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Rising inequality - and what we can do about it

Posted by Francis Stuart Research and Policy Adviser for UK Poverty in Oxfam Scotland

3rd Apr 2014

Oxfam recently revealed that the five richest families in the UK are wealthier than the bottom 20% of the entire population. That's just five households with more money than 12.6 million people - almost the same as the number of people living below the poverty line in the UK.

Much of this inequality is caused by increased wealth inequality - the accumulation of real estate and financial assets in the hands of a privileged elite. In general, these activities aren't productive or beneficial to the wider economy - they are often referred to as 'rent seeking' by economists and, as we've seen in recent years, often have devastating impacts on the economy. To tackle this form of inequality we will need new policies such as wealth, property and land value taxes.

Yet income inequality is also a continuing and growing problem.

In the last two decades (since 1993) the income of the bottom 90% has increased by 27%, while the income of the richest 0.1 % has increased by 101%. In other words, the incomes of the top 0.1% have grown almost 4 times faster than the incomes of the bottom 90% of the population.

These percentages actually belie the sums involved. Because the richest 0.1% already has more money, they have seen their income grow by more than £24,000 a year. That's enough to buy a small yacht or a sports car. By contrast the bottom 90% has experienced a real terms increase of only £147 a year. That's not even enough for a season ticket to the football.

This rising income inequality is particularly stark when looking at the pay of large, multinational company directors. In 2012, the average CEO of a FTSE 100 company was paid £4.8 million per annum - 185 times the average salary across the UK. This has risen from £1.2 million in 1999 and is forecast to increase further in the coming years. This comes at a time, at least since 2003, when wages for the ordinary worker have been stagnating or falling.

Nowhere is income inequality starker than within companies themselves. The Equality Trust estimate that the wage ratio for FTSE 100 Companies - the difference in pay between the person at the top of a company and the person at the bottom - is 262 to 1.

What's worse is that many of the companies paying CEOs excessive wages are dependent on the public sector for their income, or at least part of it.

In 2010, Prime Minister David Cameron suggested that no-one in a public sector organisation should earn more than 20 times more than their lowest-paid colleague. While this is to be welcomed, we also need to tackle pay inequality in the private sector if we are to have any impact on inequality more widely.

That is where the Scottish Government has an important role to play. Their Procurement Reform Bill is currently going through the Scottish Parliament. Public procurement is worth an estimated £10 billion to the Scottish economy every year. Yet too often the companies who win contracts perpetuate inequalities. Should we really be rewarding employers who are responsible for rising inequality and poor working conditions with public sector contracts?

We don't think so. Thankfully a number of MSPs have been seeking to change the legislation so that it reflects ethical priorities. Amendments have been tabled to ensure companies rewarded with public sector contracts: pay a living wage, tackle climate change, promote fair trade, don't use zero-hour contracts, provide childcare and limit excessive pay gaps or wage ratios.

So far, almost all these amendments have been rejected by the Scottish Government. It is not yet clear whether the Government will bring forward their own changes to the Bill. Unless they do, it looks like a significant opportunity to create the fairer, more equal society will have been missed.

Over the past 30 years the rising economic tide has not lifted all boats. It has lifted the CEO's yacht, but left the rest treading water trying to stay afloat. Let's change this and let's start with the Procurement Reform Bill. 

Blog post written by Francis Stuart

Research and Policy Adviser for UK Poverty in Oxfam Scotland

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