The Real Wealth Gap

I wouldn’t normally reprint here anything as long as this, and I certainly wouldn’t claim to agree with all of it, but it does tie in with things that I have written before about how the misdefinition of the middle class has made it impossible, both to criticise the kleptomania at the very top, and to build an alliance based on the real commonality of interest between the middle and the working classes:

Back in those rose-tinted days when things could only get better, it seemed funny, wise and touchingly humble.

Just after Gordon Brown became Chancellor, nearly 11 years ago, he practised on me, then a BBC economics correspondent, a joke that he was to repeat many times afterwards.

"There are two types of Finance Minister," he said with uncharacteristic self-deprecation. "There are those that fail, and those who get out in time."

But now, I share the increasing suspicion across Britain's struggling middle classes that he was wrong. There is a third type of Chancellor, and Gordon Brown is a perfect example: one who both failed and gained promotion.

We have heard so many times - because Mr Brown himself has told us so many times - what a miraculous economy we have. Employment at record levels. Low inflation. Low interest rates. An unprecedented period of stable economic growth - 60 consecutive quarters of steering a clear course between the Scylla and Charybdis of boom and bust.

We have never had it so good. Well done Gordon, the Iron Chancellor, Prudence's bridegroom!

We have had that drummed into us so many times we believe it (as Lenin observed, a lie repeated often enough becomes the truth). What is true is that under the 'Iron Chancellor' the rich have prospered as never before.

We read about the super-rich, and the sons of corrupt Tory MPs, living the high life. We are shown with almost pornographic excitement, the insides of newly-built private houses sold for £35million, £50million and rising.

They have gold-tiled swimming pools, 40ft dining tables, million-pound carved stone staircases, underground car parks for 20 large cars, and one tonne bathroom basins carved from a single piece of Iranian onyx. The super-opulent Bishop's Avenue in north London has been upgraded from millionaires' row to billionaires' row.

One City restaurant, Vivat Bacchus, struck the mood of the times last month, with Britain's first £1,000 set menu. The seven courses include Royal Sevruga Caviar, rock lobster linguini and a steak from Wagyu cows so pampered they are individually massaged (before their masseurs kill them).

It surely is a new era of superabundance. Not since the 1920s have we known such tasteless excess. We all seem enriched by soaring house prices, and can thank the Chinese for the prices of once-luxury goods dropping to almost throwaway levels.

You can now buy CD players for less than the cost of a single CD. I recently bought a microwave from Tesco for not much more than the price of a few pints of beer.

But there is a terrible paradox here: if things are so wonderful, if we have never had it so good, why do we feel so broke?

It isn't just a case of middle-class whinging. While Mr Brown has successfully avoided the 'stagflation' that destroyed the last Labour government in the late 1970s, he has achieved another Labour economic curiosity: an economy that is growing (for now, at least), but with the average working family getting poorer year by year.

Labour has invented the treadmill economy where, however fast we run, we get nowhere. We can exhaust ourselves with effort and stay in the same place - and even slip backwards. If we dare stop running, we simply fly into a financial heap.

It is the opposite of what we have come to take for granted: that in the absence of recession, we get a little bit richer, year by year. That is, after all, the whole point of economic growth.

For the average full-time worker, pay is indeed going up. But the trouble is that prices are going up faster.

The latest figures show that, in the year to November, average earnings went up 4 per cent; strip away City bonuses and pay went up on average 3.6 per cent. But during the same period, prices rose 4.3 per cent (if computed by using the most meaningful measure of inflation).

The result is that, on average, workers can actually afford to buy less now than they could before. The pound in your pocket is shrinking.

And that is just the average; for many groups of people it is far worse. Economists estimate that for those living middle-class lifestyles, inflation is more than 7 per cent. Across the public sector, pay deals are often as low as two per cent.

Tens of thousands of police marched through London last month for a 2.5 per cent pay rise which, after inflation, is considerably less than they were earning a year before. Indeed, it must be the first time in history that unions have called a mass demonstration for a pay cut.

Put it all together, and a typical middle-class public sector worker - a senior policeman or high-level teacher - could actually be earning, in real terms, five per cent less now than this time last year. That is a huge cut in their standard of living, in just one year.

Costs are also rising across the board. As Westminster squeezes local authorities, council taxes have been soaring rapidly. The Audit Commission recently found that the average household now incurs £1,000 a year more in council charges.

Services such as parking that used to be free are now charged for, whether in hospital car parks or in the street. University tuition used to be free, but is now bleeding the middle classes pale.

Speed cameras have transformed the police from a service designed to protect the public into the provisional branch of the Inland Revenue. Petrol is now well over £1 a litre.

The prices of gas, electricity and food are all soaring. Food is up 12per cent this year. House prices have soared out of reach.

But part of the squeeze is also the result of the Government's open-door immigration policy, which is keeping down wages in many sectors while pushing up house prices.

The swelling population keeps the economy as a whole growing, even as we each claim an ever smaller piece of the pie.

At the bottom end, hardworking Eastern Europeans have undercut pay rates in industries such as construction; at the top end, foreign billionaires perfectly placed to reap the rewards of the global economy are displacing British millionaires as the inhabitants of Britain's luxury homes.

