It may be noted in passing that essentially the same process, in which participation in an activity changes its form, occurs in tourism … The fact that some tourists are not in search of something different does not remove the anomaly. For if the increased activity of tourists at large deprives only one of their […]

In The Inequality of Wealth: Why it Matters and How to Fix it, Liam Byrne examines the UK’s deep-seated inequality which has channelled wealth away from ordinary people (disproportionately youth and minority groups) and into the hands of the super-rich. While the solutions Byrne presents – from boosting wages to implementing an annual wealth tax – are not new, the book synthesises them into a coherent strategy for tackling this critical problem, writes Vamika Goel.

Liam Byrne launched the book at an LSE event in February 2024: watch it back on YouTube.

The Inequality of Wealth: Why it Matters and How to Fix it. Liam Byrne. Bloomsbury. 2024.

Wealth inequality, a pressing issue of our times, reinforces all other forms of inequality, from social and political to ecological inequality. In The Inequality of Wealth, Liam Byrne recognises this fact and emphasises the need to move away from a narrow focus on addressing income inequality. He reaffirms the need to deal with wealth inequality and address the issue of inequality holistically.

The book adopts a multi-pronged approach to addressing wealth inequality in the UK. It is divided into three parts. The first part discusses the extent of wealth inequality and how it affects democracy and damages meritocracy. The second part discusses the emergence of neoliberalism which has promoted unequal distribution of resources, while the third part proposes corrective measures to reverse wealth inequality.

According to Forbes, the world’s billionaires have doubled from 1001 to 2640 during 2010 and 2022, adding around £7.1 trillion to their combined wealth.

The first chapter reflects on the exorbitant surge in wealth globally during the past decade, primarily enjoyed by the world’s super-rich. According to Forbes, the world’s billionaires have doubled from 1001 to 2640 during 2010 and 2022, adding around £7.1 trillion to their combined wealth. In the UK, wealth disparity has risen, with the top 10 per cent holding about half of the wealth while the bottom 50 per cent held only 5 per cent in Great Britain in 2018-20, as per the Wealth and Assets Survey. Byrne claims that this inequality has only been exacerbated in recent years. Despite adverse negative shocks like the COVID-19 pandemic, austerity, and Brexit, about £87 billion has been added to UK billionaire’s wealth during 2021 and 2023.

The book highlights that youth have borne the brunt of this widening wealth disparity. According to data from Office of National Statistics (ONS), those aged between twenty and forty, hold only eight per cent of Britain’s total wealth. In contrast, people aged between fifty-five and seventy-five owned over half of Britain’s total wealth in 2018-20. Their prospects of wealth accumulation have further declined with a squeeze in wages and booming asset prices as a result of quantitative easing. Byrne contends that this has made Britain an “inheritocracy” wherein a person’s parental wealth, social connections and the ability to access good education are more important determinants of wealth than hard work and talent.

Those aged between twenty and forty, hold only eight per cent of Britain’s total wealth.

The second part of the book explores the spread of the idea of neoliberalism since the 1980s, that helped sustain and flourish wealth inequality. Neoliberalism promoted the idea of market supremacism and reduced the role of the state. The later chapters in this section engage in depth with rent-seeking behaviour by corporates and the increase in market concentration via mergers and acquisitions.

The third part of the book proposes corrective measures needed to reverse wealth inequality. The book contends that the starting point of arresting wealth disparity is to boost labour incomes by creating well-paying, knowledge-intensive jobs. Byrne does not elucidate as to what he means by these knowledge-intensive jobs. Usually, knowledge-intensive jobs are those in financial services, high-tech manufacturing, health, telecommunications, and education. Byrne argues that earnings in knowledge-intensive jobs are about 30 per cent higher than average pay. However, these jobs accounted for only about a fifth of all jobs and a quarter of economic output in 2021. Hence, promoting such jobs will significantly raise workers’ earnings.

