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The booty contest
According to the Sunday Times, the wealth of the super-rich in the UK is growing much faster than the European and world average:
"The combined wealth of the top [UK] 1,000 has soared by £59 billion in one year to just under £360 billion. This near 20% rise over 2006 is one of the highest annual increases in wealth we have recorded since our first list was published in 1989.
"The past decade of Labour government under Tony Blair has proved a golden age for the rich, rarely seen in modern British history. When the Blair administration came to power in 1997, the wealth of Britain’s richest 1,000 stood at £98.99 billion. The £261 billion rise in the wealth of today’s top 1,000 represents a 263% jump over the past 10 years... Britain’s super-rich have seen their wealth grow much faster than in Europe or among the world’s super-wealthy."
Even in the right wing press, this accelerating and spectacular enrichment is causing consternation rather than celebration. On the 2nd of May, Martin Vander Weyer, Business Editor of the Spectator, compared the fortunes of the ultra-fortunate with those of the Labour Party's "own core voters":
"Pensioners, NHS doctors and nurses, members of the armed forces, Council Tax payers, students, working parents unable to fathom that impenetrable tax credit scheme, any other category of low-income citizen you care to think of, every one of them feels badly mistreated by a government that promised ten years ago it would change their economic circumstances for the better."
Then he complained that Britain's ultra-wealthy elite, many of whom pay very little in tax, are putting their lifestyles at risk by failing to make sufficient contributions to charity and other good works:
"...you can’t spend all that loot on yourself--and if you don’t give some of it away and generally present yourself as an active, responsible citizen, you will be increasingly resented by your fellow citizens, who will one day vote for a government that will tax your lifestyle away. So philanthropy is an insurance policy for the rich, as well as a moral duty. For Blair’s rich list, however, that insurance policy was bought instead by cosying up to Tony and his circle; and moral duty, in this context, is a concept that’s been dead and buried these past ten years."
This critique chimes with David Cameron's reinvention of the Conservatives as a Party which will lead the return of social responsibility- not through taxation and intervention by the state, but by gently exhorting individuals, communities and businesses to behave better.
Between the lines of the lament for "moral duty" in the pro-Conservative Spectator magazine is a burning resentment that a group who would previously have been the natural core backers of the Conservatives, providing the Party with big donations and other useful services, switched their support to New Labour in the late 1990s. Since then, as Martin Vander Weyer snarled with all the ire of a Tory scorned:
"Oh boy, have Tony and Gordon delivered for them."
A consideration of the developing political and financial assets of the 'rich list' oligarchy reveals two connected processes.
Tony Blair and Gordon Brown made it possible for their party to contest with the Conservatives for the political favours of the wealthy, by stripping the goal of socialism from the Labour Party's constitution and reducing the policy-making power of its mass working class membership as organised through the trade unions- thus transforming it into New Labour.
Following this success, Blair and Brown have continued and intensified a policy at state level, originated by Margaret Thatcher, which has helped their country to compete for the global economic favours of the wealthy- by privatisation and de-regulation, cutting corporation tax, and allowing personal tax breaks for the very rich. This has also shown success: inward investment to the UK by transnational corporations has increased; the importance of the City of London as a centre for international financial transactions has risen; many of the world's ultra-rich have bought houses (and some even football teams) in Britain.
This British policy also contributed to years of economic stagnation in France and Germany - the capital which flowed to where it paid less tax and was least restricted could have been invested elswhere.
On the 23rd of April Anthony Hilton, City Editor of the London Evening Standard, explained one of the tax breaks enjoyed by rich people:
"...a concession they receive for being what are called 'resident but non domiciled' - people who live here but whose domicile for tax purposes is elsewhere. As a group it embraces some of the most unlikely people, including some Brits who have arranged their affairs in such a way as to have become domiciled abroad and it emerged at the weekend that the Lib Dems [Liberal Democrat Party] are pressing Gordon Brown to clarify whether one of his advisers Sir Ronald Cohen falls into this category. Such people pay tax on income they earn in the UK but the British authorities allow them to keep everything else they make in the world tax free. It makes London such an attractive place to work that the International Monetary Fund has just classed the City as an offshore financial centre - a designation usually reserved for tax havens like the Caymans or the Isle of Man.
