‘I’ve spent years working out how we fix wealth inequality. Here’s what I’ve found’

Since I was born in 1970, the wealth of our nation has grown 100-fold to an incredible £12trn. But here’s the problem. Since the great financial crash, the wealth we create together is no longer fairly shared. In fact, since 2010, the richest 1% have multiplied their wealth 31 times faster than the rest of us. That is not fair. No matter your political leaning.

My new book is the story of what I really discovered at the Treasury and which took me on a 15-year odyssey to try and figure out how we fix what’s really wrong with Britain: the inequality of wealth.

The tale begins, of all places, in the White House, one blue and white Washington morning, when I sat down with my Treasury team to meet the brains behind Joe Biden. Jared Bernstein was running Joe Biden’s middle class taskforce, and he explained to us how America’s economy was going wrong in ways that meant the American middle class had become ‘the squeezed middle’ without a pay rise in years. I returned home and set up a team which uncovered, for the first time, how something similar was starting to happen in Britain.

Ever since, I’ve been on a mission to figure out how we fix the problem, which has gone from bad to worse. Today, we have a situation where super yacht sales are at an all-time high. Rolls Royce has had its best year ever. Private jets sales are soaring. It’s the absurdity of affluence. And it’s a long, long way from what I see on the streets of Birmingham.

This gap is just wrong. But I guess what you learn in politics is that things can always get worse. And wealth inequality is going to get worse unless we do something about it. Nothing is forever – including the baby boomers. And as they leave this earth, we’re going to see the biggest wealth transfer in history. Some are going to inherit fortunes. But others are going to inherit only debts.

This coming revolution in wealth inequality is a recipe for a country that is poor, corrupt and stagnant. It will fuel the kind of economic crime that I’ve spent much of the last five years fighting in parliament. But if we want a strategic solution to the problem, we’re going to need to revive an old idea which used to be popular on both left and right in British politics; the wealth-owning democracy. And my book explains how we rebuild it.

It explains what happens next after that fateful meeting in the White House. It’s a journey that’s taken me from the underpasses of inner-city Birmingham to Rolls Royce factories. I’ve spoken to experts around the world, from the IMF to the World Bank.

In the course of that journey, I’ve come to see how lots of the economics I was taught at school and indeed the Harvard Business School was wrong. We haven’t had a new John Maynard Keynes in the last decade to explain what’s going on, but from a constellation of thinkers we’ve seen emerge what you might call ‘reality economics’, which explains how privilege, technopolies and bubbles that boom and bust drive wealth to some and not others. And this is not easy to change.

But change we must. And what’s needed in politics right now is not ever-more elegant descriptions of the problem. We have libraries of that. What we now need are answers. And not simply answers that people will ‘like’ on social media. But ideas that people will vote for at the ballot box. Workable, realistic ideas that will tackle inequality of wealth.

Here are mine:

1. We must raise earnings, and to do that, we must raise the rate of UK growth. I suggest a framework for building ‘creatives states’ – a modern supply-side strategy for the UK delivered through radical devolution of economic power to English regions to build the institutions that best match their regional economies.
2. A ‘Big Bang 2’ for the City of London would help raise earnings, end the curse of short-termism and turn pension savings into long-term finance for a pro-business, pro-worker economy with an investment framework that clarifies ‘good work’ firms – rewriting the rules for the way our economy works.
3. Universal basic capital. Once we raise the level of earnings, we then need reform of our social security system to help raise the levels of savings with a new universal savings accounts based on the National Endowment & Savings Trust’s ‘sidecar’ savings account which has just completed a hugely successful pilot.
4. Sovereign wealth funds. To ensure that everyone has access to the benefit of superior returns on investment, I propose the creation of a UK sovereign wealth fund, grown over the years to around £180bn and from which dividends of around £10,000 are paid to every young person, to help provide a deposit for a home – in the form of a matched savings bonus/and tax break.
5. Restoring fairness to the tax system. The UK’s tax system is profoundly unfair. Speculating on tax reform is very difficult to conduct outside government, but there are several ideas worthy of consideration which have been advanced by, amongst others, the UK’s Wealth Tax Commission. Amongst the public, a clampdown on tax avoidance is the most popular measure.

What is at stake in this debate is nothing less than the nature of freedom in the 21st century. While we enshrine freedom, security and power with rights, and sustain them with law, we underwrite them with wealth. And so, if we want to build a new democracy of freedom, we have to rebuild a new democracy of wealth.

Liam Byrne’s book, The Inequality of Wealth: Why it Matters and How to Fix It, was published earlier this month by Head of Zeus.

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