Inequality ought to figure much more sharply in this election than it has done so far. The reasons are obvious – the grotesque injustice in the widening gap between the top 1% (and more particularly the top 0.1% and most of all the top 0.01%) and the rest of us, the way that austerity has been manipulated to hit the poorest far harder than the rich, the brazen myth that markets generate a trickle-down that enriches all when in fact they have driven a flooding-up of wealth to the top, the scandal of massive tax avoidance by the super-rich as one of them once declared that “only little people pay taxes”, and the unfairness of remuneration systems guaranteeing huge bonuses and lucrative long-term incentive plans to many of the miscreants who caused the crash and numerous financial scandals in the first place. But there’s another reason why inequality should now be centre-stage in this election: it causes slower, not faster, growth.
The OECD, the West’s most important thinktank, has reported that the UK economy would have been more than 20% bigger if if the rich-poor gap hadn’t widened since the early 1980s. Nor is this a one-off exception. The OECD survey covered its 34 rich country members, and found that rising inequality had knocked more than 10% off growth in Mexico and New Zealand, 9% in Finland and Norway, and 6-7% in the US, Italy and Sweden. It’s striking that the OECD, which is certainly not a Left-campaigning outfit, proposed higher top rates of income tax, scrapping tax breaks that tend to benefit higher earners, and switching taxes from incomes to property and wealth.
The OECD also had other highly relevant lessons for Britain. They emphasised that it’s not just poverty (i.e. the incomes of the 10% lowest paid) that inhibits growth, but the bottom 40% more generally, including the vulnerable lower middle classes at risk of failing to benefit from what little recovery there has been. Anti-poverty programmes will not be enough.
Part of the policy to reduce inequality must also be the recognition that 35 years chasing the chimera of faster growth by cutting corporation tax must now be ended. It is stunning today to realise that it has been cut from 52% in 1980 to 21% now. Yet it did not produce faster growth, it led to lower growth. In the 30 years 1950-80 average annual GDP per capita income growth in the UK was 2.4%; in the next 30 years 1980-2010 when markets were let rip, finance deregulated and privatisation rampant it fell to 1.7%. It is also worth noting that if UK companies paid, proportionately, as much tax as they did in the last year of Thatcher, the UK would now be £30bn better off.