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How Britain Enriched the Few and Failed the Poor: A 200-year History
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The Richer, The Poorer charts the rollercoaster history of both rich and poor and the mechanisms that link wealth and impoverishment. This landmark book shows how, for 200 years, Britain’s most powerful elites have enriched themselves at the expense of surging inequality, mass poverty and weakened social resilience.

Stewart Lansley reveals how Britain’s model of ‘extractive capitalism’ – with a small elite securing an excessive slice of the economic cake – has created a two-century-long ‘high-inequality, high-poverty’ cycle, one broken for only a brief period after the Second World War. Why, he asks, are rich and poor citizens judged by very different standards? Why has social progress been so narrowly shared? With growing calls for a fairer post-COVID-19 society, what needs to be done to break Britain’s destructive poverty/inequality cycle?

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By 1980, Britain was facing a further surge in inflation and in unemployment. If the flagging capitalist patient was to be revived, Mrs Thatcher believed, the medicine had to be taken, and in multiple doses. As they were unimportant, the side-effects on inequality and poverty could be ignored. There was a new emphasis on the ‘micro’ over the ‘macro’, while a new ‘supply-side economics’ promised to raise economic efficiency. Faster deindustrialisation aimed to push Britain more quickly down the road of a finance- and service-driven economy, a new war on unions and business regulation set out to empower boardrooms, while spending on the welfare state was to be reined back.

Inflation – at 17 per cent by the end of 1979 – had to be dealt with, but became the overriding goal, while the post-war commitment to full employment was dropped. The UK and US governments greatly tightened the mild fiscal and monetary restraint introduced by the Callaghan and Carter administrations. Monetarism – the belief that controlling the supply of money was the key to economic stability – was seen as a way of imposing economic discipline, but was applied with what one commentator called ‘a wilful application of fuel on fire’.1 The medicine worked eventually. Inflation took until 1986 to fall below 5 per cent, but not without subjecting the patient to a series of deeply unpleasant, prolonged and predictable side-effects. Moreover, although there was eventual control over the price of goods and services, this was not the case with an equally damaging asset price inflation.

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When Mrs Thatcher arrived in Downing Street, she inherited a middling social security system, one ungenerous by the standards of Northern Europe.1 Yet she was determined not to be seen as ‘soft’ on welfare. An early target was public spending. One of the government’s first moves, overcoming some tepid opposition within the cabinet, was to freeze child benefit at the £4 rate.

With inflation high, this meant a serious cut in real terms. Geoffrey Howe also wanted to cut the state pension, but this time met stiffer cabinet resistance.2 Instead, he won approval for linking future pension increases to prices rather than average earnings, a move which had a significant negative impact on the future living standards of pensioners. During the 1970s, pension levels had broadly kept pace with wider income rises. Abolishing the earnings link was a big money saver, but meant that the state pension would fall in relative terms over time. Patrick Jenkin claimed that pensioners would continue to share in the ‘increased standards of living of the country as a whole’.3 It was an empty promise. Between 1980 and 1995, the basic pension fell from 26 to 17 per cent of average earnings, one of the lowest ratios in Europe. There were also cuts in the value of other benefits, including invalidity benefit, while the earnings-related additions to unemployment and sickness benefit were abolished.

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In 1986, the main official series on low-income trends, the biennial Low Income Statistics, was scrapped, and for the government, the uncomfortable head-count figures with it. They were replaced two years later by a new annual series, Households Below Average Incomes (HBAI). The hope was that this new series would defuse some of the pressure on the government’s record. As one of the civil servants working on the changes explained in an internal memo, ‘The government shifted the basis of the “poverty” debate onto grounds of their choosing’ and ‘took away the poverty lobby’s favourite propaganda instrument.’1

This was optimistic. The new HBAI series introduced a new concept of low income – those falling below various fixed proportions – from 50 to 90 per cent – of mean household income (the mean is the average income calculated by dividing the sum of all incomes by the number of people in the distribution). The first issue gave trends for both an absolute measure – based on a 1981 income threshold held constant in real terms – and several relative thresholds. Only too aware of the views of their political masters, officials were careful to tread carefully in what was a political minefield. The new series offered no judgement on which if any of the thresholds was favoured, and like its predecessor, avoided the word poverty. Ministers judged that it was better to continue to fudge the issue by sheltering behind the ‘low-income’ label.

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The deal that most came to symbolise the extractive processes at work was the dramatic buy-out of RJR Nabisco, the giant US tobacco and food conglomerate. The $25 billion 1988 bidding war, a nail-biting and high-stakes game of corporate poker, involved a river of money so great that it greatly distorted the American money supply figures. The fees enjoyed by the two top executives – $53 million and $46 million respectively – were stratospheric even by Wall Street standards.1

In the UK, the takeover deals of the time were often hatched in private clubs and restaurants. The Savoy Grill in the Strand, a favoured haunt of the rich and the famous, became known in business circles as the ‘Deal Makers’ Arms’. While some deals improved overall corporate performance, they too often extracted, and sometimes destroyed, rather than built value. A lucrative game of corporate pass the parcel became the source of personal enrichment for a generation of financiers whose route to wealth bypassed the entrepreneurialism that is the backbone of a wealth-creating economy. Companies were cracked open like piggy banks to extract the spoils. As the author of Barbarians at the Gate – the story of RJR Nabisco – put it, ‘This was wealth created by tearing apart companies rather than building them up, by firing or downsizing companies rather than by hiring them.’2 ‘There is no historical precedent for such regressive redistribution within one generation without either legal title or economic disaster’, concluded one study.3

The actions of the new tycoons and their accomplices brought another wave of upheaval to staff, small businesses and communities.

