UK pay inequality suffocates society

When a CEO can take home in three days what it takes the rest of us a year to earn, we really need to question our priorities.

Pay for those at the top of Britain’s businesses has continued to rise sharply year after year – throughout the recession and recovery. When a chief executive can take home in three days what it takes the rest of us a year to earn, we need to question our priorities.

As the UK economy has strengthened this year, workforce wages have overtaken price increases for the first time in six years – but this was only by 0.1%. Nobody is going to get rich on that. Many people on low to middle incomes are still feeling the squeeze.

This week the High Pay Centre has launched an animation highlighting the growing difference in pay for Brenda, an experienced nurse earning the UK’s average annual salary of £27,000, and Brian, the boss of a big company, who makes £4.3m a year. (This is the average pay package for a FTSE 100 chief executive in 2012, for which full data is available)

It is only in recent history that people have been able to become seriously rich by climbing the executive ladder in large, established companies. This has opened up a stark disparity between incomes of those at the top and those at the bottom. Wealth then becomes entrenched in an elite who live on a different level from the rest of us.

The latest Sunday Times rich list found that Britain now has more billionaires per head of population than any other country. There are 104 billionaires in the UK with a combined wealth of £301bn, according to the list. But at the same time, we have record numbers resorting to food banks, just to make ends meet. The Trussell Trust says that the amount of people receiving three days or more worth of emergency food from their food banks has increased from about 26,000 in 2009 to over 900,000 in 2014.

Research from the Citizens Advice Bureau found that since October 2010 energy bills have increased at eight times the rate of average earnings, while food costs have increased by 10% more than wider prices since 2008, according to the Institute for Fiscal Studies.

Figures from the World Bank show that other countries in north and western Europe, such as the Netherlands, France or the Nordic countries, have similar or even higher levels of GDP per capita than the UK. This means that, on average, they are at least as rich per person as we are, if not richer.

But these countries are more equal than the UK. Their Gini coefficient – an international measure of inequality – is much lower, according to the Organisation for Economic Co-operation and Development thinktank. Wealth and incomes are distributed more evenly, with a smaller gap between rich and poor. The richest 1% of the population take about 6% of total incomes earned in Denmark or the Netherlands, according to the World Top Incomes Database, less than half the 13% taken by the richest 1% in the UK.

The database notes that total incomes in the UK add up to about £1tn, so the 13% share taken by the 1% is worth about £130bn. If this was reduced to 6%, the same as in the Netherlands or Denmark, it would leave £70bn for the other 99% of UK households – or nearly £3,000 each.

When the lion’s share of reward is going to a few at the very top of society, we are stifling spending power among the rest. That is going to hold back our economy and create large divisions in society. We need to address the pay gap for all our sakes.