

Alexander is right about one thing: "it wouldn't be happening without the Liberal Democrats", it's just that the "it" he refers to is rising poverty, homelessness, inequality, and a credit bubble that could spell further disaster for the UK economy and his government.

Remember, "it wouldn't be happening without the Liberal Democrats."

Don't be distracted by an exaggerated 'intergenerational divide' ...

There has been some quite silly spinning in recent days about an 'intergenerational divide'. It reached its apogee on twitter (where else?) with this tweet:

For once the UK's economic differences are not so much between rich and poor...they are between old and young http://t.co/uKjcuVQprd
— Shiv Malik (@shivmalik1) June 14, 2013

The tweet links to an article by Paul Johnson - the director of the Institute of Fiscal Studies. What he says is somewhat different to what Malik tweeted. Johnson says of distrubutional changes in income since the recession, "the differences are not so much between rich and poor" - and points out that "pensioner incomes have continued to rise on average, albeit very modestly".

But when Johnson uses terms like 'rich' and 'poor' he is talking about quintiles (20%) or deciles (10%) at best. The real rich are the top 1% or even less - whose grotesque incomes and wealth continue to grow unhindered (for example FTSE director pay grew by 34% in 2010 and by 49% in 2011). The Sunday Times Rich List also shows that in the last year, the richest 1,000 Britons saw their wealth expand by £35 billion - that's more than all the welfare cuts announced, in total!

In the last five years, since the start of the recession, unemployment has increased by a staggering 49% for 18-24 year olds, but the same is also true for 35-49 year olds. More staggering is that the number of 50 to 64 year olds unemployed has risen by 82% in that same period. So actually the hardest hit by the recession (remember youth unemployment was high and rising before the recession) are older workers.


And pensioners are not having it easy - as DWP poverty figures released yesterday showed. The pensioner poverty rate is 18%, compared with 17% for working age adults (see Guardian article). The UK still lags behind the rest of Europe on what it spends (public and private) on pensions: with our spending just 5.4% of GDP, compared to 6.0% in the US, 8.8% in Japan, 10.7% in Germany and 12.5% in France.

The reality is that we need intergenerational solidarity to defeat the cuts that are hitting both young and old. Whether one section of society is being hit slightly harder is only of secondary importance to us all uniting to stop the bastards that are hitting us!

Mervyn King’s rosy recovery prediction means little for a shattered nation

Prem Sikka

The outgoing Bank of England governor Mervyn King has presided over a huge economic crisis. His parting gift is the claim “a recovery is in sight” that the UK might achieve economic growth of even 1% this year. Despite this, the GDP will still be less than the 2007 figure.

Don’t be in a hurry to pop any champagne corks, because the assumed economic recovery is not what it seems and is unlikely to be sustained. It has been achieved through quantitative easing, printing money as old-fashioned economists used to call it, to the tune of £375 billion. That is equivalent to about £16,000 per household.

This money has been added to national debt – the only thing that citizens seem to own these days – but has not been used to restructure the UK economy or start new industries. Instead, it has been mainly given to the banks and they have used it to bolster their balance sheets and pay high executive salaries.

The plight of ordinary people has been getting worse. UK unemployment is rising and the official count now stands at 2.52 million. Nearly a million young people aged 16-24 are unemployed, taking the rate to a depressing 21.2%. The number of young people on zero hour contracts has doubled from 35,000 in 2008 to 76,000 in 2012. Zero contract hours are jobs which provide no guarantee of regular work or pay and have become the preferred mode of employment for some 23% of UK employers. Many miss out on rights such as sick pay, pension and paid holidays. Many firms and even charities and public sector organisations are adopting zero hour contracts.

Large sections of the UK population are wracked with insecurity. Since the 1980s, the governments have sought to weaken and destroy trade unions. In 1979, some 13.2 million UK workers, or 55.4% of the workforce was in a trade union, but by 2011 this declined to just over 6 million workers or 23% of the work force, compared to 69.2% in Finland, 68.4% in Sweden, 66.6% in Denmark and 54.4% in Norway.

In the absence of countervailing power structures, workers' pay has been ruthlessly assaulted. In 1976, wages and salaries paid to employees, expressed as percentage of GDP, stood at 65.1% of GDP. Now it stands at barely 53%. The plight of ordinary people is made even worse because the above statistics include the rewards lapped up by executives. The rates of corporate profitability are at historically high.

Wealth has been sucked upwards with the aid of state policies. Corporation tax rate has been reduced from 52% in 1982 to 21% for 2014. The top marginal rate of income tax has declined from 83%, in 1979, to 45%. Despite the recession, the rich are getting richer. In 2012, the richest 1000 people, representing just 0.003% of the adult population, increased their wealth by £35 billion to £450 billion, enabling them to fund political parties and shape public choices.

It is misery for ordinary people who have borrowed £1.423 trillion, equivalent to the GDP, to maintain a decent living standard. Thousands of people have become victims of the payday loans industry which does not shy away from charging interest at the rate of 4000%. Some 13.5 million people, including 1.8 million pensioners and 2.5 million children were estimated to be living below the poverty line and with a deep austerity programme these numbers will increase.

The number of people relying on emergency food handouts, simply to survive, has trebled to 350,000. People are facing massive hikes in the price of electricity, gas, water, transport and other essentials and simply do not have the financial capacity to take any further hits. One survey has suggested that an increase in monthly bills of just £99 will prove to be disastrous for a large number of families.

