The gap(s) between rich and poor

Today is Blog Action Day. The theme is inequality, and thousands of bloggers will be looking at the topic today. Since it’s something I write about regularly, I thought I’d join them and write about Church Action on Poverty.

We often hear about the gap between the rich and poor, and how it needs to be closed. But as CAP highlight, we’re actually talking about ‘gaps’ plural. Inequality of income is the one that most readily comes to mind, but differences in remuneration set off a chain of other inequalities.

The wage gap – let’s start here, since it’s the most talked about, especially around the question of executive pay. For a variety of reasons, the wages of the the richest have grown far faster than everyone else in the last couple of decades. In the 1990s, executive pay was 60 times higher than the average wage. That was already higher than it had been in the past, but since then it has risen to 180 times the average, according to the High Pay Centre.  Between 2013 and 2o14 alone, the average pay of a FTSE 100 chief executive rose from £4.1m to £4.7m. While the richest in society continue to accelerate away, real wages for most of us have lagged behind inflation. Since the financial crisis, earnings for the average British worker fell by 8%.

The price gap – this is far less discussed in inequality debates, but it refers to the fact that poorer households often have to pay more for things than richer households do. Those on lower incomes often spend more on energy, because they have poorer quality homes or can’t afford insulation. The very poorest have to depend on pre-paid energy meters, which are much more expensive. They also pay higher interest on loans, as richer borrowers are a safer bet for the banks. If your cash-flow situation means you have to buy things in installments because you can’t afford to buy something outright, that increases costs too. Between lower wages and higher costs, the poorest are squeezed from both sides.

The wealth gap – This squeeze contributes to the wealth gap, which is vital important to understanding the true picture of inequality. Wealth inequalities are in many ways more serious than earnings, because wealth creates more wealth without necessarily doing any work for it, through interest on savings or rising house prices. If all wages were for some reason to be exactly equal tomorrow, you’d still have a widening gap between rich and poor through wealth accumulation and particularly through property. As an illustration, if you bought a house in London in 1995, you’d have made a return of 350% by now, without lifting a finger to earn it and totally untaxed.

The power gap – these compounding inequalities have a knock-on effect on our politics. The richest in society give to political parties and get seats in the House of Lords. Businesses can afford to lobby government in ways community groups can’t, leading to a distortion of government policy towards the wealthy and their interests. If people feel unrepresented by government, and that their voices are not heard, they become disillusioned and don’t vote or engage. Low turnouts are often blamed on ‘voter apathy’, making the voters the problem. But if you are essentially invisible to those in power, what’s the point of voting? Inequality undermines democracy, and as the Power Enquiry warned in 2006, “politics and government are increasingly slipping back into the hands of privileged elites as if democracy has run out of steam.”

The spending gap – With the poorest in society under-represented in government, it is much easier to penalise those on lower incomes when budgets are tight. The political cost of endlessly trimming benefits and services is lower than attempting to raise taxes on wealth. Analysis of spending cuts shows that they have been steepest in the poorest areas, with some councils forced to cut ten times more per head than some of the most comfortable parts of Southern England.

In short, it’s too complacent to look at inequalities of income and shrug them off as natural and nothing to worry about. Those differences in earnings rebound into much longer term inequalities, with consequences for democracy and the health of society.

For more on these gaps, see the Close the Gap briefing from Church Action on Poverty.


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