The author maintains that knowledge-intensive jobs can be generated by giving impetus to state-backed research and development (R&D) spending and innovation. He draws attention to low growth in R&D spending in UK at per cent between 2000 and 2020, when global R&D spending has more than tripled to £1.9 trillion. However, there are some fundamental concerns regarding the effectiveness of such reforms in curbing inequality and ensuring social mobility.

People of Black African ethnicity are disproportionately employed in caring, leisure and other service-based occupations. They also hold about eight times less wealth than their white counterparts.

First, knowledge-intensive jobs are highly capital-intensive and high R&D spending may not generate enough jobs or may make some existing jobs redundant. The author has not substantiated his claim with any empirical evidence. Second, it’s possible that innovation spending and jobs perpetuate the existing social and regional inequalities. In the UK, about half of all knowledge-intensive jobs are generated in just two regions: London and the South East. To address regional disparities, Byrne suggests setting up regional banks, training skills and integration at the regional level, and promoting Research and Development (R&D) in small and medium enterprises (SMEs) via tax credits and innovation vouchers. However, no mechanism is laid out with which to tackle social inequality. People of Black African ethnicity are disproportionately employed in caring, leisure and other service-based occupations. They also hold about eight times less wealth than their white counterparts. It seems likely that new knowledge-intensive jobs would disproportionately benefit people of white ethnicity from wealthy backgrounds with connections and access to good education.

Another measure specified to boost labour incomes is to shift towards a system that adequately rewards workers for their services, that is, a system of “civic capitalism”, as coined by Colin Hay. Byrne alleges that one step to ensure this is to create an in-built mechanism that ensures workers’ savings are channelled into companies that adopt sustainable and labour-friendly practices. One of the ways to achieve this is to require the National Employment Savings Trust (NEST) sets up guidelines and benchmarks for social and environmental goals for the companies in which it invests. In this way, Byrne has adopted an indirect approach to workers’ welfare, as opposed to a direct approach through promoting trade unionisation among workers, which in the UK has fallen from 32.4 per cent in 1995 to 22.3 per cent in 2022 . This would enhance workers’ bargaining power to increase their wages and secure better benefits and security.

Apart from boosting workers’ wages, Byrne underscores the need to create wealth for all, ie, a wealth-owning democracy. Inspired by Michael Sherraden’s idea of “asset-based welfare” and Individual Development Accounts, Byrne proposes to create a Universal Savings Account that enables every individual to accumulate both pension and human capital. He advocates that a Universal Savings Account can be created by merging Auto-enrolment pension accounts, Lifetime Individual Savings Accounts (LISAs) and the Help to Save scheme. Re-iterating the proposals from the pioneering studies by the Institute of Fiscal Studies and the Resolution Foundation, Byrne proposes to expand the coverage of the auto-enrolment pension scheme to low-income earners, the self-employed and youth aged between 16 and 18, to increase savings rates and to reduce withdrawal limits from the pension fund.

In the last chapter, Byrne emphasises the enlargement of net household wealth relative to GDP from 435 per cent in 2000 to about 700 per cent by 2017, without any commensurate change in wealth-related taxes to GDP share. This has created a problem of unequal taxation across income groups, which, he states, must be rectified. To do this, he endorses Arun Advani, Alex Cobham and James Meade’s proposals of introducing an annual wealth tax.

Byrne attempts to encapsulate an existing range of ideas for reform pertaining to diverse domains like state-backed institutions, corporate law restructuring, social security and tax reforms.

Overall, the book presents a coherent strategy to reverse wealth disparity and build a wealth-owning democracy through a guiding principle of delivering social justice and promoting equality. The remedies for reversing wealth inequality offered in the book are not new; rather, Byrne attempts to encapsulate an existing range of ideas for reform pertaining to diverse domains like state-backed institutions, corporate law restructuring, social security and tax reforms. The pathway for the acceptance and adoption of all these reforms is no mean feat; it would entail a shift from a narrow focus on profit-maximisation towards holistic attempts to adequately reward workers for their services and improve their wellbeing.

