How social mobility got stuck

Britain's poor were absolutely and relatively better off until Thatcher was elected in 1979. Since then, the bottom half of society is worse off than it was in 1983.

The best place to look for rubbish written on social class is in the Daily Mail. When the BBC released its Great British Class Survey in April the Mail cited a pundit, the “author and social commentator” Jill Kirby, willing to claim that “there is plenty of social mobility – even the Precariat can escape more easily than the working class of 50 years ago”. In fact, the survey revealed nothing of the kind. The socalled Precariat, the lowest social class in the BBC’s research, is stuck at the bottom.

Class matters and it matters most at the top. The greatest number of social divisions occurs in the top 1 per cent of the population, so, to understand class, you have to spend a great deal of time looking at divisions among the elite. Take the “grocer’s daughter” from Grantham who the Tory party took as coming from the lower orders, because all her father owned was two shops. To have a chance of standing as a Tory MP she had to marry at least a class above herself, and she started high. Margaret Roberts was born in 1925 into the best-off 10 per cent of families in Britain. By the time she went to university her father, Alfred, had risen to be a member (if a lowly one) of the 1 per cent. Margaret joined an even smaller proportion when she went “up” to Oxford, and she married into the 0.1 per cent with Denis and his money. But the grandees of her party were members of the 0.01 per cent, well above the Thatchers.

For Thatcher to become leader of the Conservatives, the party had to be in disarray. This was true even though the importance of class declined fairly steadily from the day she was born to the day in 1979 when she became prime minister. However, since then, right through to her death, the importance of class has soared. Those who won the highest rewards from her victory were among the richest. It is worth looking first at who gained most, before turning to the losers.

In 1945, when Thatcher turned 20, the richest 0.01 per cent people in Britain received 123 times the mean national average income. By the time she turned 40 in 1965 that had halved to 62 times, and the year before she came to power, in 1978, it was at its minimum: just 28 times the average income.

Twin peaks: disparities in welath from the start of Old Labour (1945) to the end of New Labour (2009)

Britain in the 1970s was a very different world from the Britain of the 1940s. Thatcher’s class hated it. The class above her, the one that she joined, loathed the changes even more, and the class above that put its money where its anger was, funding think tanks, newspapers and young politicians to fight back.

If they were very clever they funded the short-lived Social Democratic Party, because it was largely not by the gains of the right, but by the divisions between the left and centre, that the rise in inequality after 1978 became possible. In most other European countries there was greater solidarity on the left.

By the time Thatcher left office in 1990 the annual incomes of the richest 0.01 per cent of society had climbed to 70 times the national mean, and the accelerating effect of her government’s actions multiplied that increase to 99 times the national mean by 1997. It is also well known that Thatcher said her greatest achievement was New Labour. By 2007, the incomes of the best-off 0.01 per cent were at 144 times the national mean average. That top share fell slightly in the 2008 crash, but it is thought to have bounced back since.

Class at the top of British society is fractured. Under Thatcherism and New Labour, the best-off 0.1 per cent benefited from a greater proportionate increase in their wealth than the tiny slice at the very top. The annual incomes of the 0.01 per cent soared to more than 45 times the mean by 2007, but just beneath them the top 1 per cent – the tier most commented on today – did even better. Alfred Roberts, owner of two shops in Grantham, received through his work and assets about seven times the mean adult income in the year 1945. This fell to roughly six by the end of the 1945-50 Labour government but it was restored temporarily on the re-election of the Tories in 1951, only to decline again under their tenure and Labour’s. It wasn’t until his daughter’s government, formed in 1979, that the 1 per cent were not just restored but elevated to nine times the mean.

It can help to personalise class. To picture the richest 0.01 per cent of our society, think of newspaper proprietors such as the Barclay brothers, those extremely wealthy individuals who invited Thatcher to live at the Ritz, their hotel in London, in the months before she died. For the 0.1 per cent, think of people such as Denis and Margaret Thatcher, and for the 1 per cent think of Alfred Roberts. Social class does not depend on income alone; it is about relationships between people. The owner of two shops (the 1 per cent) doffs his cap to the duke (the 0.01 per cent) and between them the businessman (the 0.1 per cent) lobbies for a knighthood. Below all three the clerks (9 per cent) carry out humdrum duties and below all of them the 90 per cent are repeatedly categorised and recategorised by social scientists whose surveys, even if representative, usually do not give enough detail to differentiate well between the few at the top.