The above sketch of the social landscape is a million miles away from the rosy picture painted by the Bank of England. Equitable distribution of income and wealth is a key requirement for any sustained economic recovery, but it is not on the agenda of any major political party. Some may be happy to gather the crumbs of economic recovery; but most of us will simply be asking, “what recovery?”

• This article first appeared at The Conversation

Poorest hit hardest by Thatcher's legacy

A few weeks ago I cut out an interesting table from the Metro newspaper - showing how the cost of essential items had risen in the past five years.

The table to the left shows quite clearly how the unavoidable cost of several essential items has risen well in advance of inflation.

Nearly four years ago, LEAP published some ground-breaking research on how inflation affected different income groups. The report Why Inflation is a class issue was published in conjunction the then newly formed Trade Union Co-ordinating Group. One of that group's unions - the PCS - has been on strike this week, with the decline in living standards one of the main issues in the dispute. Their general secretary, Mark Serwotka, told the media that his members had seen their incomes fall by 20% in the last five years - due to a combination of below inflation pay rises (including two years of pay freeze) and increased pension contributions (for a smaller pension at a later date).

For the poorest in society - those on low incomes or surviving on social security - increases in the essentials hit hardest. Our 2009 research found that the poorest 10% spend 67% of their income on essentials, compared to the richest 10% who spent only 29% on essential items. This massive differential is the legacy of the Thatcher years when inequality grew, reversing the equalising post-war consensus.

Many of the essentials - formerly publicly owned utilities - were privatised under Thatcher and now operate for the benefit of private shareholders, with only the lightest of regulatory touches. Their profiteering is evident in the table above, as households are hit by the rising costs of essentials like electricity, water, gas and telecommunications. The table above shows the reality for those facing a 1% cap on their benefits.

Likewise the spiralling costs of rents and house prices are rooted in the selling off and failure to replace council housing, the abolition of rent controls and tax breaks for buy-to-let merchants.

Whatever the origins though, the reality is that the poorer you are the harder you are hit by the seemingly unending rise in the cost of essential goods. In 2009 we called for a new measure of inflation - Essential Inflation - it is needed more now than ever, because the poorest are still being clobbered in a way that the headline CPI and RPI figures fail to reflect.

In a society as grossly unequal as ours, no single inflation measure can reflect the true picture for UK households.

Squeezing ordinary people's finances always leads to disaster

Prem Sikka

The UK economy is flatlining, unemployment is rising and around 13.2 million people live below the poverty line. The prospects of building a sustainable economy remain distant. The common factor behind these grim statistics is that the purchasing power of ordinary people has been severely eroded and without adequate resources people cannot buy goods and services produced by businesses.

The UK gross domestic product (GDP) has increased from the 1976 figure of £621bn to around £1.5tn, but the share going to employees in the form of wages and salaries has declined. In 1976, the amount of wages and salaries paid to UK employees, expressed as a percentage of GDP, stood at 65.1%. By the end of 2011, it was around 54% (see table D of the Quarterly National Accounts). This rate of decline is unmatched in any other developed economy. With many people now facing wage freezes and loss of pension rights, the employees' share of national wealth is set to fall below 50% of GDP.

The above figures are not the whole story, because a disproportionately large slice of the shrinking cake has been taken by wealthy elites. A study by the Resolution Foundation noted that in 1977, for every £100 of GDP, employees in the bottom half of the earnings distribution received £16. But by 2010 it had fallen to £12, and after taking out bonuses their share declined to just £10. In contrast, the top 10% of earners increased their share from £12 per £100 of GDP to £14, and after taking account of bonuses, it rose to £16.

In principle, the state can boost the spending power of low and middle-income households through redistribution, but that possibility is constrained by the erosion of tax revenues. In 1981-82, tax revenues expressed as a percentage of GDP stood at 45.5%, but by 2011-12 they had declined to 37.8%.

So where has the national wealth gone? Well, it has been transferred from employees and the state to corporations and their controllers. In the mid-70s the average rate of profitability before interest and tax at current replacement cost stood at 3.9%. Now, despite one of the deepest recessions, it is still averaging around 11-12%.

The seeds of the disastrous position were primarily sown by the policies pursued in the 1980s and 90s. Mass unemployment and government-led attacks on trade unions severely eroded the ability of employees to maintain their share of national wealth. The current UK trade union density of 26.6% of employees is considerably less than 69.2% for Finland, 68.4% for Sweden, 66.6% for Denmark and 54.4% for Norway. Unlike Scandinavian countries, UK employees and unions are not permitted to elect directors and are excluded from corporate governance arrangements, therefore they have not been in a position to protect workers' share of national wealth.

The comparative demise of manufacturing has resulted in the disappearance of reasonably well-paid skilled and semi-skilled jobs. These have been replaced by less well-paid service-sector jobs. Privatisation and outsourcing of work has contributed to low wages.

Successive governments have appeased corporations and wealthy elites through tax cuts. The rate of corporation tax has declined from 52% of taxable profits in 1982 and will reach the lowest ever rate of 22% in April 2014. The top marginal rate of income tax has declined from 83%, plus a surcharge of 15% on investment income, in 1978-79, to 45%. Rather than effectively tackling organised tax avoidance, successive governments have shifted taxes to labour, consumption and savings, as evidenced by higher national insurance contributions, higher VAT and the failure of tax-free personal allowances and income tax bands to keep pace with inflation. The result is that households in the bottom 20% of income bracket pay 35.5% of their gross income in direct and indirect taxes, compared to 33.7% for the top 20% of households.

