Workers' Daily Internet Edition: Article Index :

The Widening Gap between Rich and Poor

What the Objective Conditions are Pointing Towards

“Liar Loans” Drive Hundreds of Thousands into Debt

The very rich have grown richer at double the pace of those on middle incomes under New Labour, according to research from the Institute for Fiscal Studies (IFS). The report also shows that their wealth may have accelerated further in recent years on the back of a rising stock market.

            Using the most detailed analysis of tax return records to date, the IFS showed that, in every 1,000 adults, the income of the very richest person rose on average by 4 per cent above inflation every year between 1996-97 and 2004-05. That compared with growth of about 2 per cent for those on middle incomes. To join the ranks of the top 0.1 per cent of earners, a high-flyer needs to earn a little more than £350,000 in today’s prices, according to the IFS’s analysis of anonymous tax return data. Rarely has there been such a concentration of wealth among so few people. The IFS itself says that "income inequality is currently at its highest levels since the late 1940s". The report studied income alone, which understates the gap between the rich and the rest, as the assets of the rich contribute to widening the gap between rich and poor.

            This inequality affects every aspect of life. The notion that the government is working to bring about a “level playing field” is given the lie by the reality of the society and the experience of the working class and people regarding their own conditions of life. In fact, the economic system itself is ensuring that the claim of the rich on the entire social product is taking priority and is escalating, especially through straightforward parasitism domestically and internationally. This means to live through taking the lifeblood out of the social economy, and is reaching such proportions that all the illnesses of severe and widespread destitution, unemployment, crises and chronic insecurity threaten the economic well-being.

            This is because the economic system and socialised economy is run in every aspect to further the enrichment of a few. And this few hold the supreme power, backed by an absolutist parliamentary system. This in itself gives the guideline to the way forward, to the way out of these wildly recurring crises that the government claims are nothing but blips in a “sound” economy, blips that the government is allegedly powerless to do anything about. It is to deprive these few of their supreme power. How to achieve this, is the burning issue – how to create the conditions to prepare for this decisive act of a working class conscious of itself as a class and organising that it should constitute itself as the dominant power. The way forward is for the workers to participate in building an opposition to every manifestation of the injustices of this rule of the elite, it is for the workers to become political, which means fighting for their own interests and for a self-reliant non-parasitic economy under their own control and direction. This is summed up in their political programme, of increasing investments in social programmes, and demanding an end to all “reforms” aimed at paying the rich. Otherwise the rich will go on getting richer and the social economy will be destroyed.

            It is imperative that the workers develop the outlook of taking hold of what belongs to them, and that in a situation where the monopolies use the power of the state to enforce their interests at the expense of the public well-being and to swell the ranks of the oppressed, the workers themselves organise for political power. The rich, the few, have usurped power by force. The working class, at the head of all the oppressed, have to ensure that this grossest of all injustices, which is also wreaking havoc and war on the nations and peoples of the world, must be ended.

It is common knowledge that today in Britain social programmes are under-funded and are under threat through break-up or privatisation. The objective conditions are pointing towards the necessity for change.

 

Income

            The most commonly used threshold of low income is a household income that is 60% or less of the average (median) household income in that year. In 2005/06, almost 13 million people in the UK were living in households below this low-income threshold.   This is around a fifth (22%) of the population. This 13 million figure is an increase of ¾ million compared with the previous year, 2004/05. The number of people in work in the latest quarter of 2007 was 29.3 million. This shows the extent of the problem as a proportion of the working class and the rate is increasing. The number of people on low incomes is much greater than in the early 1980s. The UK has a higher proportion of its population in relative low income than most other EU countries. The proportion of people living in relative low income in the UK is twice that of the Netherlands, and one-and-half times that of both France and Germany.

            In 2007, around 5 million employees aged 22 to retirement were paid less than £7 per hour.  Two-thirds were women and one-third were men.

            In term of proportions, 28% of female employees and 14% of male employees – were paid less than £7 per hour.   Similar differences between men and women exist if a slightly higher or lower low pay threshold is used; so, for example, 22% of the female employees and 10% of the male employees were paid less than £6.50 per hour. It shows that “equality” is a sham. Half of those who paid less than £7 an hour in 2007 were full-time employees and half were part-time employees. Very low pay shows that exploitation is across the board. Among the low paid full-timers, there were as many low paid men as low paid women.  By contrast, among the low paid part-timers, women predominate.   So, the immediate reason why there are so many more low paid women than low paid men is that there are so many more low paid part-time female workers than there are low-paid part-time male workers.

