Bill Totten's Weblog

Saturday, September 01, 2007

How the rich keep the poor in their place

The easiest way to redistribute wealth is via the tax system

New Statesman Leader (August 30 2007)

It must be hell being rich in Britain these days. So generous have directors' pay packages and City bonuses become, that the amount of cash sloshing around is creating a shortage of luxuries. The waiting list for a new Rolls-Royce is now five years. Luxury marinas are becoming congested with the plethora of giant yachts, and as for crew ... well, you just can't get 'em.

Nonetheless, it is still rather worse being poor. While the rising costs of mooring a yacht won't blight the lives of many public sector workers, the increasing wealth of execs and financial sector employees does have a detrimental impact on life at the bottom, particularly for those who live in the capital. Bonuses are a key factor in the rising cost of property and contribute to the high cost of living in London. Worse, the sums being creamed off by the rich are now so large, and the recipients so many, that their impact on the economy is measurable.

According to preliminary figures from the Office for National Statistics, reported by the Guardian, City bonuses are likely to reach GBP 14 billion this year. In the economy as a whole, bonuses and directors' performance pay will amount to roughly GBP 26 billion. To put this figure in manageable perspective, that same sum could give the poorest-paid twenty per cent of British workers an increase of almost GBP 5,000 each.

And they certainly could do with it. This is the group that the Joseph Rowntree Foundation calls the "breadline poor". It includes one in four children, many single-parent families and a disproportionate number of women and black workers. The roles they play are important to the economy and to our well-being, such as hospital workers, hotel and restaurant staff, and cleaners in the offices where roughly 3,000 City workers will pick up bonuses of about GBP 1 million each later this year. It would take a cleaner ninety years, working forty hours a week with no holidays, to earn a million at the current minimum wage of GBP 5.35 an hour.

Richard Lambert, director general of the CBI, defends performance-related pay mechanisms as "a very effective way to motivate employees" (why City traders need more motivation than hospital porters is never explained). But it is also an effective way to disguise core inequalities. Public sector unions are at present negotiating to get pay increases for some of the lowest-paid workers in Britain above a government standard of two per cent. They might push this a little nearer to the private sector norm of roughly three per cent, but as bonuses and performance pay take the increases for the top-paid far higher, the equality gap inevitably widens.

The single most effective remedy, and one that should appeal to Gordon Brown's work ethic, would be to raise the minimum wage steadily above the level of inflation (and, just as importantly, rigorously enforce its payment). In October, this will rise from GBP 5.35 to GBP 5.52 an hour - which leaves the poorest exactly where they were, failing to share in the country's increasing wealth.

A second simple remedy, for which some unions are now pressing, is to create a culture in which an organisation's pay and conditions are transparent and give employees the right to see how much their colleagues earn. A recent Rowntree report revealed that few of us realise how wide the pay gap between top and bottom has become. Openness would have a particular impact on women's pay, which lags a stubborn seventeen per cent behind men's, 37 years after the Equal Pay Act.

A third push towards a fairer distribution of wealth could be made by the Commission for Equality and Human Rights, which launches in October, taking on the work of the former Equal Opportunities Commission. That body's final report recommended placing a greater duty on employers to eliminate discrimination and monitor and publicise progress. Fighting against discrimination and low pay has to be a collective responsibility, shared by unions and managements.

The easiest way to redistribute wealth would be via the tax regime, a strategy now abandoned by all main parties. Yet, over the past twenty years, a large and enduring majority of people (73 per cent in 2004) have said they think the gap between high and low incomes too large. They are probably voters.

Bill Totten


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