The massive transfer of wealth is camouflaged by government rhetoric on the need to rebuild the economy and control inflation. Here are some reflections from Sir Alan Budd, a key economic adviser to the Thatcher administration: "My worry is … that there may have been people making the actual policy decisions … who never believed for a moment that this was the correct way to bring down inflation. They did, however, see that it would be a very, very good way to raise unemployment, and raising unemployment was an extremely desirable way of reducing the strength of the working classes – if you like, that what was engineered there in Marxist terms was a crisis of capitalism which recreated a reserve army of labour and has allowed the capitalists to make high profits ever since."

In his analysis of the 1929 Wall Street crash and the ensuing economic depression, liberal economist JK Galbraith identified "bad distribution of income" as the biggest cause of the crisis. Yet history is repeating itself. It is hard to discern any government policies that are designed to increase the employee share of GDP.

Despite the banking crash, the government's not-so-bright idea for economic recovery is that by 2015 ordinary people will somehow increase their personal borrowing by another 50% from £1.5tn to £2.12tn. Clearly, no lessons have been learned from history.

• This article first appeared on Guardian Comment is Free
  

Tax the wealthy to bail out the real economy

Seumas Milne is right that governments should start bailing out the real economy, rather than the banks, with public investment for growth (The elite still can't face up to it: Europe's model has failed, 3 November). But from where will the funds come for this? A Tobin tax will not generate sufficient, even if it could be made to work internationally, but there is alternative.

A central cause of current economic instability has been the astonishing accumulation of private wealth to the richest 10%, and the use of this in deregulated global markets for speculative trading and purchase of assets including property, currencies and commodities (Markets slump after Greek referendum call, 1 November). So the $43bn funding gap of Greece's government is matched by about the same amount going offshore, much of it reported as being put into the London property market by wealthy Greeks. This continues to rise while others slump. On a larger scale we might look at the New York Mellon Bank, which holds the assets of high worth people, and whose website notes that it is "focused to help clients manage and move their financial assets". These, in this one bank are listed as $25.9trn, which is of course enough to pay off the US national debt, solve the euro debt crisis and have change.

The world is awash with cash, while the productive capacity of its peoples and industry is the greatest in human history. But instead of taking some of these assets and using them to promote investment in a sustainable economy, the preferred government solutions are to print money and impose cuts which affect the poorest and create unemployment. The first of these generates inflation, damaging pensions and savings while adding to the financial stress caused by the second.

The obvious solution is a wealth tax on the richest 10%, which we first advocated a year ago. Now the head of the biggest bank in Italy, Corrado Passera, is also promoting the idea, saying that Italy's $2,750bn debt could be resolved by a tax on Italy's private wealth. This is five times the size of its debt. It also shows how misled we are by media and political commentary on "countries going bankrupt", when what is actually being described is a cash flow problem.

Other solutions such as effective income tax will be needed in the long run but what is crucial now is a fundamental restructuring of social wealth to repair the huge damage caused by the release of the free market, and the political courage to plan an economy of the future.

Professor Greg Philo
Glasgow University Media Group

This article first appeared as a letter in The Guardian on 4 November 2011

Inflation is a class issue - the IFS confirms

If imitation is the sincerest form of flattery then the development of your idea is pretty satisfying too.

Yesterday the Institute for Fiscal Studies published a report 'The spending patterns and inflation experience of low-income households over the past decade'. In 2009 LEAP published 'Inflation Report 2009: why inflation is a class issue'. It showed that inflation was hitting the poorest hardest, and concluded that:

"the rate of inflation is not an objective single headline figure, but a subjective complex of forces which affect people very differently"

The IFS report showed that the poorest fifth of households faced an average annual inflation rate of 4.3% between 2008 and 2010, while the richest fifth only had a rate of 2.7%. This is because, as LEAP found, if the cost of essential goods (e.g. food, utility bills, housing) rise then the hardest hit will be the poorest who spend a higher proportion of their incomes on essential goods.

The IFS doesn't endorse our 'Essential Inflation' measure but does refer to 'Inflation inequality', which means "that poorer households will have fared worse over the period of the recession than poverty and inequality statistics that don't account for these differential inflation rates would suggest".

The report also finds that "Pensioners, and in particular those dependent on state benefits, experienced higher rates of inflation than non-pensioners". People on working age benefits have experienced an average rise of 4% in recent years, compared with 2.9% for those in work. This makes the change to CPI uprating for pensions and benefits all the more appalling.

Like our report in 2009, it's important that trade unions and other campaigners use these statistics to make the case for their causes: whether that's an end to pay freezes, uprating of benefits and pensions by RPI or wages (whichever is greater) or for nationalising or regulating the profiteering energy companies.

