John Kampfner :: author, broadcaster & commentator

The Bling Bling List
Cover Story
Monday 7th March 2005

It's the super-rich who have done best under Labour. The top one per cent have seen their wealth rise at a rate that the rest of us can barely comprehend. Introduction by John Kampfner.

One group in society has never had it so good. Under this government the super-rich, the top 1 per cent, have seen their wealth rise at a rate that others cannot begin to comprehend. Thanks to policies pursued (or not pursued) by Tony Blair and Gordon Brown, these people give away a far smaller share of their income back to the state than the rest of us.

When Peter Mandelson declared new Labour was "intensely relaxed about people getting filthy rich" perhaps voters did not appreciate how true it was. During the 2001 election campaign, Blair told Newsnight's Jeremy Paxman: "It's not a burning ambition for me to make sure that David Beckham earns less money." And though Gordon Brown, according to his aides, is seriously unrelaxed about excessive and unproductive wealth, he has failed, in his eight years at the Treasury, to introduce a significant measure that deals with the very rich.

Labour's record on the poor is commendable. Tax credits focused on child and pensioner poverty, the minimum wage, Sure Start and other measures have made a difference. Apart from the very bottom 2 per cent - usually the unemployed without children and the elderly who do not claim their means-tested benefits - the lowest fifth of society have seen their income rise modestly and steadily. The income gap between them and the reasonably or quite well-off has shrunk slightly - or at least not grown. But as the Cabinet Office's strategic audit concluded recently, when you take into account wealth accrued from property, the gap continues to grow.

It is only when you look at the very top end that the scale of inequality is properly understood. According to Tony Atkinson of Oxford University, the UK's leading expert on inequality, the top 1 per cent of the population now receive more of the nation's income than at any time since the 1930s.

The Office for National Statistics reports that this group of 600,000 people doubled its wealth to £797bn in Labour's first six years. The share of national wealth taken by these super-rich has grown from 20 to 23 per cent, while the share of the poorest 50 per cent shrank from 10 per cent in 1986 to 5 per cent in 2002.

London is said to have 40 billionaires, 13 of whom are foreign. There is no place in the world like it. They are welcomed with open arms. The capital has become the world's most significant tax haven. Theirs is a parallel world, in which the purveyors of yachts, private jets and other accoutrements cannot keep up with demand. Where else in the world could you acquire a diamond-encrusted swimsuit for £15m?

The statistics almost certainly underestimate the true wealth of the super-rich. It is, says Robert Chote, director of the Institute for Fiscal Studies, like "looking through thick fog". Such are the global flows of cash that an understaffed and demoralised Inland Revenue can barely cope - which may account for Brown's fatalism in an area where he could have made a difference.

"Non-domiciled resident tax status" might not set the pulse racing, but to those who believe one of the jobs of a centre-left government is to reduce inequality, it has become a leitmotif. This scam, dating back to colonial times, exempts people who spend fewer than 90 days a year in the UK from paying tax here on any earnings overseas or from investments in offshore havens. They are liable only for tax on UK earnings, but clever accountants help to ensure that this burden is slight. Up to 100,000 people benefit from a largesse that other European countries deny them. It is impossible to know exactly how much money is being withheld from the Exchequer, but it is estimated at tens of billions a year - a good proportion of the entire NHS budget.

Even Margaret Thatcher's chancellor, Nigel Lawson, thought about tackling the loophole, only to shy away. Brown declared in 1994 that he would confront it. "It is not fair that a wealthy few be allowed to work or live in the UK without making a fair contribution through taxation," he said. In 2002 the Treasury committed itself to act, only to be bombarded by pleas and threats from wealthy "non-doms" - several of whom are Labour donors. They warned that any attempt to make them pay up would drive them out of the UK. The government says it is "reviewing" the situation. Senior Labour MPs are nonplussed at Brown's unwillingness to act. "These people are not classic entrepreneurs," says one former minister. "This whole business goes against everything Gordon stands for."

MPs draw a distinction between the Blair and Brown approaches to inequality. The PM is exercised by the plight of the poor, but not at the expense of the rich. His is a next-generation version of trickle-down economics. He sees a role for government in increasing opportunity through education and training, and providing a safety net for those most in need. He takes as a given the beneficence of the wealthy. Brown, however, is personally offended by the conspicuous wealth. Yet he fears that any change to tax levels or rules would lead to capital flight, damaging Labour's entrepreneurial credentials and leaving it vulnerable to the usual charge of envy.

In his Budget on 16 March, Brown will again talk of promoting fairness and justice. He will not, however, deal with the ultimate iniquity, Britain's regressive tax regime. Taking into account council tax (which is graded but not in line with wealth) and VAT and other indirect taxes paid at a flat rate, the top fifth in the income scale pay a smaller proportion in tax (34 per cent) than the bottom fifth (42 per cent). Income tax should address imbalances, but Blair and Brown have agreed not to touch the basic or top rates for a third election in a row. Once, just once, in the past eight years, has the government taken a risk on tax, with its penny increase in National Insurance. Ministers were pleasantly surprised at the lack of hostility, but in spite of that returned to their cocoon.

It is the Liberal Democrats who have summoned their courage. On 28 February, they reaffirmed their policy to introduce a new top rate of tax of 50 per cent for income over £100,000. Currently only 419,000 people, 0.9 per cent of taxpayers, would be affected, and yet Blair described the announcement as "rather dangerous - you catch a lot of people other than the super-rich". But you do not. Nor is there strong evidence that such a move would serve as a disincentive to those aspiring to join the top-rate club.

Surveys suggest new Labour has fallen for a pervasive myth - that inequality does not bother voters. John Hills of the London School of Economics says the opposite is true: "The evidence suggests people are worried about the extent of the gap between rich and poor, even though they hugely underestimate the incomes of the highest-paid." The British Social Attitudes surveys have reported each year since 1989 that at least 80 per cent think the wealth gap is "too high". In researching a forthcoming report on poverty, the Fabian Society found that public perceptions are more sophisticated than politicians allow for. A MORI poll showed that people regard high boardroom salaries, bonuses and pay-offs as the most unethical business practices of all, worse than sweatshop labour and environmental pollution. Even in opposition, when it was desperate to win the 1997 election, Labour showed more courage on "fat cats" than it does now. The recent Higgs report, commissioned by the Department of Trade and Industry, on corporate governance and "rewards for failure" was watered down, even though it proposed voluntary controls.

In the Labour years in office, two dynamics have worked against each other. Brown and Blair have made the first concerted attempt at tackling poverty since the 1970s, producing modest, incremental improvements for most of the poor. Yet they have indulged the financial elite, eager to co-opt its members into endorsing the government's mini-projects or funding the Labour Party. They have put no constraints on the remorseless acquisition of wealth by a powerful few, ever more of which comes from unearned income. Their failure to tackle the second problem may eventually undermine their success in tackling the first.

This article first appeared in the New Statesman and may not be reproduced without permission.