Tuesday, October 21, 2008

Wealth and Poverty in United Kingdom

This briefing on wealth and poverty has been done for my Wednesday morning current affairs class

"For the poor will never cease to be in the land; therefore I command you, saying, 'You shall freely open your hand to your brother, to your needy and poor in your land.'
Deuteronomy 15:11.

‘He who dies rich, dies disgraced’
Andrew Carnegie (major charitable donor)

‘The rich lists are lists of shame’
Ted Turner ( founder of CNN who gave a $billion to the UN)

Historical Background to Poverty in Britain: from medieval times to 1990s.

Slavery: The reasons why ‘the poor are always with us’ are manifold but date back, in some senses to the days when there was still slavery in Britain, beginning with Roman times and then continuing through the Saxon period up to Norman times when about 10% of the population were still effectively slaves. The group of people at the bottom of the occupational ladder in terms of skills and ownership have always made up the ranks of the poor. Ironically, perhaps, the Black Death 1348-49 which killed a third of the population, especially the poor and weak, had the effect of boosting wage rates. It also placed such a premium on labour that slavery was ended by the close of the 14th century.

1530 Poor Law: this gave licences to beg to the disabled and poor. But those without the licence were whipped cruelly and then forced to return to their home parish.

1536 Poor Law: this embodied the whipping but for a second offence part of the ear was cut off; for a third offence they were hanged. It was clearly judged as wrong to be poor and without a job. Echoes of such attitudes survive strongly into the present day. Every parish was obliged to build a workhouse for the old and disabled poor where they would work at whatever they could.

1597 Vagrancy Act: the death penalty for vagrancy was abolished.

17th Century Poverty: it was calculated that half the population ate meat every day; 30% 2-6 times a week and 20% only once a week or less.

1601 Act: Overseers of the Poor were appointed for each parish, empowered to levy a local rate to help pay for care for the poor. Refusing work would earn a whipping and children were apprenticed to local employers.

18th Century: the epidemic of gin drinking took its toll on the poor in this century; it was freely available and cheap until taxed in 1751. Maybe half the population lived on subsistence level. London was marred by incredible poverty whereby people dead from starvation were left in the street. Inevitably, in these circumstances, people were prepared to steal, rob and kill to survive and crime was a desperate problem. One answer was transportation of convicts to American and then Australian colonies: several hundred thousand were shipped out during the late 18th to mid 19th centuries. The fact that they provided the basis for new law abiding populations proves criminality is not hereditary but often related to living circumstances.

19th Century: numbers on subsistence level reduced to about a quarter, though 10% were bereft of even the basic requirements. The industrial revolution had created factories and huge towns in the north; workers lived in squalid courtyards with no sanitation, often with two or three families sharing a single basement. Often survival was dependent on retention of work and there were frequent recessions in manufacturing industries at this time.

Victorians had a conflicted view towards the poor: they wished to help out of chariable and religious motives, but still blamed the poor for being indigent, the assumption being that they could work if they tried hard enough to find a job.

‘If we shield people from the consequences of their folly, we shall people the world with fools’ said social Darwinist Herbert Spencer.

‘Self-Help’, by Samuel Smiles sold thousands of copies; it was described by Robert Tressel, in his novel The Ragged Trousered Philanthropists, as a book "suitable for perusal by persons suffering from almost complete obliteration of the mental faculties".

The workhouse was regarded as a place to avoid as the regimes were strict; intentionally so as it was felt any degree of comfort would encourage the poor to avoid work completely. So children could not live with their parents and all had to engage in physically hard work. Denizens had to work hard, lost their liberty and were not allowed to vote. British Army recruiters complained at this time that most applicants were too small, weak and sickly to make good soldiers to fight in the Boer War.

1878, Salvation Army: this helped change attitudes towards poverty and poor children were provided in some cases with breakfast. Boot funds provided money for shoes and boots for children who otherwise went barefoot.

20th Century Poverty:

Roy Hattersley’s The Edwardians, cites Seebohm Rowntree’s report into York which showed 10% in dire, helpless poverty and another 18% in effective poverty. PH Mann’s survey placed the poverty wage at 18s 4p a week and by this measure 41% of the working class lived in this category. Suffering was often greatest however, not in the cities but in rural areas, where average wages were fractionally above 17s a week. About a third of these comprised the old and young.

Nationwide, it is calculated, 25% lived in ‘absolute’ poverty in the early part of the century. Absolute Poverty is the complete absence of the means to live while Relative Poverty is in comparison with other incomes. A good 10% were living on subsistence income- barely surviving day to day. In 1906 poor children were given free school meals by the Liberal government. In 1909 old age pensions started to be paid: 5 shillings a week. There were also wages councils to set minimum levels in certain industries. In 1910 Labour Exchanges were set up and sickness benefits for workers in 1911.

By 1924 only 4% were living in extreme poverty though this varied from region to region. Pensions and unemployment benefit were slowly increased though they were cut during the Depression. However during the war thousands of children enjoyed a ‘proper’ diet as a result of rationing and health levels improved. This was a factor in increasing support for Labour in 1945.

