For 13 years, stock market investors have waited for one of the greatest parties in the history of financial markets to come to a crashing halt. When the global financial crisis hit in 2008, everyone suffered, including the owners of capital. But in the years since, asset-owners have enjoyed unprecedented prosperity while workers’ earnings have stagnated.
Between 2009 and 2014, real wages in the UK fell by 6.7 per cent. They did not return to their pre-crisis level until February 2020, weeks before the world was plunged into lockdown. The pain of the 2010s was a stark change from what came before: between 2000 and 2008, real wages had risen by nearly 20 per cent. The effects of the financial crash were, in short, severe and long-lasting for millions of people – the gains made by labour in the 2000s were reversed.
But for the lucky few with the money to invest in shares in the years after the crash, the gains were remarkable. After the collapse of 2008, which ran into early 2009, the party began. In the second week of March 2009, the FTSE 100 hit its trough, and began its steady rise; it has now almost doubled in value since that spring.
Most of the country took no part in this rally: only one in nine people in the UK directly owns British shares. But an even bigger party has been taking place across the Atlantic, in America’s stock market, home of the technology giants that have transformed our lives (such as Apple, Microsoft, Amazon, Google, and Facebook). After almost halving in value between September 2008 and March 2009, the main American stock index – the S&P 500 – has since risen five-fold in value. The Nasdaq 100, home of the tech elite, has in that time risen eleven-fold (a surge similar to the “dot com” boom of the late 1990s).
Only one in 50 Britons directly owns shares in American companies. Most people in the UK, whose real wages were underwater for a decade, have been locked out of the untold wealth being created in British and American stock markets. Direct share ownership (outside of the shares owned by pension funds) is limited in Britain because most people do not have the excess wealth required to speculate on shares. The typical British adult aged 25-34 has a net financial wealth of £400. The average for those aged 35-44 is £3,700, and £5,200 for those aged 45-54. (This excludes property, pensions or physical wealth, which is all illiquid and cannot easily be reinvested.)
The party in stock markets has been fuelled by official policy. In an attempt to revive economies after the global financial crisis, central banks across the world adopted a policy of “quantitative easing”, or QE. This policy deliberately inflated the value of assets by buying up government and corporate bonds using artificially created money.
This was a means of stimulating growth after interest rates – the traditional tool of monetary policy – had run out of road, having been cut to close to 0 per cent. Lowering interest rates cuts the cost of borrowing, incentivising individuals and business to buy and invest. But once rates couldn’t be cut any further (having reached the “zero lower bound”, in the language of economists), and Western economies continued to languish, central banks leaned on QE as a way of providing extra stimulus.
The effectiveness of that policy as a means of stimulating growth is a subject of extensive academic debate. But there were two consequences of QE that are unquestionable. First, QE was used as a means of quelling investor angst whenever stock markets faltered over the past decade, as in March 2020, when the Bank of England turned to QE to calm a “dash for cash” that could have led to an economic crash (as I detailed in a long read at the time).
Second, QE has inflated asset values, and has propelled a party for asset-owners – in both stock markets and the housing market. It did so by design, and successive Conservative governments have failed to introduce taxes on capital that would alleviated the financial inequalities fuelled by QE.
Capital in the UK is taxed at more generous rates than earnings from income. Capital gains tax – a tax paid on the money you make from buying a share cheaply and selling it dearly – is levied at 20 per cent on non-residential financial assets in the UK, whereas income tax on earnings above £150,000 is 45 per cent. If you are paid £200,000 as an employee in the UK (and do not have a student loan), you will pay £84,910 in tax. But if you make £200,000 by trading shares, you will pay only £37,540 – less than half as much.
Our tax system, in other words, rewards “unearned” income from financial speculation, while relatively punishing “earned” income from paid work. This somewhat undermines the progressiveness of the UK’s income tax system; for the owners of capital, income is for the taxman – the real money is made in the markets. And for the past 13 years, Conservative governments have presided over an economy in which owners of capital have quietly enriched themselves while everyone else struggles to maintain their income.
As the cost-of-living crisis bites, that reality – which has always seemed absurd, and is infrequently discussed in Westminster – has taken on a surreal quality. The party in stock markets is showing signs of finally faltering. The S&P 500 has lost nearly a fifth of its value since the start of the year, putting it on the verge of entering a “bear market”, while the Nasdaq 100 is down by around 25 per cent (the FTSE 100, which lagged far behind the American markets in the 2010s, has barely fallen).
But whatever happens now, the real story of the past 13 years is that so little has been done to tax the huge gains that have flowed to asset-owners, or capital, at a time when the general worker, or labour, has had to endure a lost decade. And this essential fact has been the subject of almost no political discussion whatsoever.