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In early January 1998, a large group of traders, fund managers and financiers braved the pouring winter rain to gather at the Mansion House, the grand official residence of the mayor of the City of London. They were to debate the motion ‘This house believes that City salaries are totally fair and justified.’

Supporting the motion was George Cox, a director of the London International Financial Futures Exchange, established to trade in ‘futures’, essentially bets about the future course of share prices, currencies and commodities. “If you cut City remuneration tomorrow”, he argued, “there will be less available for society at large and we would all be poorer as a result”. Andrew Winckler, former chief executive of the Securities and Investment Board – set up to supervise the financial markets – spoke against the motion. The Square Mile had become “smug and complacent” about salaries and bonuses, he told the audience. “The current bonus system encourages a degree of speculation that is not warranted and is rewarding failure.” To the surprise of the audience, the motion was lost – with 52 per cent against, 45 per cent in favour.

For the previous decade, Britain’s financial services industry had been on a roll. Profits, bonuses and share prices had soared. But eight months before the Mansion House debate, Labour ousted the Major government with a record post-war majority of 179. Labour’s landslide victory came with a huge weight of expectation. In the morning after the election, commuters at Brixton tube station in South London were greeted by the electronic boards showing not the usual train destination but the election results: ‘Labour, 419, Tories, 163.’

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Labour’s second key social goal was to create a modern, meritocratic society. The term ‘meritocracy’ had been popularised in 1958 by the sociologist Michael Young in his anti-utopian fictional essay The Rise of the Meritocracy. The book was a satire that looked at what a futuristic Britain would be like if economic success was based not on social origin but on talent and effort.

Far from advocating such a system, Young was issuing a stern warning that a winner-takes-all world would become ruthlessly competitive, hierarchical and unstable, with an even more tiered system of polarisation with those unable to make it ranked as failures. Others have dismissed a politics of aspiration, whereby success is measured by how far you rise and how much you are paid, as creating a society that justified inequality, where, ‘by definition, certain people must be left behind’.1 The contributions that people make to society, often outside of the market system through unpaid caring and volunteering, have long been out of step with pay levels and traditional hierarchies of status, as society found during the opening months of the COVID-19 pandemic when views on who were the most valuable members of society were turned upside down.

Despite these concerns, creating a more meritocratic – and competitive – society came to be a widely shared goal across the political divide. Margaret Thatcher, the daughter of a Grantham grocer, wanted a society based on merit not birth. Even though earlier Labour thinkers, such as Crosland, had warned that a meritocracy would not be a ‘just society’,2 Blair, minor public school and Oxford, picked up the baton.

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In May 2003, shareholders gathered at the Queen Elizabeth II Conference Centre in Central London for the annual general meeting of one of Britain’s largest companies, the pharmaceutical giant GlaxoSmithKline (GSK). While company AGMs are usually formal and self-congratulatory events with anodyne speeches and luxury biscuits, this one was full of acrimony. For hours, shareholders and directors were locked in a bitter row over the pay of the company’s chief executive, Jean-Pierre Garnier. A fraction over half of shareholders voted against the deal. In response to the revolt, a riled Garnier, who lived in Philadelphia rather than the UK, declared, “I’m not Mother Teresa”.

The explosion in corporate rewards that began in the 1980s continued from the millennium. This was despite the evidence that rewards were largely unrelated to corporate performance, and the way other countries such as Sweden, France and especially Japan (where group cohesion is more highly valued than individual reward) operated successful economies with lower levels of top pay.1 In July 2005, Richard Desmond, the proprietor of the Express newspaper titles, paid himself a ‘chairman’s remuneration’ of £52 million. Just nine months earlier the global steel magnate Lakshmi Mittal, Indian born but resident in the UK, chief executive of the world’s largest steel-making company, ArcelorMittal, paid himself a £1.1 billion dividend. It was then the highest private dividend ever received.

The record did not last for long. A year later, the swashbuckling and controversial high-street dealmaker Philip Green topped it with a dividend of £1.2 billion from his Arcadia group of shops from Miss Selfridge to Top Shop.

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Eventually the distribution question was to return to the political agenda. “Inequality is emerging after a half-century in the wilderness”, declared Andrew Haldane, the Bank of England’s chief economist, in 2014.1 The groundwork for this renewal of interest had been laid earlier. Official statistics suggested that the rise of inequality that began in the 1980s had levelled off during the 1990s, evidence that was in conflict with the persistence of runaway rewards at the top.2 This data, drawn from government surveys, was good at showing the gap across the broad range of incomes, between, for example, the income of a bus driver and a surgeon, but poor at capturing the tails of the distribution where the starkest changes had been occurring.3

From the late 1990s, three leading scholars of inequality – the Oxford-based economist Sir Tony Atkinson and his younger colleagues, Thomas Piketty of the Paris School of Economics and Emmanuel Saez of the University of California, Berkeley – embarked on detailed research into the long-run trend in top income shares. Painstakingly extracted from a new source – national tax archives – these studies were to have profound consequences for the inequality debate.

This pioneering work revealed that from the end of the First World War, the share of total income taken by the top 1 per cent in the UK had fallen continuously until the late 1970s, from a high of 19 per cent in 1918 to a low of 5.7 per cent in 1978.

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