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4 October 2007

The very rich versus the rich

Redistribution is now a Tory issue.

By Peter Wilby

What strange times we live in. The words “inequality” and “redistribution” were scarcely heard at Labour’s conference. Gordon Brown’s speech briefly mentioned the need for more responsibility among top people, but didn’t berate “fat cats” or City bonuses. Then along come the Conservatives with proposals to levy a £25,000 flat tax on wealthy non-domiciles while exempting estates worth less than £1m from inheritance tax. That is redistribution – of a sort. Earlier this year, I observed that inequality was becoming a middle-class issue. The Tories, it seems, have reached the same conclusion.

The usual British attitude to inequality is one of quiescence, and that has long puzzled sociologists. Why, when the gap between richest and poorest is the highest since Victorian times, doesn’t blood run in the streets?

A clue comes from a classic study published in 1966, Relative Deprivation and Social Justice. W G Runciman found manual workers were less likely than non-manual workers to think other people were “noticeably better off”. He concluded that “envy is a difficult emotion to sustain across a broad social distance if gratification is nowhere within view”. The important words are “social distance”.

People on middling or low incomes know star footballers and other celebrities receive enormous rewards. But they regard them as beings entirely outside their league and, to some extent, forgivable because they provide entertainment. They know little of City financiers, though, and simply aren’t aware of their colossal rewards. They think the chairman of a large corporation gets 14 times what an unskilled worker gets and think it should be only six times. In fact, he gets 55 times as much.

So the gap between the very rich and very poor doesn’t have political traction. Now, however, a new gap has appeared – between the richest 1 or 2 per cent and the rest of what I will loosely call the upper middle classes. Here, the social distance is much narrower. The merely rich – lawyers, doctors, Whitehall civil servants and other professionals, as well as most company executives – meet the super-rich at work and at leisure. They have sometimes been to the same schools and universities. Crucially, the two compete for scarce goods: places at fee-charging schools, houses in the best areas, and high-quality domestic service, particularly childcare. The super-rich have provoked raging inflation in the costs of these goods.

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So it is among the top 20 per cent, not the bottom 20 per cent, that resentment of the better-off has broken out. Given that many were born into the professional classes, their expectations have always been high and now, to their surprise, they find themselves struggling. The mood among the middle 60 per cent of the population – whose incomes fall within a fairly narrow range – is quite different.

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As a recent study from the Institute for Social and Economic Research at Essex University suggests (Ray Pahl, David Rose and Liz Spencer: Inequality and Quiescence: a Continuing Conundrum, ISER Working Paper 2007-22), most are content to be better off than their parents were. If they make comparisons, they tend to look down rather than up. They dread falling into the underclass, and resent anything in the form of state benefits that gives undeserved help to the idle and feckless. As psychologists have long understood, the fear of loss is more powerful than the prospect of gain.

So the middle 60 per cent have ambivalent and sometimes contradictory attitudes to redistribution, as the Joseph Rowntree Foundation reported this year (Michael Orton and Karen Rowlingson: Public Attitudes to Economic Inequality). While about three-quarters of the population believes the gap between high and low incomes is too large, less than half wants the government to tackle the problem through redistribution. This, the middle 60 per cent fear, would go to the “wrong” people and, by pulling up the underclass, would undermine their own status.

If David Cameron becomes prime minister, redistribution will certainly go to the wrong people. Only 6 per cent of estates pay inheritance tax and, though the proportion is rising, the Tories are essentially proposing to transfer resources from some of the very rich to the merely rich and their children. I doubt it will win them the election, but at least they now have a policy on the distribution of wealth.