How the rich will get richer, and the poor will get poorer

How the rich will get richer, and the poor will get poorer.
How the rich will get richer, and the poor will get poorer. Photo by vperemen.com (CC BY-SA 4.0)

“It’s the same the whole world over/It’s the poor what gets the blame/It’s the rich what gets the pleasure/Ain’t it all a blooming shame.” Old music hall song.

We are not quite the most unequal developed society on earth. The land of the free and the home of the brave, just across the Atlantic, probably gets that accolade, if you take out failed states such as Putin’s Russia.

But we are doing our best to make up for lost time.

Social inequality

In terms of social inequality, where will we be in two or three years’ time? Or in ten? Not in a good place, I fear.

Let’s assume that at some stage the pandemic will be, medically, over. The economic consequences, though, will be soaking through, as increasing financial and social inequality. There are four drivers for this, and the pandemic has accelerated or exacerbated several of them.

Inequality is generally measured by the so-called Gini index, invented by the Italian economist Corrado Gini. This, contrary to most people’s impressions, did not actually rise in the decade after the 2007/2008 financial crisis. The UK still has one of the highest Gini indices in the developed world, though.

That decade did see more people shoved into more insecure jobs, the gig economy, and a stagnation in wages generally. Meanwhile, those with property and mortgages were benefiting from low interest rates. You could borrow for next to nothing on an asset that could not fail, given the shortage of available housing, to rise in value.

The mismatch between what a mortgage would cost for a pay-to-let home and what you could get back in rental income made it hugely attractive – for those who already had the necessary seed capital.

Pandemic is fuelling inequality

The pandemic has already increased that inequality. A recent study by a charity suggested 11 million people have taken out loans to tide them over, 2.5 million of them at excessively high interest rates. Meanwhile, in more prosperous households, unspent wealth has piled up.

Let’s look at those four factors.

Dwindling low-paid jobs

One, the loss of low paid jobs in retail and hospitality. This was already taking place, but the pandemic saw it accelerate rapidly. A study from the TUC has suggested this impacted worse on women than men because they are more likely to be employed in those sectors. They are also generally less well paid.

Working from home

Two, WFH. We have no idea how this will play out, and again, it was a trend already developing before the pandemic. The numbers of passengers on the railways, which had been rising by a few percentage points a year since the industry was privatised, badly, in the 1990s had already started to flatline.

Increased working-from-home, which looks inevitable now, transfers resources from the inner cities where offices are located to, typically, affluent suburbs and market towns such as the one I now live in, in Suffolk, and elsewhere in the more prosperous areas of East Anglia and Essex. The sort of people who can work from their homes, professional people such as accountants, lawyers and others, are more likely to live in such places than in inner cities.

Those inner-city offices support low paid workers in local sandwich and coffee shops, bars, restaurants and other retailers, for example. Those jobs held by people who commute in to work daily support a huge local economic infrastructure. If less money is spent there, some of those low paid workers must lose their jobs.

By contrast, working from home means more spending in those more prosperous areas. Going out for breaks, eating food bought locally.

Impact of inheritance

The third factor driving inequality is inheritance. I have argued for decades that we have underestimated the social and financial impact of people whose parents bought property in the 1950s and 1960s inheriting as those parents die.

They are themselves more likely to be better off than those raised in council houses who will not inherit much, if anything, at all.

The point was made in a recent study from the Institute for Fiscal Studies, one of the more sensible, that is, less barkingly right wing, think tanks.

“Inheritances are set to be increasingly important in increasing inequalities between those with richer and poorer parents, reducing social mobility,” the IFS concludes.

Austerity drives inequality

The fourth driver is austerity, the inevitable consequence of record public borrowing. I have my own idea how this public debt could be repaid fairly, a wealth tax levied on property assets. I am not convinced this is politically acceptable.

That austerity programme which, with no wealth tax to offset it, will be much, much worse than what we saw in the early years of the last decade, will impact most on the poorest. As ever.

All four factors suggest the UK’s Gini index is about to take a huge turn for the worse. The consequences, social and political, are hard to predict. But they will be immense.

I am not talking about the gap between billionaires and the merely prosperous and fortunate, which has also been growing. This, if it seems unfair, is of little real consequence. This is the gap between the well-off, who will be more so, and the truly desperate.

If you are one of the fortunate ones, you should still be worried.

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