Why don’t the super-rich pay down the budget deficit?

There is an alternative to ever-greater austerity for the majority.

One assumption dominates the start of 2012. It will be an extremely grim year as the public starts having to pay down the deficit in real earnest, but they will grudgingly accept the substantial pain involved so long as it is fairly shared. It certainly isn't, however, and the growing realisation of this could well prove the government's Achilles heel in this year's bumpy handling of austerity.

There has been debate about whether the deficit should be cut through a stimulus to growth or through austerity measures, and even if the latter were chosen, how far and how fast the cuts should be inflicted. But there has been no discussion as to whether the pain is being fairly parcelled around. Initial Treasury claims after Osborne's June 2010 budget that the richest fifth of the population would be harder hit than the poorest fifth were quickly exploded when it was shown that this paradox depended on smuggling in the effects of Labour's last two budgets as well. But since then a great deal of new evidence exposes the falsity of this convenient canard.

The 100-page Rich List compiled by Philip Beresford and published last May presented a very different picture. Its analysis found that the 1,000 richest persons in Britain were £60.2bn better off than they were in 2010, and that they were £77.3bn better off in 2010 than they were in 2009. What this means is the staggering fact that just 0.003 per cent of the population, the richest of the rich, could by themselves alone pay off the entire deficit of £127bn and still leave themselves £10bn in surplus. Yet in the absence of a wealth tax, a mansions tax, a land value tax or a supertax on excess gains they are being required to make hardly any contribution at all to deficit reduction, even though many of them were directly involved in causing the financial crash in the first place.

This is all the more remarkable that such colossal gains accrued to such a tiny group of super-rich people when the vast majority of the population were being forced into stringent belt-tightening. In 2010 and 2011 full-time workers right across the earnings range have seen their real earnings decline. Nor was this just a temporary freak winner-takes-all for Britain's richest. In 1997 the richest 1,000 persons had assets of £99bn; by 2011 their assets had grown to £396bn. This means that the increase in their wealth over this period was almost two-and-a-half times the size of the total budget deficit. In terms of fair shares, one might expect they would be required to pay down at least a sizeable chunk of the nation's overdraft.

Whilst these are the facts about wealth in Britain today, the position on the distribution of earnings is equally damning. The OECD report 'Divided We Stand', published last month, showed that the top 1 per cent, those earning over £150,000 a year, doubled their share of the nation's total income from 7.1 per cent in 1970 to 14.3 per cent in 2005. Even more significantly, the share taken by the top 0.1 per cent, those with an average annual income of £1.2 million, jumped to 5 per cent. At the other end of the scale the share of the bottom quarter of the population was only 9.6 per cent. This means that the highest-paid 30,000 earners were taking home the same amount of money as the lowest-paid 4.5 million, a ratio between top and bottom of 150:1. The onus however between rich and poor in paying down the deficit represents almost exactly the opposite ratio.

As a result of the switch from the retail prices index to the significantly lower consumer prices index in uprating benefits, the cap on housing benefit payments, the doubling of the pension contribution rate for public sector workers, the pay freeze and real terms pay cuts, and the disproportionate dependence of the poorest households on public expenditure, the burden of paying back the deficit falls overwhelmingly on the bottom third of households. For the richest, by contrast, the burden is payment-lite. The balance between expenditure and benefit cuts on the one hand and tax increases on the other as decreed by Osborne is 77:23 per cent, and of the latter 23 per cent half is accounted for by the rise in VAT which falls most heavily on the poorest households.

In terms of fair shares in the pay-down this is gratuitously up-ended. Data published last month showed that the bottom tenth of earners got a 0.1 per cent rise in pay in the previous year, while over the same period the rise for FTSE-100 directors was 49 per cent. The month before the published accounts of the canteen catering firm Compass Group, a typical FTSE-100 company, revealed that the pay of the chief executive Richard Cousins was £84,615 a week whilst the average pay of his staff, many of them dinner ladies, was £240 a week, a ratio of 352:1. Yet the deficit charge on Mr. Cousins and others like him, unlike that on his dinner ladies, will be relatively paltry.

Even where the Labour Government had made a small start in focusing payback on the better-off, Osborne has now reversed it. In 2009 tax relief on pension contributions amounted to £20.6bn, of which £14bn or two- thirds was concentrated on higher-rate taxpayers. The 2009 budget then announced that the 40 per cent higher rate pension tax relief would be tapered down to 20 per cent for those with incomes of £150,000, with effect from April 2011. One of Osborne's first acts was to repeal it.

The St. Paul's Occupiers were right about the 1per cent against the 99 per cent, except that the inequality and the unfairness that goes with it are more extreme than even they imagined. Most people have been persuaded that they must now endure grinding austerity for years and years ahead because there is no alternative. But actually there is.

Michael Meacher is Labour MP for Oldham West and Royton.

Grant Shapps on the campaign trail. Photo: Getty
Show Hide image

Grant Shapps resigns over Tory youth wing bullying scandal

The minister, formerly party chairman, has resigned over allegations of bullying and blackmail made against a Tory activist. 

Grant Shapps, who was a key figure in the Tory general election campaign, has resigned following allegations about a bullying scandal among Conservative activists.

Shapps was formerly party chairman, but was demoted to international development minister after May. His formal statement is expected shortly.

The resignation follows lurid claims about bullying and blackmail among Tory activists. One, Mark Clarke, has been accused of putting pressure on a fellow activist who complained about his behaviour to withdraw the allegation. The complainant, Elliot Johnson, later killed himself.

The junior Treasury minister Robert Halfon also revealed that he had an affair with a young activist after being warned that Clarke planned to blackmail him over the relationship. Former Tory chair Sayeedi Warsi says that she was targeted by Clarke on Twitter, where he tried to portray her as an anti-semite. 

Shapps appointed Mark Clarke to run RoadTrip 2015, where young Tory activists toured key marginals on a bus before the general election. 

Today, the Guardian published an emotional interview with the parents of 21-year-old Elliot Johnson, the activist who killed himself, in which they called for Shapps to consider his position. Ray Johnson also spoke to BBC's Newsnight:


The Johnson family claimed that Shapps and co-chair Andrew Feldman had failed to act on complaints made against Clarke. Feldman says he did not hear of the bullying claims until August. 

Asked about the case at a conference in Malta, David Cameron pointedly refused to offer Shapps his full backing, saying a statement would be released. “I think it is important that on the tragic case that took place that the coroner’s inquiry is allowed to proceed properly," he added. “I feel deeply for his parents, It is an appalling loss to suffer and that is why it is so important there is a proper coroner’s inquiry. In terms of what the Conservative party should do, there should be and there is a proper inquiry that asks all the questions as people come forward. That will take place. It is a tragic loss of a talented young life and it is not something any parent should go through and I feel for them deeply.” 

Mark Clarke denies any wrongdoing.

Helen Lewis is deputy editor of the New Statesman. She has presented BBC Radio 4’s Week in Westminster and is a regular panellist on BBC1’s Sunday Politics.