"Brown may well be embarrassed by the Lib Dem attack because he knows, though he is unlikely to admit it, that the tax loophole is unfair and exists precisely for the purpose of doing what it does. It encourages rich people to live here in the hope that they will then do business here. The unwritten deal is that they pay little tax in return for adding to the general prosperity of the nation. It may be unfair to normal British taxpayers, it may be unfair competition from the perspective of foreign competitor countries, but it is pragmatic. And it has worked.
Dividing the spoils
But, like Martin Vander Weyer of the Spectator, Anthony Hilton sees the rise of the UK super-rich as being somewhat problematic:
"A Cambridge graduate who joins an investment bank does so because he or she expects to make a quite ridiculous amount of money - and shelter it from tax. The graduate joining the rest of the economy, including the traditional professions, medicine , teaching, architecture, the civil service and executive jobs outside the City expects to make a reasonable income, but have a more pleasant and less socially dysfunctional life. Today however the financial penalties of such a choice have never been so great. The gulf in values between those who work in mainstream society and those who work in finance may still just about be bridgeable, but the gulf in incomes has become a yawning chasm.
"It matters because it is likely to get a lot worse. Britain could be a big winner from globalisation just as it was a big winner from the earlier age of industrialisation. Then, 200 years ago the mobilisation of agrarian poor into more productive jobs in the new cities of Manchester, Leeds and Birmingham generated huge profits for the factory owners which the City put to work. For fifty or more years - the height of Victorian power - it was a golden age for capitalists. There were booms and busts, famines
and failures, but throughout it all wealth of the very favoured and relatively few rose dramatically. Today history is repeating itself but this time it is the agrarian workers of China who are migrating to new cities, swamping the world with their manufactured goods and generating huge mountains of cash."
After noting that a lot of the cash generated by industrial workers in China and elsewhere finds its way to the City of London, Hilton speculates that Britain- or at least the very rich in Britain- may be benefitting from the start of a 21st Century 'golden age for capitalists'. While Vander Weyer warns the super-rich to take out the 'insurance policy' of philanthropic works in order to avoid becoming the target of rising resentment, Hilton poses the issue to the rest of society. In his view, the key problem will be:
"...the division of the spoils and how we are going to adjust to inequality. The way the world is going Britain's golden age will bring with it a gulf between rich and poor not seen since Victorian times. That will most certainly not be what most people want. But just as with the tax holiday for rich foreign businessmen, it remains to be seen how much of the prosperity they are willing to put at risk to do something about it."
Although Hilton does not mention this, aspects of the problem he identifies are already emerging. The very high level of inequality in Britain has been tolerated, partly because some of the global booty which has been drawn to the UK has been been diverted by the government to fund big increases in spending on health, education, social services and infrastructure, and has also been used to fund the extension of state benefits for those low-waged families who, to paraphrase Martin Vander Weyer, have been able to 'fathom that impenetrable tax credit scheme'.
Feat of gold
But the expansion of the public sector as a proportion of the UK economy has now ceased. The small increase in tax credits announced in Gordon Brown's recent budget was offset by a rise in income tax for the low-paid; the effects of privatisation and marketisation in the National Health Service are being felt as hospitals cut staff and services; and public sector workers face an effective post-inflation pay cut of up to 3% this year. Wage growth for manual workers in the private sector has been negatively affected both by the mass recruitment of workers from Eastern Europe and the weakness of the trade unions.
So far, as shown by the May 3rd election results, the main political beneficiaries of the end of the economic 'feelgood factor' have been the Scottish Nationalists and David Cameron's re-branded green and caring Conservative Party.
In the longer term, the prediction of a 50-year capitalist golden age for Britain may be questionable. Some key factors which have assisted the UK's comparatively high GDP growth since the 1990s were not mentioned by Hilton. These factors, which include the increasing importance of information technology and with it the global dominance of the English language, are likely to continue to assist the growth of the 'knowledge-based' service industries in the UK and other English-speaking countries.
The advantages gained by de-regulation and tax breaks, on the other hand, are products of a zero-sum game, in which the benefits to Britain as the leader in the race to the bottom could prove to be short term, as other EU countries follow the UK's example by cutting corporation taxes and eroding the European social model.
Anthony Hilton reminds us of the social evils which were caused by the rampant free market and rising inequality in Britain during the 19th Century. That period saw not only growing poverty; but also the rise of socialist ideas and mass movements of the disenfranchised: the luddites, the chartists and the trade unions. The challenge from the majority in 21st Century Britain will be different, but perhaps no less powerful.
'Knocking the money makers is easy sport' Anthony Hilton, Evening Standard, 23 April 2007