A Tale of Two Cities

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By Jonathan, originally published in the Aberdeen Voice as a two-part series.

Part One.

Right across the globe we have seen with a few notable exceptions the disparity in wealth between the poor and the rich increasing.

Globalisation in particular has meant that the wealthy elites can invest in and set up money making concerns wherever they like with little regard for both the countries they have investments in or the populations in their own countries. The biggest investments are in oil and gas and mineral abstraction but also the clothing industry. The power of the state has reduced in particular in relation to its role of income redistribution and often the state’s ideology has been to encourage capital at the expense of many of its citizens.

The super-rich – the top 1% of earners – now pocket 10p in every pound of income paid in Britain, while the poorest half of the population take home only 18p of every pound between them, according to a report published by the Resolution Foundation think tank, which reveals the widening gap between those at the very top and the rest of society. A short video on this can be found here.

We have seen over recent decades an attack on the working class and poorer ends of our society. Under Thatcher and the Governments that followed most of the industrial base of our society was destroyed. This has led to overdependence on the financial, service, and oil and gas industries — along with the arms trade. This leaves the economy in a particularly volatile state at times of economic downturn. Despite what the coalition government says the UK Government debt presently stands at 1.16 Trillion up from 0.76 Trillion in 2010. Personal debt stands at £ 1.436 billion. Many areas in the UK have high levels of unemployment — this includes Scotland at 4.4 % (Aberdeen is 2.2%).

Young people in particular have borne the brunt of the present recession. Young people are more likely to be unemployed in low paid jobs and on short term contracts. Young people will have to wait longer for retirement and even middle class young people will be poorer in the future though for those whose parents have few or no savings the future is increasingly bleak. At the same time many older people have gained from the property boom and have high pensions and savings.

Many people have moved from more highly paid industrial jobs to low paid service sector jobs in retail, call centre and care jobs. Often people in these sectors are on short-term contracts. In 2009 the average wage was £20,081. In 2008/09 income in the top and bottom fifth of households was £73,800 and £5,000 respectively before taxes and benefits. After tax and benefits household income disparities are significantly reduced (to £53,900 and £13,600 respectively).

For many people in Aberdeen life has been cushioned by working in the oil and gas sectors and many of those in a trade are paid well due to the local market. But others have suffered the double whammy of low pay and increasing housing costs in particular in the private sector. The policy to sell council housing has had a devastating effect on many people wanting to get into the housing market. It created divisions between working class people who were poor and those who were better off and could afford to buy at reduced costs their council property. This policy has at last ended in Scotland but to turn around the devastation caused will take decades.

The young, unless they have rich parents who can help them with rents or down-payments, have been particularly affected, which has meant more young people living with their parents. Housing Associations have in part helped in providing accommodation however in a market such as Aberdeen’s where private rents are high the effect on people’s standard of living is devastating. Those renting out flats have made a killing. Many people have moved to Aberdeenshire to get cheaper housing creating ever increasing chaos on the roads leading into Aberdeen.

Although Aberdeen is relatively affluent, there are a number of localities with significant social and economic challenges: for example, in the 2012 Scottish Index of Multiple Deprivation 22 areas in the city fall into the 15% most deprived areas in Scotland. The figures in relation to health are more striking, 48 areas of the city fall into the 155 most deprived areas in the country.

Part Two.

Both Oxfam and the Jimmy Reid foundation with their ideas around the Common Weal have sparked a debate about equality. Relevant video from the Scottish Parliament here.

While real consumption per head has doubled since 1978 unemployment benefit has remained fixed. Peter Kenway in a report by the Joseph Rowntree Foundation in 2009, Should adult benefit for unemployment benefit be raised, found that Jobseekers allowance represents:

  • A fifth of the actual, average expenditure of single adults
  • Half of the actual average expenditure of single adults in the poorest households

Yet at the same time, according to the Tax Justice Network, tax avoidance is £69.9 billion a year. Is this OK? Another relevant video here.

At the same time, richer families can leave up to £325,000 in inheritance without paying any tax and only have to pay 40% of tax in figures given above. So basically if your parents are rich you can do absolutely nothing and get lots of money. The internet is full of sites advising people on how to avoid tax and inheritance tax. Imagine the outcry if there were sites giving advice on how to fiddle jobseekers allowance! This double standard is nothing but hypocritical. Nor does it make any sense economically: it is those with the least money who are most likely to spend and help us move out of recession. At present we are suffering lack of investment in our economy, while at the same time there is lots of unnecessary wealth.

