Inequality is the problem

Mike Phipps reviews The Richer, the Poorer: How Britain Enriched the Few and Failed the Poor – a 200 year history, by Stewart Lansley, published by Bristol University Press

In Britain today almost one in three children – 4.2 million –live in poverty, a figure close to record post- war levels. Over the last 40 years, Britain had moved from being one of the most equal to one of the most unequal of rich nations.

Senior Tories routinely tell us that inequality is the price we must pay for prosperity.  Tony Blair also saw the issue of poverty as quite separate from the spiralling wealth of those at the top. This book emphasises the connection between poverty and inequality: poverty results from how society’s wealth is distributed. As the Christian Socialist Tawney argued over 100 years ago, “What thoughtful people call the problem of poverty, thoughtful poor people call with equal justice, a problem of riches.”

Lansley’s overview divides the last 200 years into three distinct periods. “The first ‘anti-poor, pro-inequality’ era prevailed until 1939. The second ‘pro-poor, pro- equality’ post-1945 era lasted little more than a single generation. An apparently historic blip, it was replaced by a return to past levels of inequality and a jump in the risk of poverty. That third era is still in place.”

It’s interesting that in the 19th century, spokespeople for the rising middle class understood more than today’s defenders of capitalism that wealth was rooted in injustice and inequality. Liberals like J.S. Mill turned their fire on the parasitic landlord class, whose wealth “comes from the fruits of others’ labours, which they don’t receive.” But the same conclusion can be drawn from the operation of capitalism, as Marx and others understood.

Only in the 20th century with the extension of the right to vote, the birth of the Labour Party and the growth of movements for social change did radical social reform, including pensions and unemployment benefits, come about. The Liberal government from 1906 onwards targeted the wealth holdings of the landlord class and established the principle of redistribution through taxation – all while preserving the distinction between deserving (capitalist) and underserving (rentier) wealth. Yet, with the rise of monopoly capitalism and the growth of wealth through uncompetitive practices, such a distinction was increasingly hard to justify.

Despite the slaughter, World War I also accentuated the trend towards greater equality. To support wartime spending, the standard rate of income tax rose fivefold and labour shortages fuelled wage rises. But these gains were short-term, with a failing economy in much of the interwar period and unemployment never below one million between 1921 and 1938.

But a double standard operated in relation to rich and poor: “While conditionality was being tightened for the jobless, legal tax avoidance, despite its impact on revenue from taxation, carried little social stigma. Even illegal evasion rarely led to criminal prosecution or public censure. With no effective legal or reputational sanctions against avoidance, paying full tax rates became largely voluntary, just as it is today.”

World War II ushered in a social and political earthquake. Wealthy homes were requisitioned for use as barracks, hospital or schools, while their servants left to take part in the war effort. The new central controls on trade, prices, investment and profits eroded the incomes of some of the financial elites. Rent levels were pegged, and the price of property fell sharply. There were steep increases in taxation, especially on the rich.

For workers, real earnings rose above peacetime levels while unemployment fell sharply. Hostility to privilege grew significantly in wartime Britain at the lack of equality of sacrifice across the classes. During the early days of the London Blitz, when shelter facilities were hopelessly inadequate, there was a spate of protests demanding better protection and the opening of tube stations as shelters. These included the picketing of the shelter at the Mayfair Hotel and an occupation at the Savoy.

The Beveridge Report, proposing a complete reform of social services, including health, overwhelmingly captured the public imagination: people queued to buy it and 600,000 copies were sold. This was despite the hostility of Prime Minister Churchill, business and much of the media: the Daily Telegraph said it would take Britain “halfway to Moscow”.

Labour’s landslide win in 1945 was a jolt to the old elites. Despite a near-bankrupt economy and the almost immediate withdrawal of American aid, Attlee’s government embarked on radical reform, based on universalist principles, including the NHS and a comprehensive, compulsory system of National Insurance. Plus, for the first time in modern history, the distribution question – how the nation’s wealth was shared – was now central to the political agenda.

Despite austerity and rationing, the 1950s “was the first decade in recent history to see a largely uninterrupted rise in living standards, with growth rates reaching new peaks.” Meanwhile, high levels of employment and the rising number of trade unionists – from 4.8 million in 1939 to 10.3 million in 1965 – brought a gradual improvement in wage levels and in working conditions. Infant mortality rates fell and homes filled with consumer goods.

But the presumption of contentment was illusory. Poverty remained widespread, particularly among the elderly and for families without a male breadwinner. One of the main problems was the low level of benefits. While the Tories accepted the more popular parts of the Beveridge settlement, like the NHS, the bits that were not universal, including National Assistance, could be eroded without much electoral damage.

Besides, Labour’s experiment in humanising capitalism had fallen short in many respects, with little change in the class gaps in health, school leaving ages and university entrance compared with the pre- war years.  Reducing inequality by taking more from the better off was also considered problematic. One Labour cabinet minister said: “Those who advocate that we should simply take more and more money, whatever is happening to the economy, aren’t on the whole people who have to win votes and stay in office and try to get things done. Large increases in expenditure on the social services are just not possible unless economic growth is going happily forward.”

“The question of the relative priority of wealth creation and wealth redistribution,” notes Lansley,  “and how far these were compatible or in conflict, was to be the source of much contention in the coming decades.” Moreover, once Labour leaders accepted the notion that the wealthy were also the wealth creators, the fear of spooking the geese laying the golden eggs overrode the need to squeeze the rich to achieve greater social equality.

