Related Articles 1

Related Articles 2

Internet Links

Homes And Inequality

The news that we are coming out of recession and that the cut in Value Added Tax on everyday goods to stimulate spending introduced first in the UK by the Chancellor to address the ‘credit crunch’ and followed elsewhere in European countries and America certainly seems to have successfully cushioned the recessions worst effects still leaves some worrying questions – and not just about the bail out of the banks, or the level of national debt which in historical terms is not out of control compared with the recent century or indeed other developed economies. What the renationalising and rebalancing of the banks over committed in the international (mainly American mortgage market) is still throwing up are questions about salary bonuses for highly paid bankers, a sense that things are just returning to where they were before. But the banking crisis, the role of speculative hedge funds, the overdevelopment of sub prime markets and the enormously widening inequality gap between rich and poor ought to have led to rather more fundamental questions about the whole system rather than just finger pointing at spiv-like hedge fund managers and bonus-padded wealthy bankers.

The recent analyses of the inequality gap in income and wealth between the poor and the rich has received some recent attention in America and Britain – not least because it is drastically widening. Back to “business as before” will not address the basic issues of justice and human well-being. That the executives of Britain’s top companies saw their basic salaries rise by 10% last year – three times the average pay rise for ordinary workers in the private sector and that the ten most highly paid earned £170 million last year (up from £140 million in 2007) demonstrates the widening gap. An employee working a 40 hour week earning the minimum wage would have to work for around 226 years to receive the same remuneration as a FTSE100 CEO does in just one year.

The roots of the banking crisis, particularly in America are deep in the late 1990’s policy of promoting and pushing home ownership especially for the lowest income groups in the inner cities. Often they were tempted by promises of every increasing property prices and mortgages beyond their weekly and monthly means. Nor was this just an American phenomenon. In the 1980’s and 1990’s the great Thatcher revolution was to push ‘the dream of home ownership’ (not least through the subsidised sell off of council housing). Rather than be tied to your job or company the real tie was to a mortgage. In other words the space for “flexible working”, the end of a job for life and the move to a shifting round of different jobs during your life time was re-anchored in a mortgage. People had to work to pay over extended mortgages built on a blind faith in the ever increasing value of property. I once recall arguing in the 1970’s with a top insurer who put their money behind property on the grounds that they believed property prices would always rise. In other words as a result of the expansion of ‘home ownership’ in reality mortgage dependency, workers are now tied to paying their mortgages and in a market in which values can and do fall. Lose your job now and you are likely to lose your home – without enough council houses to fall back on. Workers are not so much wage slaves as mortgage slaves.

Yet the principle that governments should intervene, as they have done in propping up the banks is not universally accepted. Indeed in America the best selling book is now Meltdown which argues vehemently against any government interference in the marketplace, calls for banks – and companies to be allowed to go to the wall, for the abolition of all central banks, such as the Federal Bank in America and a return to pure market economics of the old Austrian school of Von Mises and Hayek. In the author’s view Reagan and Thatcher intervened too much – everything and everyone should be left to the workings of the market. Not only should banks and companies be allowed to fail and go under so should weak individuals unable to survive the free competition of the market place.

This damaging myth of the free market still needs challenging by arguing for the need to rebalance the provision of homes building affordable homes for renting, and pulling back from far too high a proportion of mortgages but as pressure builds for a High Pay Commission to be set up – similar to the recently established Low Pay Commission – perhaps we should go further and immediately reintroduce a Royal Commission on the Distribution of Income and Wealth (originally chaired by Jack Diamond in 1974) to address inequality in our own society.

©John Battle MP 25 September 2009