Wealth, inequality, and the return of “luxury capitalism”

Labour, it seems, has turned its back on imposing higher taxes on the wealth holdings of the richest. Yet restoring health to Britain’s failing economy and broken society must tackle the question of wealth, and how it is acquired, shared and taxed. 

Britain is an asset rich country. Despite its recent dismal economic record, personal wealth holdings have surged. National wealth – a mix of property, physical and financial assets – stands at almost 7 times the size of the economy, up from 3 times in the 1970s. This rise has little to do with a leap forward in levels of wealth creation. It is not the product of record levels of investment and productivity growth. 

While Labour once championed the need to share wealth more equally, today it offers little more than the status quo. Yet, the level of personal wealth holdings, how they are attained and distributed, is a central determinant of life chances and social and economic resilience. Most of the wealth surge of recent decades has been captured by the few, reversing an earlier long-term trend towards a narrowing wealth gap. Despite a century of democracy, the top tenth of Britons hold nearly a half of private wealth, while the poorest half’s share has never been more than a tenth.   

Much of today’s towering wealth mountain has been unearned, the product of the mass sell-off of former public assets (from land to industries), the exploitation of corporate power, and state-driven asset-inflation. During the industrial revolution, John Stuart Mill dubbed such windfall gains ‘getting rich while asleep’. 

‘We can have democracy in this country’, declared Justice of the American Supreme Court Louis Brandeis,  a century ago, ‘or we can have great wealth concentrated in the hands of a few, but we can’t have both.’  Britain badly fails Brandeis’s test. Wealth enjoys massive and unmerited tax breaks. ‘A power to dispose of estates forever is manifestly absurd’ declared the patron saint of classical economics, Adam Smith, 250 years ago.  ‘The earth and the fulness of it belongs to every generation, and the preceding one can have no right to bind it up from posterity.’

Yet today, taxes on capital (on dividends, capital gains and inheritance) raise less than 4% of all state revenue. In contrast, taxes on labour income raise 60% of revenue. Given the often malign role played by wealth and how it is accumulated, taxing capital so lightly compared with income makes no social or economic sense. 

A long line of thinkers – from the pro-democracy campaigner, Thomas Paine, in the late eighteenth century to the Liberal activist and Britain’s first professor of sociology, Leonard Hobhouse, a century later – have called for greater common ownership. For these thinkers, the problem of poverty is essentially one of inequality, with a narrow group of the owners of capital able to capture the lion’s share of economic progress and determine how precious resources are distributed. As the eminent historian and Christian Socialist R.H. Tawney put it in 1913. ‘What thoughtful people call the problem of poverty’ Tawney had warned in 1913, ‘thoughtful poor people call with equal justice, a problem of riches.’ 

The course of poverty and inequality is ultimately the outcome of the conflict over the spoils of economic activity and of the interplay between rich elites, governments and societal pressure. For most of modern history, this struggle has been won by the owners of capital, too often aided by the state. The one exception to this rule was the post-war era when the long battle of ideas had finally been won by egalitarian thinkers.  

In Labour’s long history, the party has flirted with a number of radical ideas on personal wealth.  From 1945, the Attlee government set out to reduce the great divisions of the past through a mix of higher taxes, the nationalisation of key industries and a boost to social spending. The late 1970s and early 1980s was a period of peak income and wealth equality and a low point for poverty. This was an historic achievement, the high water mark of egalitarianism, but one that was short-lived. It has never been bettered. 

An anti-egalitarian counter-revolution 

From 1979, these gains were set in reverse. In that decade, the risk of (relative) child poverty stood at about one in seven – too high, but broadly on a par with other rich nations. Today it is close to one in three. The reversal of social progress has been driven by a state-licenced counter-revolution against post-war egalitarianism, and a pro-rich climate that been exploited by a small financial and corporate elite to seize a growing share of economic gains. ‘True’ Conservatives need ‘to make the case against egalitarianism’ wrote the leading British politician Keith Joseph in 1976. Over the last 40 years the state has been turned from an agent of equality to one of inequality, while the importance of the ‘distribution question’ – of how the cake is shared – has effectively been dumped. 

Margaret Thatcher promised the nation a private ‘property owning democracy’ largely through a shift from collectively to individually owned wealth. The pledge – delivered through the discounted sale of council homes and rolling privatisation and demutualisation – turned out to be a party open only to a minority and another bonanza for the already wealthy. The selling of the family silver has also left the UK’s net public worth (assets minus debt) in negative territory. It is one of a handful of rich nations with a deficit on their public finance balance sheet, with net public wealth – public assets minus debt – now at minus 20% of the economy. The balance stood at plus 40% in 1970. This shift has greatly weakened the state’s capacity to handle issues like inequality and social reconstruction and will be best reversed by rebuilding the nation’s public asset base.  