Two statistics will broadly suffice to work out what class you are in: your household income and your family wealth. Often your postcode can reveal a great deal about these. Rather like those charts that plot your height against your weight and tell you if you are overweight, average, underweight or obese, a chart could be produced to determine your class (even though it is unlikely that social researchers could agree on a single chart as yet).

As people’s incomes rise when they get a job, are promoted, meet a better-paid partner and so on, they tend to move out from poorer groups to those less poor – towards average, modest, affluent and occasionally even to wealthy parts of society. This was the story of Alfred Roberts. As their income rises, prudent folk save and usually their wealth as reflected in their standard of living also rises. When incomes first fall, say, through illness or redundancy, accrued wealth maintains its social class for a time, but eventually it falls back down the income/wealth chart towards poverty if nothing intervenes to stop it.

In postwar Britain the intervention that curtailed poverty was the redistribution of income and wealth. When fewer people were allowed to hoard so much of the wealth and claim so much of the nation’s annual income, fewer could be poor. Roberts appeared to become worse off, not because of anything that he did, but because he was not permitted to make ever more sizeable profits out of the people of Grantham. If he did increase his income by charging them an extra penny for bread, then a little more of that penny was taken back off him in taxation towards the common good. Roberts almost certainly hated this.

Between 1945 and 1978, as income (and then wealth) inequalities in Britain continued to fall, social mobility rose. In 1944 the state introduced free secondary education for all and then untiered secondary education was brought in, but only slowly. It was not until 1973 that the proportion of children of secondary age in Britain attending a comprehensive school hit 50 per cent, though that rose rapidly to 80 per cent by 1977. Any increased social mobility brought about by that would not be evident until most of these children reached middle age, after the millennium.

As class divisions in Britain diminished and the income and wealth gaps between people narrowed, the only group that lost out was the richest 1 per cent. The share of national income for the 9 per cent of people just below them remained static between 1945 and 1978, but for the 90 per cent of people below them the share rose. The poor became both absolutely and relatively better off until Margaret Thatcher was elected.

Shortly after she gained power, a survey was conducted on behalf of ITN News and a TV programme called Breadline Britain, which released the results in 1983. Its startling finding was that the spike in unemployment figures that Thatcher had tolerated and the shift in income from poor to rich had resulted in a rapid increase in poverty, so that one in seven people was living in poverty by the early 1980s. This was a sharp rise above levels experienced after the end of the 1960s.

The deepening inequality since 1978 is far more familiar to us than what occurred before it, yet it is still shocking. In its 2013 Poverty and Social Exclusion (PSE) report, published in March to mark the 30th anniversary of that 1983 survey, analysts funded by the Economic and Social Research Council noted: “Today 33 per cent of the UK population suffers from multiple deprivation by the standards set by the public. It was 14 per cent in 1983.”          

The PSE report showed that as the rich became richer in Britain, there was an increase in the numbers of poorer people who had rational fears about money, who were shoddily housed by the standard of their times, who lived in shame and who, at the extreme end of the scale, could not afford to be properly fed. That last rise has been very recent, but it is part of the longer-term trend. This is why 1930s-type soup kitchens have returned to Britain’s towns and cities. The statistics that follow are just a sample of the results of the largest ever systematic study of poverty and social exclusion in Britain, highlighted in a new special edition of Breadline Britain that was broadcast by ITN on 28 March.

The PSE report presents a very different picture of class in Britain today from the one offered by the BBC’s class survey. It has the top 1 per cent and the 9 per cent below it doing all right. Below this tier, the remaining top half of society is getting by on “modest” incomes. But those beneath this are now, in many ways, worse off than they were in 1983.

Of the bottom 50 per cent of people in Britain, all are financially insecure; most (30 per cent) are poorly housed by today’s standards; a large minority (20 per cent) cannot take part in normal social activities; below this minority most cannot now afford to heat their homes properly; and below them, one in every 15 (7 per cent) is poorly fed. The seven classes this produces could be labelled the rich (1 per cent), the affluent (9 per cent), the modest (40 per cent), the insecure (20 per cent), the shamed (10 per cent), the cold (13 per cent) and the hungry (7 per cent).

The PSE survey finds that most people in Britain agree that financial insecurity includes not being able to afford to save at least £20 a month for a rainy day (having to pay, for instance, to fix a boiler – a bill of, say, £500). It includes not being able to afford to make pension payments or have household insurance.

Inadequate housing includes cold housing. The PSE survey found that one in three people cannot afford to heat their home adequately in winter. A third of adults consider themselves to be truly poor “all the time” or “sometimes”. The report explained that “a quarter of adults said their incomes were below the level needed to avoid poverty and 22 per cent had felt embarrassed by their low income”.