            At all ages, at least a third of part-time employees were paid less than £7 per hour in 2007.  Except for the 18-21 age group, the proportion of full-time employees paid less than £7 per hour is much lower than this.  The extent to which low-paid part-time work is common at every age can be seen in the observation that that there are almost as many low-paid part-time employees aged over 50 as there are under 30.

            Combining part- and full-timers, low paid work is not something that is concentrated among particular age groups but is; instead, that affects a significant proportion of workers at every age.  Thus, around one fifth of low paid workers are aged 18 to 21, a further fifth are aged under 30, almost a fifth are in their 30s, a fifth are in their 40s and the remaining fifth are aged 50 or above. Again, this trend shows the depth of the problem across the board.

            In total, almost half of all part-time workers were paid less than £7 per hour in 2007.  In two areas of occupation – so-called “elementary” (routine), and sales and customer service – four-fifths were paid less than £7 per hour.  In many areas of occupation, more than a third of full-time women were paid less than £7 per hour in 2007.  In all occupations, the proportion of men paid less than £7 per hour was lower than that for women.  So, gender pay inequalities are not just because women work in more lowly occupations.   However, in two occupations – elementary, and sales and customer service – a substantial proportion of full-time men (around two-fifths) were paid less £7 per hour in 2007.

Educational effect on low pay and employment

            Labour Force Survey data suggests that around one in four 19-year-olds still lack NVQ2 or its academic equivalent (e.g. five or more good GCSEs) and one in twelve have no qualifications at all.

             If people have not reached NVQ2 or equivalent by age 19, they are unlikely to have gone on to do so in the next few years.  Taking those born in 1985 as an example: the Department for Children, Schools and Families administrative data suggests that 34% of them lacked at least an NVQ2 or equivalent at age 19, while 29% of them still did so at age 21.

             The proportion of 19- to 24-year-olds without a basic qualification is similar throughout the UK, with the exception of Scotland (where it is lower).

The proportion of young adults in the UK without basic qualifications is similar to the European Union average. The lower a person's qualifications, the more likely they are to be unemployed and the more likely they are to be in low paid work.

Effects of disability

            Around 5 million people are in receipt of an out-of-work benefit.   Of these, almost 3 million are sick or disabled, a million are unemployed and three quarters of a million are lone parents. Less people are allowed to claim at all. We have seen the government’s actions to deplete the numbers claiming incapacity and disability allowances and the plan to eradicate incapacity benefit.

 

Unemployment

            There is much disinformation on unemployment and its true figure. The figures are manipulated and do not indicate the amount of people who do not sign on. The unemployment rate was 5.3 per cent. The number of unemployed people reached 1.65 million. (Source ONS)

            Around one in ten “economically active” 19- to 24-year-olds is unemployed.  This is around 400,000 people. The unemployment rate for 19- to 24-year-olds fell by a third in the five years to 2001, from 14% to 9½%.  It then stabilised until 2004, but then rose to 11½% in 2006. The unemployment rate for 19- to 24-year-olds is now three times the rate for older workers.  By contrast, a decade ago, it was “just” twice the rate for older workers.

            The unemployment rate is somewhat higher for young men than for young women: 12% compared with 9%.  This contrasts with the situation for those aged 25 to retirement, where the unemployment rates for men and women are similar. At 15%, unemployment rates for 19- to 24-year-olds in London are almost double the rates in the rest of the South of England.

            One in seven adults aged 25 to retirement from national minorities is not working but wants to.

            The British economy has become more parasitical with the export of capital and the depletion of the manufacturing base. The economy has shifted towards service industry, finance and finally military.

            The number of jobs in manufacturing, construction and other production industries has been falling.  Over the last decade, the number of jobs in manufacturing, construction and other production industries has fallen from by a million, from 7.1 to 6.1 million. A third of full-time male jobs are in manufacturing, construction and other production industries, compared to one in ten full-time female jobs and one in twenty part-time jobs.

            All parts of Britain, apart from London, have lost substantial numbers of jobs in manufacturing, construction and other production industries since 1997.

           

Birth weight

            The effects of poor working conditions on families can be seen in birth weights, a measure of increased impoverishment on the population. Malnutrition, disease and living conditions, and lack of fresh air and green access are all factors reminiscent of the Victorian existence.

              Over the last decade, there has been an increase in the proportion of babies in England and Wales who are of low birth weight. Babies from manual backgrounds are more likely to have a low birth weight than those from non-manual backgrounds: 8½% compared to 6½%. Babies of lone parents are more likely to be of low birth weight than babies of couples are: 10% compared to 7%.