Wealth in Britain: From Medieval Times to Early 21st Century
Initially wealth was based in the land and agriculture. Land distribution was essentially political and this explains to a degree why royal succession and positions in the aristocracy were so eagerly sought after. Palaces, manor houses and grand residences in the country were paid for out of rents from tenants for the most part or inherited wealth. Blenheim Palace, built in the early 18th century was funded partly by the Duke of Marlborough and partly by a grateful nation to its war hero.

During later centuries manufacturers were able to construct huge mansions in the countryside outside the squalid towns which generated their wealth as any visit to the outskirts of northern cities like Manchester, Bradford and Leeds easily demonstrates. This wealth reached its apotheosis in Edwardian times when rich plutocrats paraded their wealth proudly and lived lives of great extravagance, cruising around the world, living in huge houses, employing armies of servants (2m in London alone). Anthony Sampson observes that the rich suffered some reverses 1914-1990 as a result of: World War I; higher taxes combined with economic recession; World War II and its aftermath of austerity and rationing, not to mention fears induced by socialism and communism.

However, he argues, the advent of the 1980s saw a change of atmosphere and removal of constraints. The upper limit on income tax was reduced to 40% while the Big Bang of financial deregulation and the ending of the Cold War opened up a world market place unleashing riches of which the fabulously rich Edwardians could only have dreamed. New phenomena began to be identified:

Affluenza: this was a condition diagnosed by psychologist Oliver James, in the book of the same name in which: very high value is placed upon ‘having money and possessions; looking good in the eyes of others and wishing to be famous’

The Super Class: in his book A Class Act, Andrew Adonis (before he entered politics) identified a new group of beneficiaries of the new atmosphere of the 1990s.

‘The Super Class, like the medieval clergy and Victorian factory owners, has come not just to defend but to believe in the justice its new wealth and status. Buttressed by a revamped official ideology (which even New Labour does not dare question) lauding financial rewards as the hallmark of success and economic growth, and rejecting post-war notions of social cohesion, by the late 1980s the professional and managerial elite was unapologetic about the explosion of income differentials and prepared to concede few if any social disadvantages in the process.’

They enjoy a standard of living unimaginable only a few decades ago:

‘London; servants; second homes; globalism; the best of private education, health and leisure; exotic foreign holidays; modern art; and almost total separation from public life; intermarriage between professionals with both partners on large incomes- these are the dominant themes of the life of the Super Class.’

Richistan: this was defined by Robert frank in his book of the same name in which he identifies a small, but rapidly growing, group of mega rich people who seem to live beyond frontiers and national tax regimes; who live in protected mansions, have private health and personal travel facilities more appropriate to a suburb than an individual. They were:

‘Creating their own country within a country, their own society within a society and their economy within an economy’ (p3)

Frank was writing of an international phenomenon, but with London as one of its major hubs and showplace for aspiring new ‘citizens’.

Reluctant to give to charity: In the US the average given to charity is 2% while in UK it is 0.6%. In 1986 two leading businessmen Sir Hector Laing and Sir Mark Weinberg set up the Percent Club whereby they tried to encourage companies to contribute 1% of their pre-tax profits to charities. They soon had to reduce this to 0.5% but after ten years the average given by top companies was the same percentage as in 1976: 0.42%.

Unjust Rewards, by Polly Toynbee and David Walker: Toynbee and Walker present their case, basically in the first 35 pages of their book.

'Parental income pretty accurately predicts whether a child will win or lose in life: the more unequally income is, the tighter the link becomes.'

They observe that 19,000 people declared annual income of more than £500,000 2003-4. Over the next two years another 30,000 joined them and the incomes of the top 1% grew at double the rate of the average income. New Labour, having accepted the tenets of liberal economics, or ‘Thatcherism’, also seemed to like the company of rich people, or at least the PM did. While Brown’s style was more austere, he encouraged rich people to live in the UK, on tax lenient terms, on the assumption that they would be spending their money in the UK and that must be good. He had no objection either to remuneration committees allowing big salaries for directors.

Toynbee uses her (now famous) analogy of a camel train crossing the desert. If the whole represents society then, she points out, if the front part travels significantly faster than the rear part, there will come a time when it cannot be said the latter is part of the train, and hence the poor part of society. They are than ‘excluded’. She fears that the yawning gap between rich and poor had reached this point in the months before the banking crisis: ‘increasingly we do not belong to the same community’; ‘a canyon divides moneyed and sub-median income Britain and the bridges across crumb le and collapse’. The rich were getting ever richer while the chances of the poor to ever acquire any assets ‘diminish further’.