Prioritising private over public wealth and the erosion of the common wealth base have been among the most social damaging state-driven trends of the last half century. The property owning promise is now by-passing the current generation, with the number of first time home buyers  less than half its mid-1990s rate. Individual shareholding has shrunk and is largely confined to the rich and affluent. The public’s ownership of corporate Britain has collapsed from 56% in the 1960s to 12% today.  More than a half of shares in the nation’s quoted companies are owned overseas (up from 8% sixty years ago), mostly by giant US asset management companies and several sovereign wealth funds and displacing the share once held by UK pension and insurance funds.

Wealth surges that are unlinked to the creation of new value are mostly negative in their impact. They involve a considerable degree of redistribution from those without assets to those with, thus intensifying the wealth divide. House price rises now increasingly driven by inheritance cash, benefit existing property owners including landlords at the expense of all renters. Tax is a way of rebalancing – if only marginally at current rates – these gains and losses. 

Since the early 1980s, the British economy has been the subject of an accelerating process of upward transfer through a system of corporate extraction. Many large companies have been turned into cash cows for executives and shareholders through anti-competitive devices, the manipulation of corporate balance sheets, and the rigging of financial markets. The rising profit share of recent times has disproportionately gone in payments to shareholders and executives. Hence Britain’s low investment, low productivity and low wage economy.

The early economists drew an important distinction between new wealth creation that contributes to the common good, and extraction that serves the interests of a powerful few.  Economic efforts, declared the influential Italian economist Vilfredo Pareto in 1896, ‘are directed to the production or transformation of economic goods, or else to the appropriation of goods produced by others.’ Such ‘appropriation’ or ‘extraction` was widespread in the Victorian era, less prevalent in the post-war era, and is again common practice. 

Exclusion

The combination of extreme inequality and the over-empowerment of markets has proved a toxic mix. They are the source of the stark paradox of contemporary capitalism that as societies get more prosperous, rising numbers are unable to afford the most basic of needs. This has nothing to do with a lack of resources. The unravelling of social ownership has passed too many decisions over how resources are used from democratic and social control to markets. While the nation is awash with multi-banks providing food to household necessities, the limits to the lifestyle choices and often low social value spending of the super-rich are constantly being raised. 

What is at work is a form of exclusion. A significant effect of today’s philosophy  of ‘private good, public bad’ has been the ‘marketisation of everyday life’. Hence the exclusion of swathes of society from access to basic services and needs, private and public, from decent, secure and affordable homes to social and health care.   

There have been multiple historic warnings of the destructive impact of economies heavily geared to meeting the hedonistic demands of the super-rich. As the heterodox American economist Thorstein Veblen warned in his 1899 The Theory of the Leisure Classes, the colonisation of scarce resources by the few brings an orgy of luxury spending that depletes the level of ordinary, non-luxury demand necessary to sustain the economy and society.  

‘The test of our progress is not whether we add more to the abundance of those who have much’ declared the American President, Franklin D Roosevelt 1936, ‘it is whether we provide enough for those who have too little.’  The post-war governing philosophy softened the co-existence of extreme opulence and social scarcity of the pre-war age. Today Britain underspends on social and health care, libraries and youth clubs close, and many services face pay and staffing crises. Yet few modern tycoons go without the private jet, the luxury yacht, often the private island.  

With over-dominant market systems, Veblen’s ‘conspicuous consumption’ will always outbid the meeting of basic needs. Extreme wealth and an overwhelmingly private market for housing has delivered a severe shortage of social housing, unaffordable private rents, and the collapse of the home-owning dream for the young.  The pattern and volume of housebuilding is determined overwhelmingly by the demands of a powerful construction and landowning industry and the preferences of the most affluent and rich. Instead of growing affordable social housing, scarce land and building resources have been steered to multi-million pound super-luxury flats, town houses and mansions, mostly bought by speculative overseas buyers. 

Vast sums are spent on highly lucrative ‘guard labour’ that protects and secures the assets of the mega-rich. Examples include the hiring of ‘reputation professionals’ paid to protect the errant rich and famous, and the massive corporate lobbying machine. With the richest global tenth emitting  48 per cent of all emissions in 2019, tackling global warming depends on a significant reduction in the wealth gap. 

Over time, Labour’s historic commitment to greater equality and common ownership has been steadily eroded. Writing in the 1980s, the distinguished economist Tony Atkinson issued a prescient warning.  ‘The commitment of the Labour Party to equality is rather like the singing of the Red Flag at its gatherings. All regard it as part of a cherished heritage, but those on the platform often seem to have forgotten the words.’ There were only two passing references to inequality in Labour’s 1997 manifesto, while in the introduction, Tony Blair wrote that he had ‘no time for the politics of envy’. Code for not scaring the super-rich, this  was more than a symbolic gesture or vote-seeking rhetoric. It was a  defining characteristic of the shift away from the social-democratic values that once dominated post-war politics and opinion. 

Labour did launch some innovative and progressive policies from the National Minimum Wage to the introduction of sure start centres for families. There was also the Child Trust Fund to promote greater asset-based welfare, a measure phased out by the 2010 coalition government. Those old enough are today cashing in modest, if not life-changing, sums. 

