Saturday 28 March 2015

Saturday, March 28, 2015 Posted by Jake 1 comment Labels: , , , , , ,
Posted by Jake on Saturday, March 28, 2015 with 1 comment | Labels: , , , , , ,

Defining who is very rich is not straightforward. Some with vast wealth have little income and live in poverty (for example, low income pensioners living in million pound London houses bought for a song decades ago). 

For this post we consider households with more income than 90% of households in the UK. Perhaps not all "rich", but certainly "richer than most". 

We use the Household Disposable Income data from the Office for National Statistics (ONS). 

These ONS figures for 2013 show the top decile (top 10%) of households had 13.4 times more disposable income than the bottom decile of UK households. 

[Disposable Income = income after receiving state benefits and paying direct taxes (e.g. income tax is taken out, but not VAT which is an indirect tax). Disposable Income is effectively a household's "spending money".]

To see if these 'richer' households are all that different to the rest, have a look at what they do with their money. The Office for National Statistics helpfully provides data on that too.

Overall, the main elements of Household Spending averaged for all UK households are:

With 13.4 times more disposable money, the top decile household spends 10 times more on transport than the bottom decile. Which is perhaps what you would expect. However on food and drink they spend only 3 times more than the bottom decile:

Where the top decile's spending does surge away from the  bottom is holidays (43 times more), medical insurance (26 times), and going to the cinema/theatre (19 times). They also have 27 times more surplus money to save than the bottom decile.

Note that 'household income' increases if there are more people in the household receiving incomes. On average there are 3.2 people in a top decile households (including children), and just 1.3 people in a bottom decile. 
On this basis the household disposable income per person for the top decile is 5.4 times that of the bottom decile.

On a spend per person basis the top decile spends 17 times more on holidays, and 11 times more on medical insurance. 
Perhaps the most important of these figures is the top decile have 11 times more money per person that they are able to save.

The key difference between the richer and the rest is the amount of discretionary money they have. Money they can choose to spend on medical insurance (less need of the NHS), private education (less need for government schools, and less averse to university fees), culture (less need of the BBC), transport (less need of buses and trains), lawyers (less need of legal aid).

In December 2014 Lord Dyson, the Master of the Rolls (third most senior judge in the UK) told Parliament's Justice Committee cuts to Legal Aid were causing miscarriages of justice. Dyson said about people who can't afford a lawyer and try to represent themselves:

"‘Quite often the hearing is indeed shorter than with lawyers,’ he said. ‘That is not because lawyers are there to indulge in spoiling tactics and get into technicalities for the sake of it, but I’m afraid litigants in person are overawed by the experience and just dry up.’" 

Ursula Brennan, the top civil servant at the Ministry of Justice, admitted to Parliament's Public Accounts Committee that government policy has been to cut regardless of the impact on services.  In a testy exchange between Brennan and the Tory MP Stephen Phillips:

Q50 Stephen Phillips: You have in fact simply described the implementation of a desire to remove £300 million from the budget, without any evidence at all of what that might mean.

Ursula Brennan: I can only repeat that it was quite explicit from the start that we would not be able to do research in advance if we were to make the savings to which the Government committed. Therefore, we would conduct the research on the basis of what happened to people, because we were seeking to make a behavioural change, after it happened.

Q51 Stephen Phillips: We all understand that, but would you please stop describing that as evidence-based policy making, because it isn’t, is it?

Ursula Brennan: I was simply saying in terms of the evidence, the most critical piece of evidence that was relevant to the decision that was made was the size of the spend.

Is justice served when a person unable to afford professional legal representation faces another who has the extra cash needed to pay a lawyer? Where the result depends on how much you can pay, that isn't justice.

We must beware of political and business leaders who urge us to sacrifice what is discretionary for the few, but is a lifeline for the many. Whether it is justice, health, education, security, etc. 
For someone on the average UK salary, about £25,000, a 1% increase in income tax would cost £150 a year (£25k - £10k personal allowance in 2014/15 = £15k. £15k x 1% = £150). Individuals buying insurance policies from a commercial provider to cover the cuts in public services will pay more than that.

Virtually all business leaders and many top political leaders come not from the "richer" group referred to in the post above. They are members of the "very rich". F. Scott Fitzgerald, perhaps best known for his novel "The Great Gatsby", wrote:

"Let me tell you about the very rich. They are different from you and me. They possess and enjoy early, and it does something to them, makes them soft where we are hard, and cynical where we are trustful, in a way that, unless you were born rich, it is very difficult to understand. They think, deep in their hearts, that they are better than we are because we had to discover the compensations and refuges of life for ourselves. Even when they enter deep into our world or sink below us, they still think that they are better than we are. They are different."

Take care not to confuse your interests with theirs. Theirs are different.

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