Note: This post gives the views of the author, and not the position of the LSE Review of Books blog, or of the London School of Economics and Political Science.

Image credit: Cagkan Sayin on Shutterstock.

The ICAEW published its accounts for the year ended 31 December 2023, yesterday. As readers of this blog might recall, I have taken that Institute, of which I was a member until very recently, to task over its failure to spend the sum exceeding £140 million by which it has been enriched since 2015 as a result of fines paid by its members as a consequence of their failure (in the main) to undertake proper audits. I did, as a result, undertake an initial scrutiny of these accounts with particular interest.

Disappointingly, the ICAEW has still completely failed to address the issue of what it is going to do with this bizarrely sourced income from which I think it should never have benefited.

Admittedly, the net benefit from fines and other costs recovered during the year did fall significantly to only just over £1 million. However, investment income on the sums that it holds on its balance sheet as a consequence of that income having been enjoyed by it exceeded £10 million in the year. In that case, the ICAEW’s failure to spend the sums it has been enriched by in the public interest, as it is required to do by its Royal Charter, continues.

That said, and interestingly, the ICAEW no longer refers to the fact that it has a strategic reserve as a consequence of this issue. It does, however, have a strategy, which it lists under five separate headings, which are as follows:

1. Strengthen trust In ICAEW Chartered Accountants and the wider profession
2. Help to achieve the Sustainable Development Goals (SDGs)
3. Support the transformation of trade and the economy
4. Master technology and data
5. Strengthen the profession by attracting talent and building diversity

 Note that the above list uses their own words, not my summary of them.

To be candid, if I were an officer of the Institute, I would be profoundly embarrassed by this list. Reading the PR hype in the annual report on what they mean, and then debunking it, they can be summarised in plain English as follows, using the same order:

1. We’ll try to stop our members from messing up so badly by supposedly reforming audit and corporate governance in the UK, neither of which are within the ICAEW’s remit to change.
2. We’ll try to work out what accounting for climate change might mean.
3. We’ll lobby for reform of the public finances, mainly by asking for tax cuts.
4. We will really try to get our heads around accounting, which we’ve supposedly been looking at for well over a century, but which we now refer to as data processed by technology.
5. We will try to be less of an establishment club than has been apparent to date.

The first of these is profoundly undermined by the ICAEW's own failure of corporate governance with regard to the funds it has been unjustly enriched by, about which it can apparently as yet make no decisions, even though the matter has been ongoing for nine years now.

However, of them all, the fourth is, perhaps, the most bizarre. For the ICAEW to now admit that they think the time has come for them to get their heads around the processing of data with technology is quite extraordinary. The real world has been doing this for many decades, and maybe rather longer. So where have the ICAEW been during all that time if it has only now noticed that this is an issue requiring attention?

Even more importantly, in this context, why do they think that this requires an investment of funds arising from outside the normal scope of their operations when dealing with this issue would seem to be an entirely normal matter for them to address? No clue about this is given in the financial statements.

That said, the Institute does say in those financial statements that it is reviewing its reserve policy, which is a fact hidden in some pretty small print where it is noted that:

The ICAEW Board has issued direction on the principles to be adopted and applied in respect of how ICAEW’s reserves are used in the public interest and to support the strategy. In September 2023, the Board considered a set of possible strategic level investments (including a major review to future-proof the ACA, the Centre for Public Interest Audit, the Centre for Sustainability Management, a review of the role of the profession in AI governance and a modernisation of the Royal Charter) and approved these proposals for further development and discussion at Board.

In other words, they think that they might undertake some PR to improve accountants' damaged reputations, and they will also invest some funds into a couple of minor research centres, which expenses will still be insignificant in the overall scheme of things, suggesting that this exercise is another one intended by the ICAEW to entirely miss the point.