Madhouse economics with lunatics in charge

Where has all the wealth of this country actually gone?
by Prem Sikka
Friday, June 3rd, 2011

Britain’s economic landscape is blighted by economic misery and social exclusion. Nearly 2.5 million people are officially unemployed and 1.5 million are working part-time but would like a full-time job. Youth unemployment is heading towards the one million mark and graduate unemployment is around 20 per cent. Approximately 13.2 million people, including 2.8 million children and 1.8 million pensioners, are living in poverty. Britain’s state pension, as a percentage of average earnings, is the lowest in western Europe. Some 15 per cent of high street shops are empty and the Government’s austerity measures are set to deepen the misery. This is the stark reality of the world’s sixth largest economy and the third largest in Europe. So where does all the wealth go? The answer to this question is crucial because it has a bearing on the possibilities of building a sustainable economy and society.

This country’s gross domestic product has grown from the 1976 figure of £621.22 billion to a current estimate of £1,318.31 billion, but has not been accompanied by equitable share for working people. In 1976, salaries and wages paid to workers accounted for 65.1 per cent of GDP. Following mass privatisations, the demise of skilled jobs in the manufacturing sector and the weakening of trade unions, this declined to 52.6 per cent of GDP in 1996. Following the introduction of the national minimum wage and expansion of the public sector, workers’ share rose. It is now in decline again and stands at 54.8 per cent of GDP. The indications are that, at some companies, the workers’ share of value added is running at less than 50 per cent. Many are facing wage freezes and loss of pension rights. The Government is reviewing employment laws which will inevitably further shrink workers’ share. Of the 200,000 new jobs created in the last year, only 3 per cent are full-time and many do not give employees statutory rights to pension, sick pay or holidays.

All this tells only a partial story, because corporate executives have taken the largest slice of the shrinking share. A recent report by the High Pay Commission shows that, between 1997 and 2008 when Labour was in power, income for the top 0.1 per cent of the population grew by 64.2 per cent, while that of an average earner increased by just 7.2 per cent. A typical FTSE 100 executive receives a pay package of £3.7 million – nearly 145 times more than the average worker.

These trends have resulted in 50 per cent of the population owning less than 1 per cent of the national wealth. The Sunday Times 2011 Rich List shows that the 1,000 richest people in the country have amassed wealth of £395.8 billion, an increase of £60.2 billion since 2010. With wealth of £4.2 billion, Sir Philip Green is listed as the 13th richest person. Many of his employees still receive the minimum wage.

The state has not collected a higher share of the GDP in taxes to enable it to redistribute wealth. In 1976-77, taxation took 43 per cent of GDP. By 1995-96, the tax take declined to 37.2 per cent of the GDP, rising to 38.6 per cent in 2007-08 and back to 37.2 per cent in 2010-11. This decline is one of the reasons behind the brutal public expenditure cuts and loss of welfare rights. The state, or the public share, of taxes has declined even though more people are in work, there are more billionaires than ever before and the corporate sector enjoyed, before the recession, record rates of profitability.

Corporations have been the biggest beneficiaries of government policies, as successive governments have shifted taxes away from capital to labour, consumption and savings. Hikes in VAT and National Insurance contributions are a reminder of this major shift in policy. Income tax personal allowances have not kept pace with inflation and more individuals have become liable to higher rates of income tax at middle earnings. For example, the freezing of personal allowances in the 2011 Budget may result in another 750,000 people paying the 40 per cent higher rate of income tax.

Successive governments have been engaged in a race to the bottom and have appeased the corporate lobby by reducing corporate taxes. In 1982, the rate was 52 per cent of taxable profits. By 2007, it declined to 30 per cent. It is set to be further reduced to 23 per cent by 2014 and corporations are demanding even lower taxes.

The supporters of corporations will point to the fact that, in 1979, corporation tax receipts of £4.6 billion accounted for 5.4 per cent of total tax revenues. Last year, they rose to £38.5 billion and accounted for 7 per cent of the total tax revenues. However, this does not tell us the amounts that they should be paying, as corporations and wealthy elites have become very adept at shifting incomes and profits by using opaque structures and schemes to avoid taxes. For example, Boots, the high street chemist, now has its headquarters in Switzerland to enable it to avoid British taxes. Google dominates the internet and its revenues from this county have soared to £6.35 billion over six years, but the company is estimated to have paid only £8 million in corporate tax.

The United Kingdom is the home of a destructive global tax avoidance industry, headed by major accountancy firms: KPMG, PricewaterhouseCoopers, Deloitte & Touche and Ernst & Young. Various economic models suggest that, due to organised tax avoidance, we may be losing around £100 billion tax revenues each year. Inevitably, this has reduced the tax take, increased the national debt and threatened hard-won welfare rights.

The claim is that reducing corporate taxes somehow stimulates investment and creates jobs. Such a thesis is very simplistic and ignores the availability of skilled labour, education, training, infrastructure and disposable income of ordinary people. A recent study by the Canadian Centre for Policy Alternatives concluded that: “As a means of stimulating growth, employment and even private business spending, the historical evidence suggests that business tax cuts are both economically ineffective and distributionally regressive.”

The reduction in workers’ share and the state’s share of GDP means that more is available to corporations and their shareholders in dividends. This does not mean that their resources necessarily stimulate the UK economy. According to a government study, individuals in Britain own around 10 per cent of the shares listed on the London Stock Exchange. Investors from outside this country own 42 per cent of the shares listed on the London Stock Exchange and a variety of insurance companies, pension funds, unit trusts and investment trusts. Banks own the other 48 per cent. This means that a vast amount of dividends flow out of Britain and are not subject to UK tax.