By the 1970s, Britain’s social security system had become increasingly targeted, with means-testing accounting for a growing share of all benefit spending. “Beveridge was being quietly buried,” says Lansley. The idea of a basic income for all was now on the fringe and would not re-enter mainstream debate until after 2010.

Labour’s 1974 manifesto called for “a fundamental and irreversible shift in the balance of power and wealth in favour of working people and their families.” Shadow chancellor Denis Healey told Labour’s 1973 conference: “There are going to be howls of anguish from the rich.”

But in office, he ducked a wealth tax and introduced tough austerity cuts to public spending at the behest of the International Monetary Fund. Labour’s refusal to confront a crisis of capitalism fuelled New Right diagnoses that this was more a crisis of social democratic attempts to manage the economy. Labour’s failure to take this challenge seriously blindsided it to the rise of Thatcherism.

Thatcher’s views on poverty were a return to 19th century thinking: it was caused not by systemic problems, but by weak values in the individual, best tackled by self-help. Social inequality was not seen as relevant: in fact, borrowing from US neoconservative thinking, it was claimed that if the rich got richer, the poor would benefit through a ‘trickle-down’ effect.

Meanwhile, ideologically driven monetarist economic policy caused dole queues to surge. Free market doctrines laid waste to Britain’s industrial base – a price worth paying, the government deemed, if it meant crushing the country’s powerful trade unions. As poverty soared, departmental reports avoided the word and the government consciously refused to define it.

Amid surging inflation, child benefit was frozen and other benefits also declined in value – the first time such a policy had been deliberately pursued since the 1930s – in Thatcher’s war on “shirkers and scroungers”. 

At the other end of the scale, personal remuneration soared: in the mid-1970s, the pay ratio of chief executives of FTSE 100 companies to their average employee stood at a modest 9:1. By 2002, it had risen to 54:1. In the 1970s, a typical City bonus would be a turkey or a hamper from Harrods. In 1993, more than one hundred partners at the London offices of Goldman Sachs were paid year- end bonuses of more than $1 million each.  By 2007, the City bonus pool stood at £ 9 billion.

‘Shareholder value’ became the new mantra. It was later dismissed by one of its most ruthless exponents, the head of General Electric as “the dumbest idea in the world… Your main constituencies are your employees, your customers and your products.” But under its spell, businesses dropped any pretence of social responsibility and workforces became mere costs to be reduced as much as possible. Meanwhile a new world of ‘shadow banking’ took over, bypassing rules and regulators.

People began to take a more relaxed view of the new plutocracy, none more so than Tony Blair. True, under his reign, business would be expected to consider other stakeholders besides shareowners in their activities. But despite record inequality, New Labour would not challenge the rich.  The poor would be helped by strengthening the moral foundations of society. Any commitment to equality would be replaced with gestures towards equality of opportunity.

The New Labour government committed to keep the outgoing Tory administration’s budget for its first two years, including cuts in benefits for lone parents. Despite Blair’s commitment to halve child poverty within a decade, there was no early action on poverty. Over time, the minimum wage, a new tax credit scheme, free nursery places for all three- and four-year olds, new Sure Start Centres, improved maternity and paternity rights and other measures did cut child poverty by over a third and pensioner poverty by a quarter between 1997 and 2010. But it was a short-lived achievement.

New research this century reveals that the total share of income taken by the UK’s top 1% fell from 19% in 1918 to 5.7% in 1978, rising again to 15.4% in 2009. For a mature democracy with a supposedly well-regulated economy, this is astonishing. Here and elsewhere, campaigners have seen the advantage of contrasting this elite with the other 99% – especially after a financial crash largely caused by uncontrolled greed at the top.

Concern has mounted at the way this disparity has created distortions in the economy – ‘luxury capitalism’ – in a race for wasteful consumption and environmentally destructive goods, such as multiple property ownership and private airports. One in three new cars bought in inner London in 2020 are SUVs.

From 2010 on, the debate on poverty has coarsened, with the Conservatives imposing benefit cuts and rejecting the idea that government should be “lifting income over an arbitrary line,” while at the same time redefining poverty as something caused by individual life choices.  As the real level of benefits has fallen in a way unprecedented since the 1930s, the media have enthusiastically joined the othering and shaming, while developers introduce ‘poor doors’ and segregated facilities for luxury flat owners and social tenants.

Claimants are increasingly sanctioned for a range of ‘offences’. Between 2010 and 2018, a total of five million sanctions were issued and at its peak the Department for Work and Pensions was levying more fines through local jobcentres than the mainstream justice system. By 2020, the number of food banks exceeded the number of branches of the Greggs food chain. Over the previous decade, the number of rough sleepers rose threefold.

In the seven years from 2009, London house prices have doubled, delivering a largely untaxed average windfall of some £240,000 to home owners while making a home unaffordable for most young buyers. The continued privatisation of state assets has further favoured the wealthy while weakening the public finances. Under successive Conservative governments these policies have remained unchanged – although the Treasury’s intervention in response to the Covid pandemic does give a hint of what government can do, if the political will is there.

This history of poverty and inequality in Britain over the last two centuries is not a cheering read. The dynamism and passion of campaigners, particularly in recent years, contrast with the inaction of governments. Amid the harrowing stories of destitution, too often the very real injustice of the spiralling wealth of the very rich gets lost. The key takeaway of this excellent history is that poverty cannot be fought effectively, unless we also tackle the social and economic inequality that creates it.

Mike Phipps is editor of the Iraq Occupation Focus e-newsletter, available at book For the Many: Preparing Labour for Power was published by OR Books in 2018.

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