We are the 0.00001%
Despite the sharp rise in income inequality, Osborne’s ‘plan A’ gamble might still pay off, writes Eddie Ford
On May 18 The Sunday Times published its 26th annual rich list based on “identifiable wealth”, such as land, property, art collections, racehorses, significant shares in publicly quoted companies and so on. This year’s survey contains some especially revealing statistics about the 1,000 wealthiest individuals or families in the UK, who, of course, may not necessarily be British citizens. Conversely the study excludes quite a number of individuals with major financial assets, but who do not mainly live and/or work in Britain.
One of the major revelations, apart from the fact that the queen is a relative pauper these days (at £330 million she is now ranked 285th), is that the top 1,000 own a third of all the country’s wealth, with a combined fortune of almost £520 billion - an extraordinary development. Occupy used to talk how “we are the 99%”, as opposed to the 1%, but they got their maths seriously wrong - in reality the super-rich only constitute about 0.00001% of the population. Another cheerful thought is that their wealth has doubled since the financial crisis, whilst hundreds of thousands have to rely on food banks to feed their families.
An even more staggering statistic, if anything, is that last year alone the total wealth of the very richest jumped by 15.4% - they have never had it so good. No wonder that Philip Beresford, who compiled the list, had never seen such a “phenomenal” rise in personal wealth before - the super-rich people in Britain had had an “astonishing year”, he said. Naturally though, he thoroughly approved of this fact, as many of these people are apparently at the “heart of the economy” and “their success brings more jobs and more wealth for the country”. We should be grateful for their “success”.
Thus top of the list with a joint fortune of £11.9 billion are the Hinduja brothers, pushing into second place Arsenal FC shareholder Alisher Usmanov. The highest new entry is the Perrodo family, which owns the London-based Perenco oil and gas operation, now worth £6.14 billion (14th richest). One place behind, and also a first-timer on the list, is German Khan, who runs the global oil and gas fund L1 Energy and is said to be worth £6.08 billion. Paul Sykes, the entrepreneur and property magnate who helped fund the United Kingdom Independence Party, is another new entry at 155, with a fortune of £650 million - obviously a man of the people.
Meanwhile, Sam and Dan Houser, founders of Rockstar Games and creators of the Grand Theft Auto series of video games, are 947th, with a joint wealth of £90 million - and Facebook addicts will not be too surprised to learn that the creators of Candy Crush Saga (King Digital Entertainment) have jumped onto the list, all with fortunes worth hundreds of millions of pounds. Lovers of fine food will also be reassured to know that celebrity chef Jamie Oliver and his wife, Jules, saw their fortune leap to £240 million and Simon Cowell (responsible for the abominable Britain’s got talent) is now on £300 million - thus proving there is no justice in the world.
Now, if you want to make it onto the rich list - and who doesn’t? - you will need at least £85 million, up five million from the ‘minimum qualification’ in 2008. We also discover that the number of billionaires has risen to 104, meaning that the UK had more billionaires per head of population than any other country. Something else to make your chest swell, at least according to the Office of National Statistics, is that Britain’s richest 1% have accumulated as much wealth as the poorest 55% of the population put together, and in general the nation’s top 10% own 44% of all household wealth - which comes to some £9.5 trillion in property, pensions and other financial assets.
These surveys strongly recall the ‘wealth parade’ visualised by the International Forum on Globalisation in its 2011 report, Outing the oligarchy.1 Imagine, they said, if a sample of the entire population in America paraded down Pennsylvania Avenue in Washington, and that the parade took one hour and began with the poorest people.
For the first 10 minutes, the lead marchers (those who survive on only a few thousands dollars a year) look like toddlers, barely a foot tall. After about 15 minutes the marchers now stand about three feet tall, this continuing for the next 25 minutes. Then for the next 10 minutes or so you have normal-sized marchers. However, things now start to get really strange. In the final 10 minutes we begin to see marchers who are eight feet tall and four minutes later the marchers loom more than 14 feet tall.
With a mere 25 seconds left, the super- rich are looking down at us from a height of more than 30 feet and in the very closing seconds of this ghastly parade some people now soar thousands of feet into the sky - the plutocrats. Finally, in the very last second of the march, we have the Godzilla-like super-plutocrats, standing at 8,000-plus-feet. But wait - it gets even weirder than that. During the last fraction of the last second we would need binoculars to see the faces of the marchers, some three miles high, with the last marcher topping out at the level of 110 miles above the surface of the planet. To make you feel really good, the report notes that the parade only reflects annual income, not accumulated wealth and other wheezes - which, of course, would demonstrate an even more colossal unevenness in wealth distribution.
There are two main reasons for this obscene surge. Firstly, the stock market rose sharply last year; for instance, the FTSE 100 gained 18% and the S&P 500 notched up similar results. But, secondly, and most crucially, the wealthy are plunging their money into property, especially in London - a truly global city. Seeing political crisis everywhere, stretching from Ukraine to Egypt and Syria - plus the continuing chronic weakness of the euro zone - those with means are looking for somewhere safe to stash their money. And guess what? London, as always, seems like a safe bet.