In 1983, 5 per cent of households were unable to heat their home to keep it adequately warm; today that proportion is 9 per cent. Some 6 per cent of households in Britain in 1983 could not afford to live in damp-free housing; today that proportion is 10 per cent. When the rich take more, the poor become poorer – and now they are becoming absolutely poorer.

Social divisions of poverty and welath among people in Britain by status (2013)

Social activities that most of the people surveyed now see as necessities are having a cheap hobby, taking part in celebrations on special occasions, attending a wedding or funeral or similar functions, being able to make hospital or other such visits, and being able to take part in sport and exercise. In 1999 one-fifth of adults could not afford to take part in these activities. When the same set of questions was asked in 2012 the researchers found it was one-third of all adults.

The broadly agreed definitions of well fed are that children need three meals a day, fresh fruit and vegetables every day and meat, fish or a vegetarian equivalent at least once a day. Every adult should be able to consume two meals a day, fresh fruit and vegetables every day and meat, fish or a vegetarian equivalent every other day. Using these definitions, the PSE survey found that well over half a million children (4 per cent) live in families that cannot afford to feed them properly and over three and a half million adults (8 per cent) cannot afford to eat properly in Britain today – that is, one in every 17 people in the country.

A fraction of the income of the top 1 per cent would provide enough money to allow all who are going hungry to be fed adequately. But today the man who owns two grocer’s shops is richer than ever, because he charges more for his goods and pays less tax. And many more people will not be able to afford many of the basic items he sells.

Danny Dorling is a professor of human geography at the University of Sheffield. He is the author most recently of “The 32 Stops” (Particular Books, £4.99) and “Unequal Health” (Policy Press, £24.99) For more details of the Poverty and Social Exclusion project visit: poverty.ac.uk

Tough at the top: the greatest number of social divisions occurs in the wealthiest 1 per cent of the British population. Photograph: Getty Images.

This article first appeared in the 13 May 2013 issue of the New Statesman, Eton Mess

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We're racing towards another private debt crisis - so why did no one see it coming?

The Office for Budget Responsibility failed to foresee the rise in household debt. 

This is a call for a public inquiry on the current situation regarding private debt.

For almost a decade now, since 2007, we have been living a lie. And that lie is preparing to wreak havoc on our economy. If we do not create some kind of impartial forum to discuss what is actually happening, the results might well prove disastrous. 

The lie I am referring to is the idea that the financial crisis of 2008, and subsequent “Great Recession,” were caused by profligate government spending and subsequent public debt. The exact opposite is in fact the case. The crash happened because of dangerously high levels of private debt (a mortgage crisis specifically). And - this is the part we are not supposed to talk about—there is an inverse relation between public and private debt levels.

If the public sector reduces its debt, overall private sector debt goes up. That's what happened in the years leading up to 2008. Now austerity is making it happening again. And if we don't do something about it, the results will, inevitably, be another catastrophe.

The winners and losers of debt

These graphs show the relationship between public and private debt. They are both forecasts from the Office for Budget Responsibility, produced in 2015 and 2017. 

This is what the OBR was projecting what would happen around now back in 2015:

This year the OBR completely changed its forecast. This is how it now projects things are likely to turn out:

First, notice how both diagrams are symmetrical. What happens on top (that part of the economy that is in surplus) precisely mirrors what happens in the bottom (that part of the economy that is in deficit). This is called an “accounting identity.”

As in any ledger sheet, credits and debits have to match. The easiest way to understand this is to imagine there are just two actors, government, and the private sector. If the government borrows £100, and spends it, then the government has a debt of £100. But by spending, it has injected £100 more pounds into the private economy. In other words, -£100 for the government, +£100 for everyone else in the diagram. 

Similarly, if the government taxes someone for £100 , then the government is £100 richer but there’s £100 subtracted from the private economy (+£100 for government, -£100 for everybody else on the diagram).

So what implications does this kind of bookkeeping have for the overall economy? It means that if the government goes into surplus, then everyone else has to go into debt.

We tend to think of money as if it is a bunch of poker chips already lying around, but that’s not how it really works. Money has to be created. And money is created when banks make loans. Either the government borrows money and injects it into the economy, or private citizens borrow money from banks. Those banks don’t take the money from people’s savings or anywhere else, they just make it up. Anyone can write an IOU. But only banks are allowed to issue IOUs that the government will accept in payment for taxes. (In other words, there actually is a magic money tree. But only banks are allowed to use it.)

