Adam Tomes challenges the right-wing myths peddled by Spectator editor Fraser Nelson in his Dispatches program

Political discussion in Britain reached a new low on Monday when Channel 4 Dispatches claimed inequality helped the poor. Spectator editor Fraser Nelson, in his Dispatches program ‘How the rich get richer’, argued that a “rising tide will lift all boats”. Yet Nelson’s own evidence, which is not new, shows that in fact the rising tide has left most of us marooned.

Income Tax

The Treasury claims that all the tax changes in the UK since 2010 mean that the “richest households are making the biggest contribution to reducing the deficit”. This evidence is supported by Fraser Nelson in his blog. He used a Freedom of Information Request to the Treasury to discover that the top 3,000 earners in the UK pay 4.2% of income tax in the UK, which is more than the bottom 9 million people. This, according to Fraser Nelson means that we should “not pretend that inequality is chiefly a matter of rich tax dodgers”.

Fraser Nelson, would have us believe, that somehow tax policy is not linked to the growing inequality in Great Britain since the recession, yet his view and the Tory view is so narrow that is becomes a grotesque distortion of the truth.

Lies, Damn Lies and Tory Politicians

There is so much wrong with this crass assertion that it is hard to know where to start. The first issue is that income tax is only 26% of all government revenue whilst other taxes such as National Insurance contribute 18% and VAT contributes 17%. When you take into account these far more regressive taxes that target the poor, it turns out that the bottom 20% of all households in the UK pay 36.6% of their income in taxes, whilst the wealthiest 20% only pay 35.5% of their income in taxes, according to the Office of National Statistics^[1]. This shows in fact that those with the narrowest shoulders are carrying the greatest burden. This means that tax policy is only increasing the inequality gap further.

The second key issue is that the reason these 3,000 people contribute as much income tax as the bottom nine million is the morally profane size of their income. In fact, if you wish to be in the top 0.01% or the top 3,000 earners you need a total income of over £2.7 million per year. These “top earners” have worked so hard to raise their percentage take of the economic cake that they have left so little left in the pay chest for the bottom 9 million that many are not earning enough to reach the bar which you start paying income tax.

The number of people on low pay under the Coalition has risen has risen to 5.2 million, up from 3.4 million in 2009, which is now 20% of the British workforce. This position is even more unequal for women and workers under 24, where 1 in 3 are on low pay. This is hardly a policy of fairness and equality, more the policy of oppression and exploitation. A comparison is useful here, if the national minimum wage had grown in line with the salaries of the CEO’s of the top FTSE 100 companies, it would now stand at £18.89 per hour.

The third issue is whether the tax and benefit policies have led to a reduction in the deficit driven by the tax receipts of the wealthy as the government claims. The facts remain the deficit continues to rise because tax receipts have failed to grow with the economy. Income tax revenues for the government have failed to increase since 2008 despite rising employment. This is due to the large increase in low paid jobs, part time work, zero hours contracts and underemployment with 40% of people in part time work wanting more hours.

This casualization of labour and depression of wages actually increases the deficit with a recent report claiming low pay costs the tax payer £3.23 billion in lost taxes and increased benefits. Corporation Tax income has slumped by 14% and only VAT returns have increased, up by 32%, which is emblematic of the regressive nature of the current economic policy.

Lastly the idea that tax cuts for the rich are not a key cause of inequality in society is simply ludicrous. The point could not be made clearer than by the graph below, taken from Daniel Dorling’s essay on education and inequality. The greater the reduction in the top marginal income tax rate, the greater the increase in the top 1%’s income share. The drop in top rate of tax through the Thatcher era and now the 5 p top rate of tax cut for the wealthiest clearly does increase the inequality gap. The policies of the neoliberal governments of Thatcher and Reagan have clearly created a problem that continues to grow driving a huge wedge through society.

Robin Hood in reverse

The result of the current economic path is increased inequality. It is not a case of we are all in this together, but rather a story of the rich stealing from the many to increase their power and their wealth. A recent study from LSE and the University of Essex makes this clear:

1The top 1% has seen a small net gain in income due to the current government tax and benefits changes.

2The bottom 5% has lost 3% of income due to the tax and benefit changes since 2010.

3The worst hit by the changes are lone parent families and families in general.

4A quarter of the bottom 10% has lost over 5% of income due to the Coalition reforms.

It is clear that this government is Robin Hood in reverse. It is transferring wealth from the poorest to the richest. It is deliberately exploiting the low paid, women, single parent families, the young and families and therefore children in order to feather the already opulent nests of the rich. So when Cameron says we all in this together, he means that we, the 1%, are in it together to exploit the 99%.

Slay the giant

Inequality is the modern giant that needs slaying. It casts a vast shadow over modern Britain and the lives of the many. Daniel Dorling shows that the levels of inequality in a society are the best predictor of international rates of imprisonment, mental health, literacy and social mobility. The 1% in Britain grabs more of than anywhere else in Europe and the consequences are clear. At the same time, the British Attitudes Survey shows that 8 out of 10 people believe that the income gap is too large.

Anger towards the rich is growing, faith in Westminster is declining, as was clearly evidenced in the Independence campaign and vote in Scotland. When the rich promote tax cuts, they are promoting cuts to the essential services of the many such as education and the NHS. In this way, they increase the value of their private medical insurance and the value of their private education whilst devaluing the public services for the many. The anger towards this greed is good attitude needs to be mobilised and directed so it is no longer acceptable for 1% to defend the crass and growing inequality in modern Britain.

Perhaps the place to start is a radical overhaul of tax policy. The introduction of a top rate of tax for earning over £160,000 (the earnings at which you gain entry to the 1%) of 75% would be a good place to start. The key here is not to directly raise revenue through this taxation but rather to deter the wealthy asking for more and to end the idea of greed is good. If firms then stop paying people morally profane salaries, they would save vast sums of money which could be pumped into creating more jobs on decent salaries, which would reduce unemployment, increase productivity and yes, increase tax revenue by ensuring more people earn enough to pay income tax.  In turn, this will drive growth across the board as evidenced by a recent study published by economists that shows that “an increase in the top decile of income share reduces growth”.

Notes

^[1] Inequality and the 1%, Daniel Dorling, Verso, 2014

The crisis of the British regime: inequality & broken politics in austerity Britain

With: Danny Dorling, author of Inequality and the 1%, Lindsey German from Counterfire, Liz Fekete from the Institute of Race Relations and Chris Bambery, author of A People’s History of Scotland.

Tuesday 2 December. 7.45pm
Room G2, SOAS, Russell Sq.
Booking is advised. Book online