The Economist (1/2/07) noted how income was ‘distributed more unequally than in almost any big rich country except America.’ The top 10% of income earners get 27.3% of the cake; the bottom 10% get 2.6%. In 1988 'the average chief executive of a FTSE company earned 17 times the average employees pay; 20 years later the ratio was closer to 70-1. An ICM poll in February 2008 showed 75% of respondents think the gap between rich and poor is too wide. Grant Thornton Accountants calculated that the UK’s 54 billionaires paid only £14.7m in tax in 2006 on fortunes totalling £126 billion. At least 32 paid no tax whatsoever and few paid capital gains tax. Toynbee and Walker calculate that if the ST’s Rich List paid all the taxes they should on income and assets, the Treasury would harvest a further £12bn per year. If tax avoidance by accountants was included this figure would rise to £25bn. £3.4 bn a year would lift enough families out of poverty to reduce it by half by the year 2020.

Worryingly social mobility seems to have ground to a halt in that the middle classes have ensured the lion's share of the good jobs are occupied either by them or their children. Alan Sugar might have emerged from a poor background, but he is very much the exception and few broad conclusions can be drawn from his experience regarding the fairness of the social system. Everyone is now aware of the mega, US-style salaries being earned by top executives, some earning more money than they could ever spend in a lifetime. Toynbee points out that the super-rich can employ super accountants to minimize their tax liabilities. Out of the 54 billionaires living in the UK, thirty two pay no income tax at all and the whole group paid only a tiny fraction of their earnings. Thereby, calculate Toynbee and Walker, the Treasury and the rest of us taxpayers are denied some £12bn a year.

On the poor the authors argue those on low incomes are despised, whether in or out of work. Such work-cleaning, looking after the elderly, working check-outs- is necessary for society to function properly, yet ‘their paltry pay devalues the work they do- the poor have been excluded. They live in an archipelago of estates where there is frequently no law and order and their children have nom option but to avoid the schools middle class people take pains to avoid. They are no longer buttressed by a strong trade union movement and are mocked by the middle classes for being vulgar ‘chavs’-Wife Swap, Shameless- and feared for their potential disorderliness. Many middle class people will cross the road when approached by more than one shell be-suited, base-ball hat wearing or ‘hoodied’ denizens of the sink estates.

‘A child from a family getting by on around £200 a week has known from the first day at school what it feels like to be worthless. This child has no birthday parties, no holidays, no plane or even train rides, no Xbox games that other children talk about and no computer for online chatting. Face-book is a closed shop. Shop windows, television images and playground conversation all painfully remind this child that he/she is excluded from the mainstream. Is it any surprise that a few of these children will devise for themselves the private gang culture that causes a national outcry?’

In the next chapter the authors report on two focus group meetings with a clutch of lawyers and bankers on the subject of wealth and poverty. They displayed an astonishing ignorance of salary levels, claiming that their own salaries were way down the top 10% of earners when they were easily in the top 1%. While they earned over £15K each, they had no idea that 90% of people earn less than £39, 825, the higher tax limit. They seemed locked in a denial that they were even rich in the first place. When questioned on the morality of their high incomes they justified them by citing their extraordinarily hard work and desire to get ahead, especially compared to teachers.

They also seemed to accept unquestioningly the traditional Tory justification of the 'trickle down' theory- that more riches for the rich equals more ‘cascading’ down to the poor; even the Conservatives have recently admitted that it's wrong to 'pretend a rising tide raises all boats'. They reckoned a ‘poverty wage to be £22K, closer to the average income of course. When asked in surveys the general public have reckoned the level to be around £11K and under.

‘Here were professionals who deal daily with money, yet how little they turned out to know other peoples’ incomes.’

Toynbee and Walker conclude:

'Here were people who may be technically adept, or good at deal making, but as a group-with one or two exceptions- they were less intelligent, less intellectually inquisitive, less knowledgeable, and, despite their good schools, less broadly educated than high flyers in other professions. With minds this coarse they wouldn't succeed in the higher ranks of the civil service, as heads of hospital trusts or good comprehensives, nor would they match up to the level of good junior ministers. Most dismaying was their lack of empathy and their unwillingness to contemplate other, less luxurious lives.

No doubt the recession will introduce some changes in attitude and awareness. Already most people have realised the house price increase bonanza has ended and high street stores are reporting reductions in spending. No doubt the rich will carry on spending, as the4 ST reported regarding socialite Nicky Haslam’s 800 guest bash on 16th October. In anticipating the recession everyone expects, Will Hutton, Observer 19/10/08 argued that the rich will have to make every effort to cross and reduce the wealth gap:

‘This is going to change the politics of the next few years. In recessions there is always a renewed impulse for fairness. In good times when everybody is doing well, the super-rich can be indulged. In bad times the shared view quickly becomes that the pain should be fairly distributed; those who are wealthy should help to alleviate the distress of those suffering the bad luck of unemployment through no fault of their own.’

R. Frank(2007), Richistan, Piatkus
O.James, Affluenza,(2007) Vermillion.
R. Hattersley(2004), The Edwardians,Abacus
A.Sampson (2004).Who Runs this Place? Headline
P. Toynbee and David Walker(2008) Unjust Rewards Granta

Bill Jones October 2008


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