A few years ago, Sir Philip Green’s business empire paid a dividend of £1.3 billion. Of this, £1.2 billion was paid to his wife who was resident in Monaco and thus escaped a tax of around £285 million, which would have been payable if she resided in the UK. Many private finance initiative companies use tax havens to avoid taxes on payments made to them by British taxpayers.

The current distribution of income and wealth will not facilitate a sustainable economic recovery. Ordinary people spend money on everyday things such as food, transport and clothing and thus generate a greater multiplier effect compared to the concentration of wealth in relatively fewer hands. Yet the UK trend has been in the wrong direction. There is no evidence to support the contention that feeding fat cats somehow percolates wealth downwards. The obsession with reducing corporate taxes has not been matched by any boom in private sector investment and jobs.

Too many people already make ends meet by borrowing and that was one of the factors behind the banking crisis. Yet the Government has learned nothing from that. Rather than redistributing wealth or pursuing progressive taxation policies, it expects ordinary people to take on even more borrowing to stimulate demand. Personal household debt is already £1.62 trillion, bigger than Britain’s GDP and the largest per capita in Europe. The Government expects it to reach £2.13 trillion by 2015. These are the economics of a madhouse. There is so sign of any sustained attack on organised tax avoidance or broadening of the tax base by considering financial transactions tax, mansion tax, wealth tax, monopolies or land value tax.

Prem Sikka is professor of accounting at the University of Essex

This article first appeared in Tribune magazine

The ultra-rich could solve this financial crisis

Surely it is far better to inconvenience 1,000 of the country's richest people than destroy millions of lives

The news that 'only' around 330,000 public sector jobs will be lost, is of little comfort to millions of people; especially as another 500,000 are likely disappear from the private sector. The government's austerity plans will hasten home repossessions, shop closures, increase hospital queues and condemn children to crumbling schools. Yet the chancellor has been quiet about the contribution expected from the ultra-rich.

Warren Buffett, the world's third-richest person, estimated to worth around $37bn (£24bn), has urged the US government to tax the rich more saying "people at the high end, people like myself should be paying a lot more in taxes. We have it better than we've ever had it". Yet there is deafening silence from his UK counterparts. The government can solve the financial crisis by inconveniencing the richest 1,000 people in the UK.

According to the Sunday Times Rich List, the collective wealth of the 1,000 richest people in the UK rose to £335.5bn in 2010. 53 of the richest 1,000 are billionaires. In 1997, when Labour came to office, the collective wealth of the richest 1,000 stood at £98.99bn. No other group has received such a massive boost in its wealth. Even if they have all the clothes, mansions, cars, yachts and jets they want, they still cannot spend it all. They came into this world empty-handed and will exit in exactly the same way, but leave behind impoverished citizens and employees when they could easily give 25%, or some £84bn of their wealth away without any noticeable effect on the quality of their life. This redistribution would reduce and probably eliminate the need for deeper cuts.

With a private fortune of £22.45bn, steel tycoon Lakshmi Mittal is thought to be Britain's richest man. He has connections with offshore tax havens, but his wealth has been amassed though cultivation of the UK political machinery. Tony Blair personally intervened to help him expand his empire in Romania and other places. Some years ago, he spent £38m on the wedding of his daughter and also bought her a £70m mansion in Kensington Gardens in London.

Others on the ultra-rich list include Chelsea football club owner and oil industry magnate Roman Abramovich, worth some £7.4bn; Gerald Cavendish Grosvenor, the 6th Duke of Westminster, whose company Grosvenor Estates is one of the largest property developer and landowner in the UK and worth some £6.75bn. Brothers Simon and David Reuben have amassed a fortune estimated to be around £5.5bn, largely through property, private equity and the Wellington Pub Company.

Sir Philip Green, owner of BHS and Top Shop, is estimated to be worth £4.1bn. Sir Philip, an adviser to the government, has registered the shares in his business empire in his Monaco-resident wife's name to avoid UK taxes. Sir Richard Branson has a fondness of tax havens and weighs in at £2.6bn. Sports entrepreneur Bernie Ecclestone, one-time donor to the Labour party, weighs in at £1.4bn.

Politics is about choices. The government can choose to punish millions of people for the recession that they did not cause, or inconvenience a few rich people. These rich people have gained the most in the boom years. The richest 1% of the population owns 21% of marketable wealth and the bottom 50% own just 7% of the wealth; and if the value of the dwellings is taken out then that figure stands at around 1%. The proportion of gross domestic product going to employees in the shape of wages and salaries has declined from 65.1% in 1976 and now stands at around 55% (see Table D). Ordinary people just don't have the capacity to take economic hits.

We have given the ultra-rich UK passports, peerages, knighthoods, public accolades and public services. Yet many respond by avoiding taxes and impoverishing employees. Without social stability and people's purchasing power they cannot keep or multiply their wealth. The prime minister, David Cameron, could ask his billionaire friend Lord Ashcroft to mobilise the billionaires and ask them to give 25% of their wealth to the country. He could be assisted by the "you've never had it so good" Lord Young.

Surely it is far better to inconvenience 1,000 people than destroy millions of lives. If rich turkeys don't voluntarily vote for Christmas they could be helped by a mansion tax, a wealth tax, the end of their offshore tax haven shenanigans, higher rates of income tax and a higher rate of value added tax on luxury goods.