That is why the recent remarks of Mark Carney, governor of the Bank of England, are particularly significant. He expressed concern about another “big debt overhang” building up, with homebuyers taking out loans many times larger than their salaries, and warned that rapidly rising house prices in parts of the country pose the biggest risk to the so-called economic recovery. Currently, property prices are rising at their fastest rate in more than six years - the average asking price is 8.9% higher than a year ago. Prices in London rose faster still over the same period - they are already 25% above their 2008 peak and are now rising at a “frothy” rate of about 18% a year - the average home in the capital costing more than £450,000. The number of £1 million properties has doubled.
Pointing out the obvious, Carney stated that the UK housing market has “deep, deep, structural problems” - ie, the chronic shortage of homes, inevitably driving up demand and hence prices. House building in Britain is at half the rate of his native Canada, despite the UK having a population twice the size. However, perhaps importantly, Carney also remarked that he would remain “vigilant” on the Help to Buy scheme introduced by George Osborne, whereby prospective buyers are offered a ‘cheap’ loan of up to 20% on the price of a home if they can provide a 5% deposit - the scheme initially applied only to new homes, but was later extended to all properties under £600,000. This clearly helped to create the property boom we are now experiencing - just as the chancellor surely intended in the run-up to the general election. Ditto with his sweeping reforms to the pensions system, removing the obligation to buy an annuity and therefore enabling people to cash in as much or as little of their pension pot as they want. He knew full well that pensioners will use their newly ‘liberated’ pension pots to buy property, especially buy-to-let investments. Keep the housing bubble afloat by any means necessary.
Anyhow, the Bank of England has begun a “review” of Help to Buy, David Cameron saying he would “consider” any changes proposed by Carney. The latter, who ended the subsidising of mortgages through the Funding for Lending scheme last year, is now examining whether to introduce stricter tests to determine whether people could afford their repayments if interest rates were to rise (which must happen at some point) and also the possibility of intervening to limit mortgages with high loan-to-value ratios.
Now the financial press is intensely debating whether the housing bubble is about to burst or, alternatively, if these sort of property prices can be sustained. Traditionally, such a judgment is arrived at on the fairly rudimentary basis of estimating the average income of people with mortgages, then working out if they can afford to keep up with the payments - not exactly rocket science. Taking this approach, property prices - especially in London - are bound to fall by about a third, which is certainly what happened in the US (ie, New York).
However, things are not so simple any more. For a bubble to burst you need a sustained drop in demand, but, given that London is at the centre of an international market, the long-term demand for property in the capital shows no sign of drying up - quite the opposite. The latest luxury flats (or indeed anything, even a garage) tend to get bought up the second they are advertised - more often than not by wealthy foreigners. We are now in a situation where the basic financial model revolves around naked speculation, the ‘recovery’ essentially being built upon people borrowing off property prices rather than actually setting up new factories or producing anything. A parasite’s paradise.
Nevertheless, the very fact that institutions like the World Bank and the International Monetary Fund are talking about a UK recovery, even about the prospect of the British economy being the “fastest growing” in the G7 this year, has allowed the Tories to say that - at last - plan A is working. OK, it may have taken longer than expected but we have done the job. Britain is turning the corner and prosperity is about to arrive. Sure, it has been very hard, but we’ve all struggled through together - and, anyway, look at the damned mess Labour left us. So please give us your votes.
Looking at recent polls, there are grounds for optimism if you are a Tory - the gamble might pay off. It is no longer a dead cert that the Conservatives will lose next year, especially if the wind starts to go out of the UK Independence Party’s sails once the European elections are out of the way - they will be lucky to get a single Westminster MP, thanks to the undemocratic ‘first past the post’ voting system. Hence an ICM opinion poll released on May 12 showed the Tories in the lead for the first time in two years when it comes to the voters’ assessment of national politics - their popularity had steeply declined after George Osborne’s ‘omnishambles’ budget.2 The ICM poll had Labour dropping six points to 31%, with the Tories nudging ahead on 33% - as for Ukip, it is on 15%, while the Liberal Democrats have 13%. Adding to Labour nerves, a second telephone poll conducted on the same day and sponsored by the Tory peer, Lord Ashcroft, also came out with a two-point margin of victory - the Conservatives on 34% against Labour’s 32%.3
Labour’s reversal of fortunes in the ICM poll goes hand in hand with increasingly negative views of its leader. Despite a month in which Ed Miliband has put rent controls back on the agenda and is generally thought to have made the running against the government over the AstraZeneca/Pfizer affair, not to mention his new promise that a Labour government would set a statutory minimum wage target linked to average earnings and “tackle” zero-hours contracts, 51% of voters believe he is doing a “bad job” - twice as many as the 26% who think he is doing well. This gives him a net negative rating of -25, his worst ever score, according to ICM.
All of this indicates that the Labour Party faces a serious problem. The two Eds - Balls and Miliband - have pumped out one central message so far in this parliament: we need a plan B, things are not working. Such an approach no longer works as the economy grows - albeit at an extremely unspectacular rate of around 2.5% or so - and people find themselves sitting on properties that have increased in value while they took the dog for a walk. Similarly, those on the left who also relied on austerity to deliver the masses to them have been living in cloud cuckoo land, nice though that must be. Labour is not alone in needing an urgent change of strategy l
2. The Guardian May 12.