It is no coincidence that the modern-day Conservative party was born just when Britain was its most equal, in the late 70s. Thatcherism was a counter-revolution in economic thinking. Its aim was to roll back what had until then been a successful model of state intervention in favour of business interests. During the 1970s, energy price shocks produced inflation. Yet this was attributed by rightwing thinkers to slack government fiscal and monetary policy. When policy was tightened, the lengthening dole queues that resulted were blamed on the power that trade unions had gained after decades of full employment.
Thatcherism pinned the sense of the country being adrift on egalitarianism. Its supporters argued that economic progress needed more, not less, inequality. Tories first identified their enemies and then opportunistically scapegoated them for the country’s plight. That ploy worked when they were insurgents, but today’s Conservative party has been in power for 12 years. It is struggling to repeat the trick. Voters do not recognise trade union leaders as “barons” because they do not think of their status as being more privileged than that of their members or the general public.
What has been created in Britain since the 1970s is an unstable economic structure marked by high levels of inequality. The financial crisis of 2008 should have put paid to this. Instead, Conservative prime ministers continued to support the inequality-driving practices of big business and the uneven division of gains from economic activity. None of the candidates to lead the Tory party show any sign that reducing poverty and inequality will be a priority. Levelling up remains very much a slogan in search of a policy.
UK income inequality is high but the Tory party has found it expedient to use government intervention to stymie further rises. Hiking the minimum wage – which covers one in four employees – has resulted in pay growth among the lowest earners running at almost twice the level of other staff. Millions of self-employed workers, however, are not covered by such legislation and earn far less than the minimum wage. Conservatives have learned to love the policy because it allows them to claim they are on the side of workers while maintaining gig economy practices that undermine their bargaining power.
Wealth inequality is a different story. Last week, the Resolution Foundation pointed out in its Stagnation Nation report that labour productivity grew by just 0.4% a year in the UK after the financial crisis, half the rate of the 25 richest Organisation for Economic Co-operation and Development countries. Yet even these small gains produced no real wage growth. Instead, the fruits of labour went to boost company profit margins – and ultimately benefited wealthy owners such as shareholders, who are seeing record dividend payments. Rising asset prices – especially housing – have widened the gap between the haves and the have-nots. Since 2008, the average wealth held by an adult in a family in the richest tenth of the population increased by roughly £500,000 over that held by an average adult in the middle of the distribution. Wealth taxes, meanwhile, have not risen as a share of GDP. It’s clear that they should.
Capitalism’s dilemma used to be that companies had to keep real wages growing in line with productivity to ensure that the goods produced were sold. Financial market deregulation solved this by enabling households and corporations to borrow from a lightly supervised moneylending sector, which sustained purchasing power in the economy. For Conservatives this was more congenial than paying higher real wages. Brexit allows consumer protections to be further reduced to boost lenders’ profits. This will turbocharge a form of capitalism that caused the last economic crash. All of those in the race for the Tory party leadership appear committed to such moves. It is depressing that Labour’s Sir Keir Starmer seems committed to them too.