This article first appeared on Comment is Free

See also proposals for a Wealth Tax

Asset sales, privatisation and the Tory agenda

The Coalition government is a coalition in name only, it is pursuing a Tory agenda. That agenda is the same as it has been for 30 years: an attempt to roll back the post-war settlement - removing welfare rights and cutting public services.

While most of the attention and opprobrium has rightly been aimed at the £80 billion of cuts announced by George Osborne in the Comprehensive Spending Review, there has not been enough attention and analysis of the privatisation agenda.

The level of privatisation already announced are mind-boggling, both in their scale and economic ineptitude. The CSR announced the intention privatise the Royal Mail, the Tote, Royal Mint, Ordnance Survey and air traffic control. Of course this agenda is not new, and in fact is most a regurgitation of what New Labour announced in the 2009 Budget (which LEAP rightly condemned).

These aren't referred to as privatisations, but as "asset sales", but why would a country in debt, according to Osborne on the "brink of bankruptcy", sell off revenue generating assets? Each of the Royal Mail, the Tote, Royal Mint and Ordnance Survey generate income for the Exchequer - vital in closing the deficit and paying off the debt.

But, as Irish comedian Jimmy Cricket used to say, "c'mere, there's more": under the radar there's a huge swathe of privatisation planned for the NHS (as this wonderful video shows), for education (through 'free schools') and in welfare delivery where nearly 10,000 Jobcentre workers are set to lose their jobs and more jobcentres close to fund the private sector to deliver workfare programmes.

The Morning Star also features on its front page this morning a new report from the influential ResPublica think-tank which calls for "the government to privatise swathes of hospitals, schools and libraries". It is, as the Star titles it, "The Ultimate sell-off"

As I told the Star, the Tories plan is "to relieve the state of the burden of providing high-quality services". But that is only one side of the story - the other is that they wish to transfer publicly funded assets to the private sector.

We should never forget, privatisation is the redistribution of wealth from the public to the private; from communities to shareholders. It increases inequality by removing access to services from the poorest and by increasing the wealth of the richest.

Confirmed: Cuts will hit poorest hardest

Working people, the unemployed and the sick will be hit 10 times harder by spending cuts than previous Con-Dem predictions, a new TUC analysis revealed on Friday.

TUC-commissioned economists shattered myths peddled by Chancellor George Osborne and Deputy Prime Minister Nick Clegg that the spending review was about "fairness."

They revealed that the poorest 10 per cent will be hit 15 times harder than the richest 10 per cent.

The new analysis stands in stark contrast to government claims that overall the cuts would hit the worst off only five times more than the richest in society.

The TUC originally predicted in its Where The Money Goes report that cuts of 25 per cent by 2012-13 would mean that the poorest 10 per cent of households would lose around 20 per cent of their income.

But using data from the Spending Review the TUC showed that overall cuts to public spending - excluding benefits and tax credits - of £48 billion by 2014-15 will be even more regressive, partly because of deep cuts to services which are disproportionately used by the poorest households, such as social housing and social care.

TUC commissioned economist Howard Reed pointed out that if the cuts were examined by their social "function" rather than by department, the picture looks even bleaker.

"Social care will be cut by 20 per cent, social housing 24 per cent, policing 20 per cent and higher and further education 27 per cent," he said.

TUC general secretary Brendan Barber said: "Even when the effects of benefit changes are taken out of the equation, cuts to services surgically target the poorest households and leave the rich relatively untouched."

And Haringey Council leader Claire Kober warned that cuts to local budgets, services and housing allowances will make it impossible for local authorities to cope with the influx.

"We are being set up to fail," she said.

Left Economics Advisory Project co-ordinator Andrew Fisher called on the TUC to co-ordinate resistance to the coalition's "obscene attacks."

He said: "The TUC analysis of Osborne's spending review is to be congratulated and confirms what the IFS said the day before and what our instincts told us all immediately: the CSR was all-out class war.

"At the June Budget and again this week, Osborne lied to us that his cuts would be fair.

"Within a matter of hours again his lies have been irrefutably exposed."

*This article appeared in the Morning Star on Sat 23 Oct

No cuts! Introduce a Wealth Tax instead

LEAP met with Professor Greg Philo yesterday, who presented the case for a Wealth Tax to solve the deficit.

It certainly put things in perspective. The UK has a national debt of £800 billion. By comparison, the total personal wealth in the UK is £9,000bn. It is mostly concentrated at the top, so the richest 10% own £4,000bn (by contrast, the poorest half have less than one-tenth of the total UK personal wealth).

What Professor Philo proposes is a 20% wealth tax on the wealthiest 10%, which would pay off the national debt and dramatically reduce the deficit, since interest payments on the debt are a large part of government spending.

The richest 10% have only to assume liability for their small part of the debt. They can pay a low rate of interest on it and if they wish make it a charge on their property when they die. It would be akin to a student loan for the rich.

Polling suggests a Wealth Tax would be popular, a YouGov poll of over 2,000 people found very strong support, with 74% of the population approving (44% strongly approving). Only 10% did not approve.

Footage of Professor Philo propounding a Wealth Tax on the Politics Show, to a rather bemused Tory MP and Labour's Yvette Cooper, is embedded below:



You can also read more about the Wealth Tax on the Glasgow Media Group website.

Low Pay and Inflation - why inequality is rising

Some new research this week showed that "In the last 10 years, inflation had risen by 23%, but key essentials cost 38% more".