The truth is that these new super-rich don't pay anything like their fair share of tax. The 54 billionaires who are based in Britain are estimated to have paid just £15million in tax last year, on earnings of some £126billion.

Some 4,000 City employees were awarded bonuses of £1million or more - and most will have found some way to shelter their riches from the 40 per cent tax rate that should apply to them. The result? We are becoming a country split between have-nots and have-yachts.

It is no surprise, then, that the have-nots are having to cut costs. Just about the only shops to be thriving are the discount stores, such as Matalan and Primark. Newspapers are full of articles on how to save money, declaring that scrimping is back in fashion.

What were once the middle classes, and are now dubbed the 'coping classes', appear to be resorting to the bottle, with an epidemic of binge-drinking in respectable homes.

In a particularly ironic twist, it is often the better off who feel the hardest up. Only one in ten households with an income of more than £88,000 consider themselves wealthy, according to a recent report. Most are struggling to make ends meet.

Be it fine wines, modern art or private education, nearly all the major trappings of a wealthy lifestyle have increased in price at a much faster rate than inflation.

If you have been lucky enough to afford to send your children to private school, you might not be able to for much longer - school fees have risen by 41 per cent in just five years.

And all this is before the Government has taken its increasingly avaricious share. Brown promised when he came to power not to raise income taxes, but he has stealthily pushed up taxes in almost every other area.

Eleven years of Brownanomics have transformed us from a low tax economy to one of the highest taxed countries in the industrialised world, with Britons giving more of their money to their government than the Germans or the Italians.

Because thresholds haven't been adjusted, twice as many people now pay the higher rate of tax than when Labour came to power - costing them at least £700 more in tax each every year.

Even in death, we are not free from the grasping state: soaraway inheritance tax means that in much of the country, being able to leave the family home to your children is now the exception rather than the rule.

The decline in incomes and the rise in tax is a toxic mix. According to the price comparison website Uswitch, disposable incomes - what we have left after paying the bills - are at their lowest level for a decade.

And a recent report by the accountants Ernst & Young showed our disposable income has fallen by one-sixth in four years.

Unable to make ends meet, we have given up the habit of saving. Fewer people have occupational pensions now than a generation ago, as my think tank, Policy Exchange, will show in a forthcoming report. As a country we now have negative savings - we are running down our nest eggs we put aside in earlier years.

Personal debt is at record levels, totalling more than £1,500billion. It is not just individuals who are living beyond their means - so is the Government. The unprecedented splurge of cash on unreformed public services - including health, education and police - has resulted in precious little improvement, but it has left a gaping hole in the public finances. We are a country living on the never-never.

Labour promised to end tax and spend, but it has transferred vast resources from the more productive private sector to an increasingly unproductive public sector, pushing down the country's ability to create wealth.

Our route to salvation should be increasing productivity - the amount of economic output per hour worked - but productivity has stalled. And although things might be bad, they are almost certain to get worse. The bank Morgan Stanley predicted recently that there is a one in three chance of recession.

A survey has just recorded a 'frenzy of fear' among homeowners, with nearly three million believing they will have their houses repossessed by the end of this year.

Even the more sober Financial Services Authority believes one million people are at high risk of not being able to repay their debts.

To plug its own financial black hole, the Government is going to have to take more of your money. The highly respected Institute for Fiscal Studies predicted recently that families will soon have to pay out £2,600 a year extra in taxes, making it even more difficult to make ends meet.

So has all that extra tax produced a better Britain? We have had ten years of stable economic growth, and yet unemployment is pretty much where it was at the beginning - there are still more than 5million people out of work living on benefits. We are not a more equal society - the gap now between rich and poor is greater than ever.

So what is the Government's response to the treadmill economy?

It is to fiddle the figures to pretend it isn't happening. Labour repeatedly accused the previous Conservative government of fiddling with the unemployment figures to mask the level of joblessness, but it is doing just the same with inflation figures.

It adopted a new, far lower index of inflation, called the Consumer Price Index, a harmonised international price comparison which for complex reasons is half the level of the traditional Retail Prices Index, which remains the accurate record of the cost of living as experienced by families.

To its shame, the supposedly independent Office for National Statistics is deliberately colluding in the government deception, comparing earnings to the new lower inflation rate.

In a recent report it declared: "In the year to November 2007 consumer prices increased by 2.1 per cent, which is below the rate of earnings growth."
In terms of statistical integrity, this is comparable to TV weather reporters in communist Romania announcing imaginary sunny weather to make the oppressed workers feel happier.

The Prime Minister tried to take all the credit for the economic good times, and now tries to blame the economic bad times on the international situation. It is true there is an international credit crunch, but it is his tax and spend that have made the country so vulnerable to the international turbulence.

We have gone from being the economic pride of Europe to its laughing stock.

The Conservatives may reap the political gains of the feel-bad factor, but in truth there are few policies they can offer in the short-term to make things better. What is needed now is true, long-term economic competence.

The irony is that just as Brown reaped the political reward for the healthy economy he inherited from the Conservatives in 1997, if the Conservatives come to power, they may end up having to deal with the mess Brown created.

With that glorious thing called hindsight, it is clear now that our miraculous economy was no such thing. It wasn't a miracle, it was a mirage.