Tuesday, 16 June 2015

Low wages - a doubling of inequality since Thatcher came to power

The intention was to crack on with part 2 of the Belper Town Council meeting report but the news that Osborne plans to slash £5 billion from child tax credits had BelperStuff ferreting around for information on the Office of National Statistics website (ONS) link to relevant page on ONS website. This stimulated the inner nerd so all thought of the town council was forgotten as sleeves were rolled up, MS excel ignited and for the next 2 days the only physical exercise was the frequent trudge to the fridge for yet another Pedigree. Out of this self imposed alcoholic purdah the following has emerged:

Statisticians have developed a system by which they can slice and dice economic and social data into a meaningful pattern, this they call the Socio Economic Grouping. There are 10 groups, conveniently from the "Bottom", through numbers "2 to 9" and then finally at the top of the heap ......... yes you've got it ...... the "Top" group. These gradations reflect elements in our society, from the poorest to the richest.

This post concerns the low wage culture that so bedevils our society; believed by the left as being the root cause of so many of our ills. The ONS data enables us to see the reality of this culture and what better way than to create a pie chart of the amount of wages and salaries entering into each household, delineated by their socio economic group (don't forget, this is an annual amount per household and not per individual - my apologies for not creating a more accurate graph title):

Source: ONS/BelperStuff

Each group (or in the official jargon "decile") roughly comprises 2.5 million households so there are indeed 2,500,000 households at the bottom of the heap that, on average receive in wages £46 per week compared with a similar number of households at the top averaging £1,450 each week. Obviously no household could survive on £46 so society has developed a system of redistribution involving a range of benefits and payments to help those on low incomes survive poverty (sorry about this but it does no harm to restate just what is at the heart of the welfare state).

The following graph includes all those benefit payments and believe me when I say that benefits are even enjoyed by the "Top" group. It also includes all forms of taxation, from income tax to VAT and beyond to give a comparison of net income.

Source: ONS/BelperStuff

So, even after adding in tax credits, child benefit, housing benefit, JSA .......... etc. the lowest group of 2.5 million households have to manage on £99 per week whilst the top tenth of society struggle on with £1,345 per week. So much for redistribution. What is shocking is the inexorable rise in the wealth of the top group compared with the stagnation at the bottom. The message that inequality is increasing is often diluted because it is so oft repeated. The graph shows the reality, that inequality is an evil that defied even the best efforts of Gordon Brown. Yes despite what you may hear about Labour's failure to lift poverty, without some serious injection of cash by successive Labour chancellors the poverty experienced by the lower 12 million households would have been abject.

You have to pinch yourself to be reminded that the UK is listed as the 6th largest world economy ............ but the most successful economy in the world, the USA also has problems with poverty and inequality; the major root cause once again being low pay as evidenced by this video:

US low wages video

So what can be done about it? If BelperStuff had all the answers then the roads around Belper would be gridlocked with motorcades of politicians from the more socially aware governments seeking advice on how to provide a decent standard of life for all their citizens. However, it's not so difficult to pint (freudian slip ..... I meant point) out one very salient detail. Before that great battle between capitalism and the welfare state, so enthusiastically fought by Thatcher and Reagen and now Cameron via Osbornomics, the ratio of net income between the top and bottom deciles was 1:7 (the top tenth of society earning after tax 7 times that of the bottom tenth). By 2013 this ration had doubled to 1:14. We dread to think what the ratio will be as this present government cuts and cuts again between now and 2020. It is the deadly combination of tax cuts for the rich and ever more swinging cuts to compensatory benefits for the poor that creates inequality.

So all those big ideas, Thatcherism, monetarism, unfettered markets, privatisation, globalism ........... and a whole bunch of other 'isms ............ have been paid for by the poor. I seem to remember reading that the Japanese lifted their post war economy by adopting a ratio of 1:5, that no individual could earn a net income more than 5 times that of the lowest income. How's that for starters? It's not just about a living wage but a wage ratio that is equitable and fair for all.

BelperStuff hopes to follow this post with other targeted analyses. It's not just the bottom households that have had to suffer so we intend to highlight the effect that Tory philosophy has on the so-called better off households, the working poor. Watch out for more in the "numbers behind the news" series.

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