The Times They Are A-Changin’: Levelling-up and Net Zero

“Yes, and how many deaths will it take ’til he knows
That too many people have died?”  

Whilst inequality has always featured in these columns, however, it became a prime focus after Brexit was completed, when a new column was introduced on the 4th January 2021 in “Beginning to see the Light – Background.” 

Wealth inequality is the one that writers (myself included) have focussed on, primarily because the distortion has become so vast. In the UK, and many other countries, total wealth inequality is more acute than annual income inequality; the top 20% hold 63% of the total. 

Longer-term, closing this gap should be a political imperative, but, as part of the government’s priority for dealing with the cost-of-living crisis, the initial focus is income inequality. 

There are two elements to affordability;  prices and income. 

Since 2021 and Russia’s invasion of Ukraine prices have increased, resulting in cost-push inflation. This has been further exacerbated by Trump’s Iran war. 

As external, overseas events, these can be difficult for governments to deal with. 

One of the few ways to help people is to get more money in people’s pockets. 

In “Does PM Burham Stand A Chance?”, I wrote about how the defeat of trade unions in the 1980s kickstarted income inequality, allowing employers too much power, and the advent of  “gig economy” and zero-hour contracts. 

A zero-hour contract might best be described as, when is a job not a job? There is no promise of work. However, 1.7m people work this way, with the number reaching up to 4.4m as people dip in and out. 

‘when is a job not a job? There is no promise of work. However, 1.7m people work this way’

Research suggests that the decline of trade unions and collective bargaining accounts for C.15% to 25% of the total rise in income inequality since the late 1970s. The number of workers covered by collective pay agreements has fallen from 82% in the late 1970s to C.26%. 

When unions are involved, the Equality Trust found that their members earn an average 8% more than non-members. 

The net result of this was highlighted by the Resolution Foundation, who calculate that the decline of trades unions has suppressed the average worker’s pay by as much as £100 per week,  and disproportionately impacts younger workers. 

This has resulted in a direct transfer of wealth from workers to company profits and shareholders. Workers share of national income has fallen from 76% in 1976 to C.67%, whilst the top 1% of earners have increased their share of national income by 134%. 

The top 20% of the population receives C.35% of total disposable income, the bottom 20% just 8% 

Income inequality in the UK ranks as the 9th most unequal of the 38 OECD countries. 

The extent of this decline in wages came post the GFC when they experienced the longest and most severe real-terms wage stagnation in modern history.  

Research from the Resolution Foundation found that if pre-2008 wage trends had continued, the average UK worker would earn roughly £11,000 more per year today. 

Whilst pay has been slow to increase, cumulative price increases across housing, energy, and essentials have outpaced earnings growth.  

This supply-side inflation driven by the wars in Ukraine and Iran, is being made worse by climate change. 

‘supply-side inflation driven by the wars in Ukraine and Iran, is being made worse by climate change’

The UN Food and Agriculture Organization cited heatwaves as a factor hitting crop yields. Their research found that: 

• Cereal prices rose by 3.4% month on month in July, including a 5.8% increase in global wheat costs.  

• World maize prices increased by 3.6%. 

• Sugar prices jumped by 5.6% in July. 

• Vegetable oil prices rose 2%. 

The heatwave that swept across Europe in June, inflamed by carbon emissions, is estimated to have caused the forced destruction of 9m tonnes of crops, including wheat, barley, maize and oats. 

Tackling the cost-of-living and the climate crisis can create “proper” jobs, paying a living wage. 

An examples of this was President Bidens 2022 Inflation Reduction Act, which aimed to reduce the federal deficit, and invest heavily in domestic clean energy and climate change programs. 

The act planned to invest C.$370bln in renewable energy production, electric vehicles, and clean manufacturing, and to provide Clean Energy Tax Credits to incentivise businesses and consumers to use solar, wind, and energy-efficient home upgrades like heat pump, and to internal production of batteries, solar panels, and critical minerals. 

There was also funds available to reduce pollution in low-income and disadvantaged communities. 

The proposals were well received, with Goldman Sachs writing: “The U.S. Inflation Reduction Act (IRA) will spur about $3 trillion investment in renewable energy technology that could double the amount of energy produced by the shale revolution 15 years ago. 

Unfortunately, on his second day in office, Trump ordered “all federal agencies to immediately pause the disbursement of funds under the IRA”. Then, by use of an executive orders, he ceased financial support for the development of EV charging infrastructure and other policies that favour electric vehicles. 

This highlights the right’s strange relationship with the climate crisis, which ranges from outright denial to acknowledging it’s presence but doing nothing about it. 

This, in-part, can be explained by their relationship with “big oil” and the funding they provide. 

‘This highlights the right’s strange relationship with the climate crisis, which ranges from outright denial to acknowledging it’s presence but doing nothing about it’

Renewables are generally cheaper than fossil, however the latter, because of finite reserves are can each be monopolised by a single corporation making them more profitable, especially in times of war or crisis. As many of the uber-rich are invested in them, any attempt at restrict the use of fossil fuels is perceived as class war. 

However, this summers heatwave seems to be changing the media’s perception, with the Daily Telegraph writing: “Nobody can deny that the UK is getting warmer and high temperatures are becoming a clear threat to homes, nature and food security.” 

Ambrose Evans-Pritchard, the Telegraph’s world economy editor, who has long argued that the costs of climate change could not be ignored, accusing Kemi Badenoch, the Conservative leader, of choosing “an abominable political moment to flirt with climate nihilism”, citing her opposition to net zero targets and purge of candidates who back them. “There comes a point when you have to conclude that the Tories have gone Trumpian on the existential issue of our time.” 

Net zero is effectively ground zero; science shows that global carbon emissions must stop if we are to halt climate change. 

Of course, the elephant in the room is how do we pay for this? 

‘Of course, the elephant in the room is how do we pay for this? ‘

Well, there are the debt markets. This isn’t Truss-style unfunded tax cuts for the rich. This creates real change, change that is sustainable both economically and environmentally, and by levelling-up we will begin to see political stability, too. 

However, if there is the need for targeted tax increases, there are some obvious ones… 

There is the long discussed idea of equalising CGT rates to match income tax from 24% to 40% and 45%. It is estimated that this would yield roughly £12-14bn if asset realisation behavior remained unchanged. 

This is a tax that is paid by C.0.65% of adults, with the vast majority of revenue coming from individuals with gains exceeding £1m. 

Another oft mooted proposal is abolishing higher and additional rate pension tax relief and moving to a flat 20% basic rate relief for all UK taxpayers. This could theoretically raise £14 billion to £15 billion in revenue. 

 ‘staying as we are isn’t sustainable’

Currently, HMRC puts the total cost of income tax relief on pensions at £60.4 billion, a significant portion of which benefits higher and additional-rate taxpayers. 

There is a bigger picture: the need to level-up income and to overcome the cost-of-living crisis is growing , both are moving-up the social scales creating a bigger pool of left behind families. 

Dealing with this, and transitioning to  a green economy should be everyone’s priority. 

There are no easy ways of achieving either, but staying as we are isn’t sustainable. 

“Then you better start swimmin’
Or you’ll sink like a stone
For the times they are a-changin’.”  

@coldwarsteve

Philip Gilbert is a city-based corporate financier, and former investment banker.

Philip is a great believer in meritocracy, and in the belief that if you want something enough you can make it happen. These beliefs were formed in his formative years, of the late 1970s and 80s

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