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Inequality hasn’t risen since the crash but it’s now set to soar

The Conservatives’ £9bn of welfare cuts will reduce family incomes by as much as £3,000 a year.

Inequality, politicians and commentators often lament, has surged since the financial crisis. The widening gap between the rich and the poor is used to explain Jeremy Corbyn’s ascent, the Brexit vote and the Conservatives’ electoral humbling. Yet compared with these political convulsions, the data is surprisingly static. Rather than rising since the 2008 crash, income inequality has slightly narrowed (as a recent Institute for Fiscal Studies report showed). But this is not a sign, as some on the right suggest, that all is well in the UK.

Britain’s problem is not that inequality has risen but that it hasn’t fallen enough. The country is still living with the consequences of the 1980s when inequality surged as the earnings of the rich rose and their taxes fell. The Gini coefficient, a scale on which zero is absolute equality and one is pure inequality, rose from 0.25 in 1979 to 0.34 in 1991.

This is not merely an abstract concern. As works such as 2009’s The Spirit Level have shown, inequality is associated with a range of economic and social maladies, including financial instability, crime, obesity, drug abuse, social immobility and educational failure.

When the crash came, the poor, it is often said, “paid the price for a crisis they did not cause”. Though this is a fine political line, the data again tells a different story. “The 2008-09 recession stands out as principally an earnings recession, not an employment recession,” Torsten Bell, the director of the Resolution Foundation and Ed Miliband’s former policy head, tells me. It was high earners who experienced the steepest fall in their incomes, if only because they had more to lose.

Unlike in the 1980s, when unemployment exceeded three million, the jobless total peaked at 2.7 million in 2011 and has since fallen to 1.5 million. The employment rate has risen to 74.9 per cent, the highest since comparable records began in 1971. Significantly, it is the poorest who have benefited. “All the employment growth since the financial crisis has been among the poorest 40 per cent of families,” Bell says. “That wasn’t true in the 1990s.”

Low earners have also gained from the higher minimum wage, or “National Living Wage”, which has risen from £6.70 an hour in 2015 to £7.50. While part-time and temporary employment has increased ubiquitously since the crash, it has still paid to work.

But the non-rise in inequality also reflects more negative trends. As the Bank of England governor, Mark Carney, recently observed: “Real income growth has not been as weak in the UK since the middle of the 19th century.” The stagnation of average earnings, which are not forecast to return to their pre-crisis peak of 2007 until 2022, has served to reduce overall inequality by narrowing the gap between the middle and the bottom.

The political preoccupation with inequality reflects the rising fortunes of the top 1 per cent. As average earnings have been squeezed, voters have grown less tolerant of reckless plutocrats such as Philip Green and Mike Ashley. Top earners were initially penalised by the crash, but their share of disposable income has since recovered to a near-record high of 9.5 per cent.

Wealth inequality has also widened as property ownership has fallen to 63.5 per cent, the lowest level since 1987 and the fourth-lowest in the EU. The Conservatives are struggling to sell capitalism to voters with no capital.

For the poorest, the pain has been deferred rather than avoided. In the early post-crash years, their incomes were partially protected as welfare benefits, such as tax credits, rose in line with inflation. But as a result of George Osborne’s four-year benefits freeze that began in April 2016, inequality is rising once more. Theresa May broke with austerity in rhetoric but she did not in reality. The forthcoming £9bn of welfare cuts will significantly widen inequality and child poverty, reducing family incomes by as much as £3,000 a year.

Bell likens the period ahead to “the Eighties without the yuppies”. Benefits will be reduced at the bottom, while wages will be squeezed for almost everyone else. A grim era is becoming grimmer. 

George Eaton is political editor of the New Statesman.

This article first appeared in the 10 August 2017 issue of the New Statesman, France’s new Napoleon

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Our union backed Brexit, but that doesn't mean scrapping freedom of movement

We can only improve the lives of our members, like those planning stike action at McDonalds, through solidarity.

The campaign to defend and extend free movement – highlighted by the launch of the Labour Campaign for Free Movement this month – is being seen in some circles as a back door strategy to re-run the EU referendum. If that was truly the case, then I don't think Unions like mine (the BFAWU) would be involved, especially as we campaigned to leave the EU ourselves.

In stark contrast to the rhetoric used by many sections of the Leave campaign, our argument wasn’t driven by fear and paranoia about migrant workers. A good number of the BFAWU’s membership is made up of workers not just from the EU, but from all corners of the world. They make a positive contribution to the industry that we represent. These people make a far larger and important contribution to our society and our communities than the wealthy Brexiteers, who sought to do nothing other than de-humanise them, cheered along by a rabid, right-wing press. 

Those who are calling for end to freedom of movement fail to realise that it’s people, rather than land and borders that makes the world we live in. Division works only in the interest of those that want to hold power, control, influence and wealth. Unfortunately, despite a rich history in terms of where division leads us, a good chunk of the UK population still falls for it. We believe that those who live and work here or in other countries should have their skills recognised and enjoy the same rights as those born in that country, including the democratic right to vote. 

Workers born outside of the UK contribute more than £328 million to the UK economy every day. Our NHS depends on their labour in order to keep it running; the leisure and hospitality industries depend on them in order to function; the food industry (including farming to a degree) is often propped up by their work.

The real architects of our misery and hardship reside in Westminster. It is they who introduced legislation designed to allow bosses to act with impunity and pay poverty wages. The only way we can really improve our lives is not as some would have you believe, by blaming other poor workers from other countries, it is through standing together in solidarity. By organising and combining that we become stronger as our fabulous members are showing through their decision to ballot for strike action in McDonalds.

Our members in McDonalds are both born in the UK and outside the UK, and where the bosses have separated groups of workers by pitting certain nationalities against each other, the workers organised have stood together and fought to win change for all, even organising themed social events to welcome each other in the face of the bosses ‘attempts to create divisions in the workplace.

Our union has held the long term view that we should have a planned economy with an ability to own and control the means of production. Our members saw the EU as a gravy train, working in the interests of wealthy elites and industrial scale tax avoidance. They felt that leaving the EU would give the UK the best opportunity to renationalise our key industries and begin a programme of manufacturing on a scale that would allow us to be self-sufficient and independent while enjoying solid trading relationships with other countries. Obviously, a key component in terms of facilitating this is continued freedom of movement.

Many of our members come from communities that voted to leave the EU. They are a reflection of real life that the movers and shakers in both the Leave and Remain campaigns took for granted. We weren’t surprised by the outcome of the EU referendum; after decades of politicians heaping blame on the EU for everything from the shape of fruit to personal hardship, what else could we possibly expect? However, we cannot allow migrant labour to remain as a political football to give succour to the prejudices of the uninformed. Given the same rights and freedoms as UK citizens, foreign workers have the ability to ensure that the UK actually makes a success of Brexit, one that benefits the many, rather than the few.

Ian Hodon is President of the Bakers and Allied Food Workers Union and founding signatory of the Labour Campaign for Free Movement.