            All of these differences have persisted for at least the last decade. The proportion of babies who are of low birth weight is similar in all regions. 1.5 million households in England were classified as being in fuel poverty in 2005, somewhat higher than in 2004 (1.2 million) this shows that the problem is endemic and affects the whole country.

 

Fuel Poverty

            Despite the fact that fuel poverty is increasing, the privatised utility companies have decided to increase fuel bills. Apart from winter dangers of hypothermia, many people have to switch off heating and are creating a serious health problem and risk to life.

            Fuel poverty is most common among those who live in private rented accommodation: 9% of households in private rented accommodation compared to 6% in other tenures.

            Despite their much lower average incomes, those in social rented accommodation are no more likely to be in fuel poverty than owner-occupiers are.       

            Most households in fuel poverty have low incomes (80% of those in fuel poverty are in the poorest fifth of households).  In broad terms, households are only at a high risk of fuel poverty if they have both low incomes and very energy inefficient homes.

            Within England, fuel poverty is most prevalent in the North East.

 

Overcrowding

            Overall 4½% of people and 2% of households live in overcrowded conditions, both similar proportions to a decade ago. The proportion of people living in overcrowded conditions has been rising since 1998, from 3½% to 5%. Overcrowding is four times as prevalent in social rented housing as in owner occupation: 12% of people compared with 3%.

            London and Scotland have a much higher proportion of overcrowded households than any other region: from the 2001 Census, 17% of households in London and 12% in Scotland have an occupancy rating of -1 or less compared to around 6% in other regions.

            Of the 1.5 million adults living in overcrowded conditions, a third (500,000 adults) neither own nor rent the property they are living in and are in effect therefore living in someone else's home (usually their parents').   Almost half of these are aged 25 or over.

 

Mortgage arrears

            With the “sub-prime” mortgage crisis in America and the Northern Rock crisis, the problem of a policy of lower mortgage agreements to first time buyers has also been highlighted. There are no council houses being built since the sell off of council property in the 1980s and this has remained the case. The government’s affordable housing programme is farcical.

            Around 14,000 mortgage holders were in serious arrears in 2006, slightly higher than two years earlier. Court orders for re-possession have trebled since 2003 and, at 47,000 in 2006, are now back to the levels of the early 1990s.

            Mortgage owners are a far more diverse group than they once were.   14% of working-age heads of households with a mortgage are now in an economically vulnerable position – in part-time work, unemployed or economically inactive.   This compares with 5% twenty-five years ago.

            Non-take-up of housing benefit has increased sharply since 1997, among both pensioners and those of working-age.  For pensioners, the government's mid-point estimate is that 14% of eligible households did not claim the benefit in 2005/06 compared to 9% in 1997/98.  For working-age households, the government's mid-point estimate is that 15% of eligible households did not claim the benefit in 2005/06 compared to 4% in 1997/98. This reflects the inability to claim because of restriction.

              A sixth of all households in rented accommodation are living in income poverty but are not in receipt of housing benefit (and thus have to pay full rent).

            There was a major deterioration in the administration of housing benefit in 1999/00 and 2000/01.  The proportion of new claims not dealt with within 14 days (from the receipt of all the required information) had already risen from 18% in 1995/96 to 23% in 1998/99, but it then shot up to 37% in the following two years.

            This deterioration in performance followed the introduction of the “verification framework” designed to reduce levels of “fraudulent claims”.

 

Homelessness

            110,000 households in England were officially recognised as newly homeless by their local authorities in 2006. Homelessness rose again from 2000 to 2003. Although most prevalent in London, homelessness is to be found throughout the country.

            By far the biggest reason for becoming homeless is loss of accommodation provided by relatives or friends (two-fifths of those deemed “in priority need”), with a further fifth each being due to relationship breakdown or loss of tenancy.  Mortgage and rent arrears account for one in twenty.

            A fifth of those accepted as homeless and in priority need by English local authorities are from national minorities.  This means that national minority households are more than twice as likely to become homeless.

            Many of those who are effectively homeless live in concealed households – households that neither own nor rent the property that they are living in. The number of homeless households in temporary accommodation can be seen as a measure of the capacity of local authorities to meet the needs of those homeless households whom they have a duty to accommodate.   In the first quarter of 2007, there were around 100,000 homeless households in temporary accommodation in Britain.  This is double the numbers of a decade ago.

            A quarter of households leaving temporary accommodation in 2006 had stayed there for a year or more, while one in seven had been there for two years or more.  It is a moot point whether stays of such a long duration can properly be described as “temporary”, or indeed whether “temporary accommodation” is appropriate for such long stays.