This is concordant in with LEAP research on 'Essentials Inflation' last year, which showed the costs of essential goods had a higher inflation rate, which therefore disproportionately hits the poorest hardest. You can download the LEAP research on Essentials Inflation here.

This week's research into the cost of living was carried out by the Joseph Rowntree Foundation (download here). It found that a single person in the UK needs a gross income of at least £14,400 in 2010 to live to an acceptable standard. This equates to a full-time hourly wage of £7.38 - which is over 20% more than the current national minimum wage of £5.80.

The national minimum wage, as LEAP has pointed out, has increased below the rate of inflation in recent years, leaving many of the poorest workers worse off.

It is no surprise therefore that inequality is increasing in the UK and is already at levels not seen since the 1930s.

Milburn misses the point on social mobility

Having been a leading figure in the only post-war Labour Government to have overseen an increase in inequality - as LEAP analysis found - Alan Milburn MP's commission today came to the unsurprising conclusion that top jobs "have become more and not less exclusive over time".

As John McDonnell MP said:

"The lack of social mobility is just a symptom of the grotesque inequality gap in our society which New Labour ministers like Alan Milburn caused to widen under their watch."

Milburn's solution? Redistribution of wealth and power? No, he told the BBC, "young people in England should have access to much better careers advice to boost their ambitions". Pure Thatcherism.

John McDonnell MP was interviewed on Channel 4 News about the report:

Child Poverty in the UK

A report by the Office for National Statistics showed yesterday what we all know: the Government's attempts to tackle child poverty are failing.

And they're failing for a very simple reason: New Labour has failed to tackle child poverty because it has refused to address inequality and the distribution of wealth.

As a spokesperson from the ONS said: "the data suggests that the most significant influence on children's experiences growing up is likely to be income deprivation".

There's some very simple things the Government could do: raise the minimum wage, make the tax system more progressive, increase JSA and other benefits, restore trade union rights to increase bargaining power and stop undercutting through agencies.


The Morning Star rightly prioritises this story on its front page today.

According to the OECD, the "the gap between rich and poor is still greater in the UK than in three quarters of OECD countries". The OECD also reveals that "child poverty rates are still above the levels recorded in the mid-1980s".

That is shocking - children in the UK are more likely to be in poverty today than at the height of Thatcherism

So Where's Our Bailout?

Andrew Fisher, Coordinator of the Left Economics Advisory Panel (LEAP) (This article first appeared in the Morning Star)

As Gordon Brown can verify, it is a fool’s game to forecast the economy. However, when in 2006 Brown as Chancellor was predicting growth as far ahead as 2011 – and an end to boom and bust – LEAP was highlighting the levels of personal debt in the UK (nearly 50% greater than in the US) and warning they were unsustainable.

Now we are in a recession that looks set to eclipse that of the early nineties and probably even that of the early-mid eighties. Unemployment has breached two million, with a consensus forming that by the end of this year it will reach three million. This same consensus expects the UK economy to contract by 4-5% in the same time period.

In response the Government has awarded lavish handouts to the banking sector without any conditionality around jobs or pay (let alone public control). It is clear that New Labour in recession operates as it did in boom time – in the interests of big business.

The effects of a recession on working people always lag behind the economic data of GDP growth. When the UK economy was notionally recovering by the mid-eighties, unemployment was reaching its peak. This highlights how we measure recession is skewed towards the dominant interests.

There are several contrasts that need to be made with that period – and, if we are to comprehend how harshly this recession will ravage working class communities, we need these contrasts to be understood. The last thirty years of neoliberal economic policy have stripped away many of the protections that still existed in the eighties.

In the workplace, trade union density has nearly halved from 55% when Thatcher came to power to just 28% today; the proportion of workers covered by collective bargaining has suffered even more gravely, down from 85% to less than 40% today. As New Labour has refused to restore trade union rights, UK workers are now the easiest to sack in western Europe. The legions of non-unionised workers who retain their jobs will also be hit with pay cuts as employers seek to insulate their profits.

Just last year Gordon Brown boasted to the CBI that we have "the most flexible labour market in Europe". So when transnational corporations are judging where to cut jobs, it is in their interests to choose UK workers who are less likely to be unionised, and where they have the lowest legal commitments to fulfil.

When these workers join the army of surplus labour in the dole queues – itself helping to further suppress wages, they will find a benefits system less generous than under Thatcher. If unemployment benefit had increased in line with earnings from 1980 it would be worth nearly £110 per week. Instead today's unemployed are expected to survive on just £60.50, or £47.95 if they are reckless enough to be under 25.

They will also be faced with an unemployment service that has shed 30,000 staff in the last five years and is insufficiently staffed to cope with the rising demand – and subject to increased conditionality, now including workfare for the long-term unemployed. While the Tebbit-era rhetoric may have been more stark, the practicalities of maintaining a claim under the New Labour regime are far harsher – and for barely half the level of benefit.

As increasing numbers find themselves jobless, or their pay frozen, they will struggle to pay housing costs. In 1980, over a third of people lived in the secure tenancies of council housing. Today it's just 10%. The rest are faced with paying a mortgage and if they fail to make the payments and are repossessed –as nearly 50,000 were last year – they will join nearly two million others on the sick joke that is council house waiting lists. For private tenants of buy-to-let landlords, tenancies are insecure as many landlords struggle to maintain their mortgages. There is little good news for first time buyers. House prices, which more than doubled between 1999 and 2007, have dropped only 15%. The chronic housing shortage is keeping prices high.

