Andrew Fisher, author of The Failed Experiment ... and how to build an economy that works, explains how the economy is built to redistribute money upwards
We don't have trickle-down in the UK economy, but a vacuum effect which hoovers money upwards to the rich. This is by design, and it has been built by successive UK governments. I'm going to look at five ways in which the vacuum effect architecture has been built.
Since the late 1970s there has been a shift away from taxing income to taxing consumption. By shifting the tax burden predominantly from taxes on the highest paid to taxes everyone has to pay, like VAT. The tables below demonstrate how 18 years of Conservative government changed the UK taxation system from mildly redistributive to clearly regressive.
(tables from my book, The Failed Experiment - using ONS data)
Thirteen years of Labour government didn't change that much:
Corporation tax has also been slashed from 52% in 1979 to 33% by 1997, 28% by 2010 and is 21% today. So the tax burden has also simultaneously been shifted from corporations to individuals.
The UK labour market is a worse place to be an employee for one key reason: the decline of trade union influence. In 1980, over 80% of workers were covered by collective bargaining agreements - which meant a trade union negotiated their wages with their employer. Today the proportion of workers covered by collective bargaining agreements has dropped below a quarter.
Over the same period the number of UK workers in a trade union has more than halved from 13 million to around 6 million today. Tony Blair acknowledged that the UK had "the most restrictive union laws in the Western world" - and maintained them.
Even before the financial crisis hit in 2008, the share of national wealth going to wages had fallen from around 65% in the mid-1970s to 55%. Part of this process has been the explosion of low pay and insecure work - the proliferation of short-term agency contracts, zero hours contracts, bogus self-employment, fake apprenticeships, unpaid internships, and workfare too. We now have over five million workers earning less than the living wage, while the minimum wage has lost real value since the crash due to below-inflation increases.
The privatisation of vast swathes of the UK economy - including water, electricity, gas, railways, Royal Mail, as well as bits of manufacturing and lots of outsourcing - has driven down wages for workers and driven up wages for bosses. The boardroom pay of privatised utilities and companies has skyrocketed, while pay and terms & conditions have been depressed for the workforce.
If we look at key public service utilities like electricity, gas, water and rail we find that costs for customers (bills or fares) have risen well above inflation too. So consumers and workers alike have been skimmed so there's more cream for the fat cat bosses. In many cases too, public subsidy and generous tax breaks have helped to bolster profits in these privatised industries (see Thames Water as a case study).
In the late 1970s nearly a third of people lived in a council home. That figure is now approaching just 10%, while there has been a massive expansion in private rented accommodation or landlordism - aided and abetted for several years by generous tax breaks for buy-to-let landlords.
The sale of 1.7 million council homes between 1979 and 1992 (the peak of the right-to-buy years) did not share the wealth. One-third of those homes are now owned by private landlords, the fastest growing component of home ownership. In the last few years, and for the first time since the end of the second world war, owner occupation levels are declining - as housing has gone from being a home to an asset. The average house price in London is now over £500,000, well out of the reach of even a higher rate tax paying couple.
To subsidise the lack of housing affordability more and more of our taxes goes into the pockets of landlords - as housing benefit is now around £25 billion a year and rising - a collective gift from taxpayers to landlords.
Too important to fail and bailed out with hundred of billions of public money, the banks have been left unreformed. Prem Sikka has commented that the bank bailout was the single biggest transfer of wealth in UK history - he may well be right.
But since then the UK banks have recapitalised by widening their margins against consumers. In short, you borrow at a higher rate of interest and save at a lower rate - and the bank increases its profit margin. A 2012 survey found that Eurozone banks offer savers higher returns and demand lower interest rates from borrowers.
The structural problem of the UK banks is important too - they fail to lend to job-creating businesses, but are very good at lending to inflate the housing market and in speculative derivative markets. The lack of wider public interest in the finance architecture is holding back the UK economy and further driving inequality.
- This is an amended version of the opening section of a talk Andrew gave to the Unite London & Eastern region