There are other factors. The UK has a huge trade deficit (blue), and that means the government (yellow) also has to run a deficit (print money, or more accurately, get banks to do it) to inject into the economy to pay for all those Chinese trainers, American iPads, and German cars. The total amount of money can also fluctuate. But the real point here is, the less the government is in debt, the more everyone else must be. Austerity measures will necessarily lead to rising levels of private debt. And this is exactly what has happened.

Now, if this seems to have very little to do with the way politicians talk about such matters, there's a simple reason: most politicians don’t actually know any of this. A recent survey showed 90 per cent of MPs don't even understand where money comes from (they think it's issued by the Royal Mint). In reality, debt is money. If no one owed anyone anything at all there would be no money and the economy would grind to a halt.

But of course debt has to be owed to someone. These charts show who owes what to whom.

The crisis in private debt

Bearing all this in mind, let's look at those diagrams again - keeping our eye particularly on the dark blue that represents household debt. In the first, 2015 version, the OBR duly noted that there was a substantial build-up of household debt in the years leading up to the crash of 2008. This is significant because it was the first time in British history that total household debts were higher than total household savings, and therefore the household sector itself was in deficit territory. (Corporations, at the same time, were raking in enormous profits.) But it also predicted this wouldn't happen again.

True, the OBR observed, austerity and the reduction of government deficits meant private debt levels would have to go up. However, the OBR economists insisted this wouldn't be a problem because the burden would fall not on households but on corporations. Business-friendly Tory policies would, they insisted, inspire a boom in corporate expansion, which would mean frenzied corporate borrowing (that huge red bulge below the line in the first diagram, which was supposed to eventually replace government deficits entirely). Ordinary households would have little or nothing to worry about.

This was total fantasy. No such frenzied boom took place.

In the second diagram, two years later, the OBR is forced to acknowledge this. Corporations are just raking in the profits and sitting on them. The household sector, on the other hand, is a rolling catastrophe. Austerity has meant falling wages, less government spending on social services (or anything else), and higher de facto taxes. This puts the squeeze on household budgets and people are forced to borrow. As a result, not only are households in overall deficit for the second time in British history, the situation is actually worse than it was in the years leading up to 2008.

And remember: it was a mortgage crisis that set off the 2008 crash, which almost destroyed the world economy and plunged millions into penury. Not a crisis in public debt. A crisis in private debt.

An inquiry

In 2015, around the time the original OBR predictions came out, I wrote an essay in the Guardian predicting that austerity and budget-balancing would create a disastrous crisis in private debt. Now it's so clearly, unmistakably, happening that even the OBR cannot deny it.

I believe the time has come for there be a public investigation - a formal public inquiry, in fact - into how this could be allowed to happen. After the 2008 crash, at least the economists in Treasury and the Bank of England could plausibly claim they hadn't completely understood the relation between private debt and financial instability. Now they simply have no excuse.

What on earth is an institution called the “Office for Budget Responsibility” credulously imagining corporate borrowing binges in order to suggest the government will balance the budget to no ill effects? How responsible is that? Even the second chart is extremely odd. Up to 2017, the top and bottom of the diagram are exact mirrors of one another, as they ought to be. However, in the projected future after 2017, the section below the line is much smaller than the section above, apparently seriously understating the amount both of future government, and future private, debt. In other words, the numbers don't add up.

The OBR told the New Statesman ​that it was not aware of any errors in its 2015 forecast for corporate sector net lending, and that the forecast was based on the available data. It said the forecast for business investment has been revised down because of the uncertainty created by Brexit. 

Still, if the “Office of Budget Responsibility” was true to its name, it should be sounding off the alarm bells right about now. So far all we've got is one mention of private debt and a mild warning about the rise of personal debt from the Bank of England, which did not however connect the problem to austerity, and one fairly strong statement from a maverick columnist in the Daily Mail. Otherwise, silence. 

The only plausible explanation is that institutions like the Treasury, OBR, and to a degree as well the Bank of England can't, by definition, warn against the dangers of austerity, however alarming the situation, because they have been set up the way they have in order to justify austerity. It's important to emphasise that most professional economists have never supported Conservative policies in this regard. The policy was adopted because it was convenient to politicians; institutions were set up in order to support it; economists were hired in order to come up with arguments for austerity, rather than to judge whether it would be a good idea. At present, this situation has led us to the brink of disaster.

The last time there was a financial crash, the Queen famously asked: why was no one able to foresee this? We now have the tools. Perhaps the most important task for a public inquiry will be to finally ask: what is the real purpose of the institutions that are supposed to foresee such matters, to what degree have they been politicised, and what would it take to turn them back into institutions that can at least inform us if we're staring into the lights of an oncoming train?