From the archive: What is the ‘economic reality’?

Stephen Crossley /   April 24, 2013 at 8:34 PM 20,858 views

reality-checkAn interesting blog post from Shaun Rafferty at JRF last week suggested, in the byline to the post, that ‘Economic reality means the Living Wage can’t be compulsory’ and then went on to argue that lobbying to make the Living Wage compulsory was ‘self-defeating’ because ‘It’s an economic reality that in the current operating environment there are many employers who genuinely couldn’t afford to pay their staff the Living Wage.’

This got me thinking about what the economic ‘reality’ is and I guess my reality is slightly different from Shaun’s (more post-modernism later). My view of the economic situation is that many people in this country ‘have never had it so good’, so to speak, but that this affluence sits quite uncomfortably alongside poverty. There are huge inequalities in wealth, but still lots of wealth in the UK as the figures below help to demonstrate.

The ONS suggested last year that household wealth in the UK had hit £10.3 trillion in 2008/10. The ONS website states that:

Mean household total wealth grew from £373,000 in 2006/08 to £418,000 in 2008/10; the region with the highest mean value in 2008/10 was the South East at £562,000; the lowest was the North East where mean household total wealth was £322,000

Ruth Levitas used the table recently to highlight how the top 10% of earners received 10% more of total net income in 2009/10 than they did in 1979 whereas the bottom 10% saw their proportion drop from 4% of total net income down to 1% over the same period. So, the put it quite bluntly, the rich have got richer and the poor have got poorer over the last 30 years.


More recently, the Sunday Time published its Rich List for this year which showed that ‘The wealth of the richest 1,000 has reached a record high – £450bn. The increase in wealth is significant, with 11 new billionaires being added to the list between 2012 and 2013.’

However, not all employers are in the top 10% of earners and Shaun’s point was about the operating environment, but last year it was reported in The Telegraph that business investment in the UK was slow ‘despite a corporate cash pile now worth more than £754bn’. The figure, taken from an Ernst & Young ITEM Club report, equates to 50% of gross domestic product and the report was expected to say that say that ‘while businesses are in a strong position, British households remain under intense pressure.’ (my emphasis)

And, of course, there is the issue of tax avoidance and evasion. HMRC conservatively estimate the tax gap as around £32 billion. Richard Murphy at Tax Justice UK has estimated it at potentially in excess of £120 billion. Put simply, if everyone paid the tax they were supposed and paid it on time, there would be more than enough for poverty to be eradicated in the UK and, if distributed differently, there is more than enough money to ensure that all employers could afford to pay the Living Wage to their staff.

There is almost blanket acceptance of the ‘need’ for austerity and the tough ‘operating environment’ that this creates, not least in social policy areas such as poverty and low-pay, where policy solutions have to ‘fiscally credible’. However, the figures above – from diverse sources – suggest that the economic reality might not be all it seems. Indeed, if we were to get all post-modern about it (and I said I would return to this) we might begin to think that the ‘economic reality’ was in fact a ‘hyperreality’ – a simulation or representation of reality that is difficult to distinguish from reality.

Courtesy of Stephen Crossley at the North East Child Poverty Commission

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