In slightly larger print elsewhere in the accounts, they refer to their current reserve policy, which they state to be:

Set at a level sufficient to cover both short-term requirements and longer-term investment needs:

• reserves should be set at a level equivalent to at least six months of expenditure through the income statement; and
• cash and investment balances should be sufficient to cover at least six months of annual budgeted/forecast gross cash expenditure.

In a slightly embarrassed tone, they add:

Reserves are in excess of the minimum required level under the policy at the end of the year.

Try as I might, I can think of no reason why the ICAEW needs reserves to cover six months of operating costs. The sum in question would be about £60 million. Of this sum, I note that in addition to their accumulated reserves on their balance sheet of £146 million, they were also holding at 31 December 2023 almost £44 million of income received in advance, which sum is in itself almost enough to meet this reserve requirement. The need for additional funds to be retained over and above that £44 million is almost impossible to work out given the solid and entirely stable nature of the ICAEW's income stream, in contrast to the situation of leading charities where this rule of thumb is commonplace.

As a result, the ICAEW has given absolutely no indication as yet on how these funds by which they have been enriched as a consequence of the failure of their own membership to undertake the professional activities that the ICAEW licensed them to undertake to a proper professional standard might be spent for public benefit, as is required by their Royal Charter.

As readers here might recall, I suggested last year that some of this money might be spent to enhance the undergraduate accounting syllabus in UK universities. At present, this is seriously constrained by the ICAEW exam requirements, meaning that students do not enjoy the experience that they should when studying this subject. The ICAEW declined to fund this idea in any meaningful way.

They also rejected my suggestion that they might invest £100 million of these funds in a financial education programme to be run in the UK's schools, even though the need for this is overwhelming, as the FT reported only yesterday. Their claim was that this matter was already being addressed by others, which it clearly is not.

So, what are they going to do with this money so that the public might properly benefit from the fines paid by chartered accountants who failed in their duty to act in the public interest? I hear a rumour that they have appointed someone to look into this matter, who is consulting widely - although not with anyone I know, let alone me. But in the meantime, it seems likely that they are simply going to sit on this money for as long as possible, making an already rich Institute even richer.

Meanwhile, if their aim is really to 'strengthen the profession by attracting talent and building diversity', what is glaringly apparent is that their actions do not align with their words. I am not interested in what they say. I am interested in what they do. Their inaction speaks volumes about their failure to commit to good corporate governance standards, transparent accounting, the promotion of a better understanding of accounting in society and to broader inclusion.

Hypocrisy on this scale is staggering to witness and is happening right now at One Moorgate Place, the ICAEW HQ.

I was intrigued by a comment made by a person posting on this blog yesterday who claimed to be named Colin. His claim was that he was not wealthy but he would, nonetheless, reduce his work effort if his tax rate was increased as a consequence of tax relief on his pension contributions being reduced.

Colin did, inadvertently, provide an obvious definition of the divide between having sufficient income to live on, and having that level of income which supports the accumulation of wealth.

If those with sufficient, or less, income suffer a reduction in their take-home pay then their obvious reaction is to increase their work effort to recover the sum lost, or their absolute standard of living will decline, potentially at very real actual cost to the wellbeing of themselves and their families.

In contrast, a person with sufficient income to sustain their wealth can respond to a reduction in their income if it is, for example, caused by an increase in their tax rate by then voluntarily reducing their work effort, creating a further potential reduction in their wellbeing over and above that already created by the tax increase. In other words, they can afford to choose to reduce their financial well-being without actually prejudicing the ability of themselves or their family to meet their needs. As a consequence, it follows that they must have income in excess of that required to meet need. That provides a clear indication that they have income that supports their increase in wealth, and not their current requirements.

Of course the point at which this occurs will vary between people, but the fact that this divide so obviously exists and that those who have income that supports wealth are unaware of the fact, is in itself interesting, and a potential basis for policy creation.