Yesterday’s OECD report which finds that income inequality has risen faster in Britain than in any other wealthy country since the mid-1970s is a wake-up call. The share of total national income held by the top 1% reached 14.3% in 2005, having doubled since 1970, and is almost certainly higher now, perhaps 16-17%. The position of the top 0.1% (about 30,000 persons in the workforce) is even more extreme. In 2007 just before the financial crash, they appropriated 5% of total pre-tax income, meaning that they had secured 50 times higher earnings than if there were equality of incomes. How did this happen? What is interesting and new about the OECD report is that it demonstrates that almost all the increase in inequality has come from financial services in the past 12 years. So what should be done?
There are several possible levers. The Compass/Guardian High Pay Commission recommended greater transparency: the remuneration (i.e. salary plus all incentives schemes, bonuses, stock options, etc.) of all board members and top managers could be published annually in the company report. Helpful, but not decisive in stopping excess or greed. A High Pay Commission could set down guidelines which would be enforceable, and there could be external arbitration in the event of amy prolonged dispute. Effective, but could be rdesisted as overly heavy-handed. The incestuous and corrupt remuneration committees chosen by the boss, or consultants brought in at inordinate cost to provide a spurious rationale for uncontrolled pay hikes for the boss and his cronies year on year, could be required to be stood down. Even more effective if replaced by having to seek a broad consensus within the company as a whole at an annual meeting of representatives of all the main grades.
In addition, if banks and other finance institutions are the main problem, then reforms driven by other considerations could well impact helpfully on income inequality. the major banks should be broken up so that they are no longer too big to fail, as well as to introduce some much-needed competition into the sector. Trading in derivatives, the main cause that precipitated the crash, should be very firmly regulated to avoid another debacle costing the taxpayers dear. A much more determined and relentless campaign should be launched against banks’ offshore evasion and circuitous use of tax havens. All of these reforms, undertaken for other reasons, would deter or prevent excesses such as those brought to light at BarCap and other investment banks’ organised circumvention of the law.
There’s no shortage of strategies to deal with bank excesses. The problem is lack of will to take on the political power of the biggest banks. But if we don not face them down, they will exploit the rest of us mercilessly.