The most high profile and ambitious post-millennium goal was to abolish child poverty over time. It was a commitment that achieved some notable, but only temporary success. It ultimately failed because Britain’s inequality-driving and stability- and productivity-sapping model of extractive capitalism was allowed to continue unchecked. Blair bought into the argument that surging rewards at the top were deserved, and poverty had nothing to do with the process of wealth accumulation. ‘I always thought my job was to build on some of the things she had done rather than reverse them,’ Tony Blair told the BBC on the day of Margaret Thatcher’s death. 

The idea that a sustained cut in poverty ultimately depended on a direct attack on institutionalised inequality was being explicitly rejected. Instead, resurrecting earlier theories, poverty was seen as a stand-alone, one-dimensional condition that could be tackled by raising the floor while leaving the concentration of wealth and income at the top untouched. Any link between inequality and poverty was implicitly rejected. 

If Labour is to make a difference, it needs to offer a bold alternative to the strategy of a property owning society based on private ownership alone. This requires a new politics of wealth sharing through a more egalitarian distribution of property rights. It is an idea that once permeated Labour thinking and offered a very different vision to that of Mrs Thatcher. In the 1940s, a young economist, James Meade, was one of the first to advocate an egalitarian  ‘property-owning democracy’ for all. 

In 1973, an opposition green paper – Capital and Equality – set out a new framework for socialising a proportion of private wealth, including, drawing on Meade, a national capital fund owned by all citizens. Those behind the green paper included Barbara Castle and Labour’s leading economic adviser Sir Nicholas Kaldor. If implemented, it would have taken Britain to a higher level of social democracy, a move beyond the top-down political economy and nationalised corporations of 1945, and towards the pleas of the libertarian socialist GDH Cole for greater workplace democracy and power-sharing.

Today there is no strategy for sharing wealth and tackling poverty through its root cause – of structural inequality.  Starmer has promised to be more ‘laser-focused on poverty’ than Tony Blair.’  Yet, by rejecting higher taxes on wealth, he is downgrading the anti-inequality goal.  History cannot be clearer: high levels of poverty and inequality march hand in hand. Poverty levels soared during the 1980s because of the sharp rise in the share of national income accruing to the rich, a trend that left less for everyone else. Today, a sustained fall in poverty cannot be achieved without measures that lock-in a higher share of the national cake for the poorest third.  

The message from 1945 (and 1997) is that a sustainable attack on social injustice depends on ending the pro-rich, anti-poor politics of recent decades and a new set of embedded pro-equality measures. These measures should include the gradual socialisation of the asset base back towards the near 30% figure of the post-war era. A ‘laser-focused’ approach requires a strategy for asset-sharing to give all citizens a minimum stake in and access to the gains from economic activity through new forms of social and community ownership. Some industries should be in public ownership, but the main thrust of a new strategy should come through new forms of citizen’s rather than state-owned wealth. 

Recent decades have not just seen fortune-building taken to record heights, they have also seen the return of the demonisation of the poor and the rhetoric of the Victorian Poor Law. The political philosopher Adela Cortina has described these deep-seated anti-poor attitudes as ‘aporophobia’, a process of pervasive exclusion, stigmatisation, and humiliation. 

Since 2010, more than 8 million sanctions – or fines that involve the withdrawal of benefit – have been issued against working age claimants often for minor breaches of DWP rules. It seems that the principles of the Poor Law carry as much if not more weight over social policy today than the wholly different value system – of entitlement and universalism – laid down by William Beveridge. Society today has been moulded back to one of tiered membership, with some citizens granted fewer rights and more responsibilities than others. As George Orwell noted in 1941, Britain is like a family, with ‘rich relations who have to be kow-towed to, and poor relations who are horribly sat upon.’  

Most post-war elections have brought continuity rather than a radical new direction. Only the elections of 1945, 1979 and 2010 can be seen as watershed moments that brought profound waves of change (only one of them in a progressive direction). As in 1945, the immense challenges of the time require transformative government. Britain faces multiple economic and social crises, from a stagnant economy to deepening impoverishment, each of them linked to the deep-seated bias to inequality built into its economic model. 

Opportunities for profound progressive change are rare and cannot afford to be missed. In 1945, despite the odds, Labour seized that historic moment. If he wins a clear majority, Keir Starmer will face no shortage of hurdles, including a fractured economy and depleted public finances. But the question remains: can Labour turn the tide and start to build a new order, a more accountable model of capitalism and a fairer society for all? As Winston Churchill – no stranger to crisis – is said to have quipped, ‘Never let a crisis go to waste`.

Stewart Lansley is the author of The Richer, The Poorer: How Britain Enriched the Few and Failed the Poor, a 200-year History, 2021, Bristol University Press.  He is a visiting fellow at the University of Bristol, a Council member of the Progressive Economy Forum and an Elected Fellow of the Academy of Social Sciences.