This is a summary of the findings of the first of two documentaries on ‘The Super-Rich’ presented by Jacques Peretti, and shown by the BBC in 2017. Peretti points out that the period 2016-2017 is the most unequal period in human history with regard to the distribution of wealth and income. For example, in 2017, 85 individuals own as much wealth as half of the world’s population. In the UK, austerity cuts to public services have totalled £80 billion since 2008 which is the amount paid out in bonuses to the UK’s top bankers in the same period. In 2016 the wealth of the richest 1000 people in the UK increased by £70 billion. Moreover the income of this top 1000 people equals the combined earnings of Britain’s full-time workforce.
There are 104 billionnaires living in the UK – more per head than any other country in the world. Furthermore, the UK is the only Western economy which has consistently grown more unequal over the past century.
Peretti argues that the UK re-invented itself in the late 1970s. Empire was no longer profitable so the UK transformed itself into what Peretti calls a ‘casino economy’ – it changed its banking and taxation rules so that it could become a tax haven for the rich, particularly that section of the wealthy known as ‘non-doms’. In return for a flat rate payment of £30,000 the non-dom super-rich could claim ‘non-dom’ status which meant they could live in Britain and place their wealth in off-shore tax havens. However despite living in the UK they were subject to very low tax rates because the tax authorities consider them to be domiciled or resident in another country. For example, Roman Abramovich, the owner of Chelsea FC is a non-dom. He pays little UK tax despite the fact that most of his business dealings are carried out within the UK because he claims that his home is in Russia despite the fact that he spends most of his time in the UK. In order to put the £30,000 non-dom fee into perspective, Peretti points out that average annual pay in the UK is £27,000 and that £90,000 is the average deposit that a building society expects a house-buyer in London to put down on their first property.
Peretti points out that non-dom tax rules make the UK the tax-dodge capital of the world and immensely attractive to the super-rich. Moreover he points out that there is too often a ‘cosy’ relationship between HMRC Tax and Customs and the tax experts advising the super-rich on how to avoid paying tax. Many of the tax experts employed by the accountancy companies which advise the super-rich are themselves ex-tax inspectors. Peretti argues that many senior British tax officials work on behalf of corporations such as Starbucks, Amazon and others to minimise their tax obligations.
So why are the super-rich and their low-tax burden tolerated? The main reason is that right-wing economists have argued that the super-rich are good for the UK because their investments and spending benefit our economy. This is known as trickle-down economics. It is also tolerated because the super-rich supposedly create opportunities for others in that they allegedly nurture and invest in talent. It is argued that the less they pay in tax, the more they have to invest and spend on the UK economy.
However, critical economists such as Hoon Chang and Piketty point out that trickle down has not worked. The reality is that very unequal societies such as the UK have economies that are stagnating. There are two reasons for this. Firstly, the super-rich are not spending a greater percentage of their wealth and income on consumer goods compared with other sections of the population. Secondly, Piketty claims that the evidence suggests that inequality is threatening the well-being of capitalism because the super-rich are hoovering up most of the extra income and wealth that becomes available which means that the middle-classes, who have traditionally consumed most of the goods produced by the economy, have less to spend. This trend can particularly be seen in the housing market. Competition between the super-rich has driven property prices so high that they are increasingly out of the reach of the middle classes. For example, in the 1990s houses in Oxford were 3 times higher than the national average salary. In 2017, they are 11 times higher. Consequently the housing market, especially in London and the South East is changing in character. The 20th century was the century of home-ownership which was always seen as a symbol of an upwardly-mobile society. However in 2017, in London and the South East spending on rent is now twice as high as spending on mortgages.
In London, most new property is designed and built for the super-rich. For example, in the property development, One Hyde Park, the cheapest flat costs £6.5 million. This would take an ordinary person on the average wage, 250 years to save provided that he or she only worked and slept, never had children, never went on holiday and never bought food!
London house prices have increased 25 per cent since 2016 because the super-rich who are mainly non-dom foreign investors see investment in London property as ‘safety deposit boxes’ made out of bricks which can only acquire value over time. 70 per cent of new properties in London in 2016 were acquired by foreign investors.
The investment in property by the super-rich is having a number of negative consequences. Firstly, it has created a new class of economic refugees as both councils and housing associations increasingly evict poorer tenants in order to sell existing housing and land to property developers so that they can build luxury flats. This has been described by some critics as a type of ethnic cleansing.
Secondly, it is estimated that by 2032, the majority of people living in the UK will be renters rather than property owners. This trend too is driving up house prices as potential landlords compete to buy to let.
Piiketty concludes that trickle-down economics which justifies both the existence of the super-rich and low-tax policies with regard to them is flawed. He argues that wealth has actually trickled-up to the top 1 per cent in the past 20 years in that they have got significantly richer whilst other social groups in the UK have got poorer. For example, for 99 per cent of the UK population, living standards have not changed since 2008 whereas in the same period, the top 1 per cent has increased its wealth from £200 billion to £500 billion. Piketty argues that the UK economy would be 20 per cent bigger if Britain had not become more unequal in terms of the distribution of income and wealth.