Thanks to Thatcher's break of the earnings link (maintained by Major, Blair and Brown), today's pensioners face a basic state pension worth just 14% of average male earnings. In 1979 it was worth 23%. Many of those who took out private pensions have seen its value decimated by the crashing stock market, while final salary occupational schemes are increasingly the preserve of only directors and MPs – the culprits of the destruction of UK pension security. Further cuts in occupational pensions will come as employers seek to maintain profitability.

The neoliberal dogma of the past thirty years has decimated the public services on which the poorest rely. As the poorest and most vulnerable workers face lengthy periods of unemployment the true legacy of New Labour is revealed.

The 2009 Budget will be New Labour's first during a recession. The usual environmental gimmicks and corporate tax break leaks have been touted, but for the rest its austerity, rumours of a public sector pay freeze and no increase in the minimum wage. Under the slogan Their Crisis Not Ours, the LRC and others will be protesting in Whitehall on Budget Day to demand 'Where's our bailout?'

Like the MacDonald government of 1931 and Callaghan in 1978-9, this Labour Government is choosing to attack working class communities to pay for a recession not of its making.

The LEAP conference on Saturday 25th April 'Capitalism Isn't Working' is an opportunity to share information and mobilise resistance against the policies that make the poorest pay.

Richard Wilkinson to speak at 'Capitalism Isn't Working'

We are pleased to announce that Professor Richard Wilkinson will be speaking at the LEAP Conference 'Capitalism Isn't Working' on 25th April 2009.

Richard will be taking part in the morning plenary session 'Who Pays?' and then holding a free lunchtime meeting on his new book The Spirit Level - why more equal societies almost always do better (pictured left). The Guardian recently featured the findings of the work - which you can download here.

For years, Professor Wilkinson has done pioneering research work on the effect that inequality has on societies - and contributed to the March 2007 LEAP Red Papers '10 Years On: Whatever happened to equality?' (free download, Wilkinson's paper is on p.6).

You can register online for the LEAP conference. Full agenda details will be published soon.

The Real Story of UK Inequality

The Organisation for Economic Co-operation and Development (OECD) Growing Unequal? report published on 21st October 2008 found that "since 2000, income inequality and poverty have fallen faster in the UK than in any other OECD country" and the head of OECD's social policy division, describes it as "remarkable".

This conflicts with the report Poverty and inequality in the UK: 2008 by the Institute for Fiscal Studies (IFS) published in June this year, which found that in the UK "income inequality has risen for its second successive year and is now equal to its highest-ever level (at least since comparable records began in 1961)".

According to the OECD, the "the gap between rich and poor is still greater in the UK than in three quarters of OECD countries". It also states that "the wage gap has widened by 20% since 1985", and that "child poverty rates are still above the levels recorded in the mid-1980s".

Poverty and inequality is still yet to be tackled by New Labour. Even on the terms of the OECD report there is a real inequality problem which the Government needs to address. However, neither the IFS nor OECD reports look at wealth – which has been increasingly concentrated in the hands of the richest. Wealth inequality has risen massively in the last twenty years.

Unless there is a substantial shift in policy, this will be the first Labour government to leave office with society more unequal than when it came to power. Its legacy will also be the most unequal society in living memory.

Download the LEAP report: The Real Story of UK Inequality for a full evaluation of UK inequality, and policy solutions to reduce it.

Child poverty increases for second year running

Last week it was announced that child poverty increased by 100,000 in the last year. In the past two years, according to the Government's own figures, child poverty has increased by 300,000. When Labour came to power it promised to "end child poverty within a generation" – by 2020 - and to halve it by 2010.

After 11 years of New Labour, there are still 3.9 million children living in poverty. The Government is still to succeed in making a one-quarter cut in child poverty, which it had aimed to do by 2005. Three years on and things are going into reverse.

The LEAP Red Papers of March 2008 contain a feature on child poverty (page 16) written in advance of the latest release of figures.

It shows how just by increasing child benefit by £14 per week for the eldest child, child poverty would be reduced by 400,000 - meeting the Government's one-quarter cut target immediately. This is the equivalent of raising corporation tax by just 3.5% - which would still be a lower rate than it was in 1997, since New Labour has cut corporation tax from 33% in 1997 to 28% this year.

Of course there are others way too - increasing the minimum wage by more than inflation being one. The other feature in the LEAP March 2008 Red Papers was on inflation and pay (page 12). It showed that this year's increase in the National Minimum Wage (to come into force in October 2008) was just 3.8% - when inflation is 4.3%.

The public sector pay cap - affecting many low paid workers in local government and the civil service - will also hinder future child poverty targets. And as we know, public sector pay has no effect on inflation - so it won't solve our economic problems either.

If New Labour wants to have any chance of saving itself, it should look to these two flagship policies from its first term: the national minimum wage and cutting child poverty. Re-concentrating on those policies might be a good idea for a party floundering at the moment.

Meanwhile, new London Mayor Boris Johnson has his first RMT industrial action on the London Underground as cleaners paid just over £5.50 per hour campaign the London living wage of £7.20 - which Ken promised to introduce as he brought contracts back when Metronet collapsed. Find out how you can support their campaign. Bear in mind that the minimum wage of £5.52 equates to just £10,764 per year full-time. Try living on that in London.