“Does making the rich poorer make the poor richer?” – a new concept or just a misuse of Sir Winston Churchill’s quote “You don’t make the poor richer by making the rich poorer”.

November 25, 2019

“Does making the rich poorer make the poor richer?” – a new concept or just a misuse of Sir Winston Churchill’s quote “You don’t make the poor richer by making the rich poorer”.

This month, the High Pay Centre (HPC) held an event to talk about pay and the increasing gap in incomes between those at the top and those at the bottom. In recent years, executive remuneration has attracted a lot of attention and is being thoroughly scrutinised by the media. So, can the Robin Hood effect be achieved without sending the economy into a turmoil?

A panel consisting of representatives from the HPC, the Institute for Fiscal Studies, the GMB union and an independent writer/researcher, presented their thoughts on the topic. In this presentation only one side of the coin was discussed – how to make the rich poorer. The panel promoted the idea of wealth re-distribution but failed to identify how this is to be achieved. They also failed to mention the potentially negative effect of government intervention in the economy.

This event has yet again highlighted, that while the HPC was set up to be an independent organisation it is nonetheless politically orientated.

Robert Joyce, Deputy Director of the Institute for Fiscal Studies (one of the speakers) – used the latest available data from HMRC (2014-2015), to produce a report entitled: “The characteristics and incomes of the top 1%”. According to this report, across all income tax payers in the UK, the median tax payer has an income of about £22,000 per year, while at the 99th percentile, taxable income is £162,000. The top 0.1% earn a taxable income of about £650,000 and above.

It is important to understand that the study includes the self-employed, entrepreneurs, business owners, partners and investors. So, the comparison is between salaries in some cases and total income in others. This is a skewed statistic which compares apples with pears and is used as a weapon to back a particular view rather than to offer objective comment on the topic.

Robert Joyce also highlighted, that the dramatic income gap appeared in the period from 1980 to 1990. Since then, the top 1% of earners have continuously pulled away from the rest.

So, could we attribute this gap in incomes between top and bottom to the reduction in income tax rates from 83% in 1979 to 40% in 1989 (for the top rate)? And if so, could the rapid growth in the country’s GDP in that period and subsequently be the result of tax reform and top earners being rewarded for top performance?

The graph below represents the figures for GDP according to the Office of National Statistics:

Sir Winston Churchill said: “For a nation to try to tax itself into prosperity is like a man standing in a bucket and trying to lift himself up by the handle”.

In the current general election, campaign wealth re-distribution and change in tax rates are subjects both major parties are addressing. It remains to be seen what the majority of population think.

For more insights on the executive pay please contact Margarita Skripina.

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