Blog 7: Budget 2013: Reducing inequality should be at the forefront of Osborne’s mind today

             In the article “ Buget 2013: Reducing inequality should be at the forefront of Osborne’s mind today”, Luke Hildyard writes about how there has been a trend in the growth of inequality in the UK for the past 30 years. There is an higher share of the national income captured by a wealthy elite, while the wages of ordinary working people stagnate. In 1979 the richest 1% of the population controlled about 6% of the national income. By 2007, this percentage grew to 15%. Also since 1998, the pay packages of FTSE 100 company chief executives have risen by 500% for the average worker. The pay increase over the same time period has been around 15%.

            Hildyard explains that the UK is also the 7th most unequal OECD country, with only Israel and the US along with the poorer economies of Mexico, Chile, Portugal, and Turkey, which are worse off. “It is the reversal of these destructive, destabilising and unfair trends that ought to be the government’s number one priority, at the forefront of George Osborne’s mind when he stands up to deliver his budget today.

In this context, Osborne’s decision to reduce the top rate of tax from 50p to 45p on earnings over £150,000 seems perverse.” The Research for the High Pay Center suggests that if 10% of the income of those who fall in the 0.9% were redistributed to the bottom 25% of earners, would boost their income by an average of 55 pence an hour. This scenario would bring the average hourly wage of those who are in the bottom quartile to £7.35, which is 10p short of the living wage outside London. “A very minor reduction in the incomes of a tiny proportion of the population – who would remain very wealthy indeed by most people’s standards – would go a long way towards eliminating the problem of people in gainful employment remaining unable to support themselves, if appropriately redistributed.” The key point is that the UK needs to make a few minor adjustments that will help decrease inequality.

            A reversal on the 50p tax rate could be one way to make this happen as long as the link between social security payments and inflation being maintained. The revenue could also be raised by reviving the tax on banker’s bonuses. Bringing Capital Gains Tax in line with income tax would help to counter the growing share of national income accounted for by profits in relation to wages. This has benefitted the rich, who receive a disproportionate amount of their income in profits, at the expense of low and middle-income households, whose earnings are mainly in the form of wages.

            According to Mariana Mazzucato, there is little evidence to suggest that lower Capital Gains Tax rates have enabled greater private sector innovation and that instead, they have merely increased the returns from the typical, short-term venture capital investments in companies that are already at an advanced stage of development.

            The UK government needs to do everything they can to stop this inequality.

Inequality has increased not only in the UK but around the world as well. The UN is trying to assist the UK as well in terms of coming up with a plan. Inequality is a difficult thing to decrease, but it is possible even though it may seem unlikely.   

Article Link: http://www.leftfootforward.org/2013/03/the-budget-should-reduce-inequality/