NO-ONE should be surprised at the growth of inequality revealed in last week’s Scottish Government survey. The wealthiest one per cent of Scots own more than the bottom 50 per cent after a nominal 22 per cent increase in private wealth. The recovery from the financial crash of 2008 has almost entirely benefitted the wealthy: those with assets.
This is a UK-wide, indeed global, phenomenon. We have had near-zero interest rates for almost eight years. This has been coupled with quantitative easing, essentially printing money, which has been funnelled into the banks to shore up their balance sheets. This has increased inequality in two ways, via housing and pensions.
The big question Scots may have to answer is whether an independent Scotland could be any better. One is inclined to say that it couldn’t be any worse, though Unionists will insist independence would begin with a spending deficit that would put pressure on social services and welfare. But the most equal and wealthiest countries in the world are small and European. Scotland could emulate them. But it takes political will to address inequality, in or out of the UK. Does that will exist?
The Scottish Government has installed a leading authority on poverty, Naomi Eisenstadt, as inequality czar but it’s not entirely clear that it likes her message, which is that Nordic welfare requires Nordic taxation. Ministers have launched another initiative on gender inequality in the boardroom. That’s all very well but higher salaries for businesswomen is no solution to the endemic inequality afflicting hundreds of thousands of families, many of them SNP voters.
Cheap money has made UK house prices rise to even greater levels of irrational exuberance. When I worked at Westminster in the 1990s, we lived in a modest terrace in Battersea, which we sold in 1999 for just under £300,000, which seemed a lot at the time. I looked at the same house yesterday and it was valued at £1,500,000, the average cost of homes in central London. If you want to know where the wealth of Britain has migrated in the past decade or so, that’s where to look.
Scotland doesn’t have house prices like that but values have increased here also, boosting inequality in wealth, albeit on a smaller scale. However, the bottom third of earners are in generation rent, where higher house prices just mean higher rents. This is the asset double whammy that’s hitting so many working class families.
Many middle-aged Scots have pensions and that is the other main source of wealth inequality. Cheap money has boosted share prices and that’s fed into many private, and to a lesser extent public sector, pensions. The more you own the more you get; such is the self-perpetuating dynamic of asset-based inequity fostered over the last 30 years of low taxes and deregulation.
Income inequality is driven by different but equally implacable economic forces. Working families are caught in a vice of rising prices and stagnant wages, despite the recent uptick in pay noted by the Office for National Statistics yesterday. Bank of England Governor Mark Carney says Britain is in the middle of a “lost decade” of faltering wages unprecedented since the 19th century.
The Joseph Rowntree Foundation reports that the cost of a basket of necessities – food, fuel, housing – has risen by 30 per cent since 2008. Benefit cuts, year on year, have eroded the earnings and security of poor families, most of whom have at least one adult in work. The foundation claims 19 million people in Britain are living on less than adequate income.
Theresa May promised to help these “Jams” – families just about managing –but Brexit isn’t helping them. The impact of the 20 per cent devaluation of the pound has yet to feed fully through into prices. The cost of many domestic appliances, cars and white goods is expected to show double-digit increases in the coming year. ScottishPower bills will go up by nearly eight per cent next month, and the rest of the energy companies will follow suit. People don’t seem to notice pump prices any more, but diesel is back up to £1.22 a litre.
In the past, wages rose to match higher prices as companies vied to attract workers and trades unions bargained with employers. But the unions only seem to be effective in bolstering the pay of relatively secure groups of workers like train drivers and public sector employees. Private sector workers, the vast majority, earn less and are increasingly adrift in an insecure jobs market: the “gig” economy of dodgy self-employment. Continued downward pressure on earnings is expected as automation replaces many jobs, not just in factories but also in offices and shops.
The modest recovery in pay is faltering. The upward spiral in food and consumer goods is likely to worsen if and when tariffs walls are erected between Britain and its main markets in Europe. Mrs May’s plan for a low-cost, low-regulation “competitive model” to undercut the EU economies is regarded as “social dumping” in Brussels.
Perhaps the Commonwealth countries will come to Britain’s rescue by offering lots of cheap goods but the failure of that post-imperial free trade area was the main reason Britain joined the European Economic Community in the first place.
Donald Trump is also looking to cut taxes and has populated his cabinet with representatives of corporate America. His trade policy will be based on his inauguration mantra: “Buy American; hire American.” You could be forgiven for thinking that anglophone governments have been conspiring to increase inequality by printing money and allowing global companies like Amazon and Apple to avoid paying taxes on an industrial scale.
The Scottish Government would be wise to take this issue seriously and move on from regarding this as a problem to be parked at Westminster. If an independent Scotland is going to simply be the UK writ small, then few voters are likely to think it is worth the effort.