Total household wealth in the UK increased by 55 per cent in the past decade to an average of £242,000, largely down to a significant rise in the value of property which has outpaced surging mortgage debt. That is equivalent to £86,500 per household in the ten-year period, but as with income, there are huge disparities in wealth between the richest and the poorest.

The value of wealth is growing at a faster rate than both the rise in consumer prices and disposable income, according to research by Lloyds TSB Private Banking. And while the financial crisis has shaved £6 billion off our assets since 2007, collective household wealth in the UK was estimated to be £6.6 trillion at the end of 2011 – up from £4.3 trillion in 2001.

Wealth has managed to outstrip inflation and disposable incomes, with the retail prices index (RPI) is up by 38 per cent over the past ten years and gross household disposable income up by 44 per cent. According to the Lloyds research, booming house prices in the last decade, especially between 2001 and 2007, added a large amount of wealth to households. Property as a percentage of wealth has gone up from 36 per cent in 2001 to 40 per cent in 2011. The research said that over the decade housing wealth has risen 73 per cent, while financial wealth is up 44 per cent.

The value of the nation’s private housing stock increased by £1.8 trillion over the decade, from £2.1 trillion to £3.9 trillion. But in the midst of house values growing, mortgage debts have also risen significantly at the same time. The total value of mortgage debt more than doubled from £591 billion to £1.25 trillion. This means that many households though helped by low interest payments are struggling or failing to pay. The move for everyone to own their own house, still being championed by the present UK government, has been unrealistic and what we need is a wealth tax that would allow us to build new social housing and help get us out of recession.

The £1.8 trillion increase in the value of housing outstrips the £655 billion rise in mortgage debt, almost threefold. A rise in both average house prices and the number of privately-owned homes, which grew from 20.1million in 2001 to 22.4million in 2011, was behind the surge in the value of housing as a whole, the data found.

Suren Thiru, Lloyds TSB Private Banking economist, said:

The substantial growth in household wealth over the past decade is partly the result of the increase in the value of housing stock between 2001 and 2007. While financial assets have played their part, the value of housing stock grew at a significantly faster rate. Rising house wealth has benefited those who own their own homes and those who rent out properties in the private sector.

However those that are at the bottom of the housing market have had to pay dearly. The majority of household wealth continues to be held in the form of financial rather than housing assets. The total value of financial assets – such as savings, pensions and shares in companies – held by households has increased to £4.1 trillion in 2011, compared to £2.9 trillion in 2001. The research found that there has been a £718 billion rise in equity held by households in life assurance and pension fund reserves. There has also been a boom in savings, with an increase of £549 billion held in deposits with financial institutions and National Savings. There was a relatively modest boost from stock market performance with the FTSE All Share Index increasing by 13 per cent in the decade to 2011.

Despite the downturn in the economy since 2007, household wealth has declined by just £6 billion over the past four years which is mainly down to lower house prices. They are now beginning to rise but this is worrying because if house prices are high the debt in paying off new mortgages increases. Rather than start building more social housing the present UK Government is offering people money to get onto the property ladder. This is repeating the problems of the past as it will increase debt and lead to even more people defaulting on mortgage payments, particularly if interest payments increase.

The redistribution of wealth in the UK from the have-nots to the haves beggars belief. Ordinary people are paying for a period of greed from which many benefited, in particular in the top 10%. It is the un-rich, low waged, property-less and younger people in particular who have suffered. Aberdeen for many is cushioned by Oil and Gas but for those in the service industries on low wages and paying high rents, or unemployed, or disabled, life is a struggle.

We have seen the opening of the first food bank in Aberdeen. Services have been cut for the most vulnerable in our city yet many people have riches far in excess of their needs. It is time to end the something for nothing culture and start redistributing wealth both from the rich to the poor, and also for investment for future generations.

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About RIC Aberdeen

The Radical Independence Campaign sees Scottish independence as the first step towards creating a fairer, greener, more democratic place. RIC Aberdeen are a local campaigning group, ordinary people who want to make a difference. We do canvassing every Wednesday night, along with other events. Please get in touch for more info.

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