 

            All of the factors, which motivate people for change, low income, poor education, unemployment, concern for disability, birth weight, fuel poverty, overcrowding, mortgage arrears, homelessness and other factors not mentioned above such as medical treatment and care for the elderly are increasing. They show the reality of life today in Britain. They show the failure of the capitalist system to provide a humane existence for all members of society. Under this system, the motive of maximising capitalist profit and individual enrichment is in command, not the well-being of society and its members. However, the factors also show the need for organising society in the image of the working class based on modern definitions. Internationally also, a pro-worker, pro-social society will also eschew the use of war, conflict and domination and will act to the benefit of all nations and peoples.

            This is what the objective conditions are pointing towards, a revolutionary transformation of society and the negation of all the retrogression and blocking the path to progress that this old society represents. In this transformation, it is the working class who must become the leaders of society. Under these circumstances the working class has to become conscious of its mission to capture political power and save the day for the people.

(sources: The New Policy Institute 2007 survey; ONS)

By Keith Lee, January 22, 2008, WSWS

A recent report from the Citizens Advice Bureau (CAB) has revealed that hundreds of thousands of people are being driven into debt, end up in court and face the loss of their homes because of irresponsible lending practices, bad advice and downright fraud. For people who have longed to buy their own home their dream has turned into a nightmare.

            The report Set Up To Fail: CAB Clients experience of Mortgage and Secured Loan Arrears Problems (December 2007) says mortgage brokers are providing loans – called appropriately “liar loans” or self certification loans – to people with poor credit records and “little or no financial acumen” without them having to provide proof of their incomes. Most people interviewed in the report said they relied on the broker for advice and guidance but many had not even been told the serious consequences of falling behind with repayments.

            The report is also highly critical of the regulatory authorities and the Labour government, saying there are not enough safety nets to protect vulnerable borrowers.

            CAB Chief Executive David Harker said, “The cavalier behaviour of some brokers and sub-prime lenders is seriously undermining home ownership and hitting the most vulnerable borrowers hardest. Our research suggests that many aspiring homeowners have been mis-sold unsuitable and costly home loans that are doomed to fail from the start. Many sub-prime lenders are flouting the rules on responsible lending by granting loans when it’s clear the borrower will not be able to afford to repay it from the very outset, then getting tough immediately things go wrong. Far from providing housing security and a valuable asset, home ownership has proved a fast track to debt and homelessness for many vulnerable borrowers on low incomes.”

            According to the CAB report, which was based on 1,200 case studies from 360 advice centres across the UK, the organisation was involved in over 57,000 cases of mortgage and secured loan arrears last year (2006-07), an 11 percent increase on the previous year. Research suggested as many as 770,000 people had missed at least one mortgage or secured loan payment in the previous 12 months.

            The report shows how the majority of people coming into CAB offices seeking mortgage advice have been rejected by the High Street banks and mortgage lenders and are forced to take loans from sub-prime lenders at much higher rates of interest. It reveals that “more than a third had household incomes below the poverty line, one in five was reliant on means tested benefits, and nearly 70 percent had outstanding unsecured debts averaging £22,000.”

            More and more of people’s income is taken up with mortgage repayments of one kind or another. For a third of all clients interviewed in the CAB report, their combined mortgage and secured loans payments were over half their income; for 12 percent of interviewees their repayments were an unbelievable 70 percent of their income.

            One case study in the report involved a 47-year-old local authority tenant living in Yorkshire who exercised the right to buy the property where he was living. A broker persuaded him to say that he was self-employed on the mortgage application form even though he was in receipt of incapacity benefit and disability allowance because of the severe mental health problems he suffered. Some months after completion of the sale the mortgage interest rate increased. Because he was unable to keep up repayments the lender took court action for possession of his house, leaving him facing homelessness and still in debt.

            There has been a massive increase in the number of house repossessions recently, with some economists saying levels are now close to those seen when house prices slumped in the 1990s. The Council of Mortgage Lenders reports that repossessions rose by 75 percent last year to reach 30,000 and suggests this figure could reach 45,000 in 2008.

            The CAB has also investigated the number of repossession cases listed in 23 county courts in January 2007 and found that sub-prime lenders were responsible for a huge number of them – “in some cases the equivalent of ten times more than mainstream lenders.” It points out that although many borrowers do not turn up to court thinking that they will automatically lose, the behaviour of the lender is so bad that many judges are forced to side with the customers.

            The increasing difficulties facing homeowners is reflected in the extraordinary growth of the debt collection industry. It has quadrupled in size since 2003, from handling £8.6 billion worth of debt to £22.7 billion now. One of the most disturbing aspects highlighted by the report is the mushrooming of companies that are like vultures waiting for their next meal, preying on people who no longer have any solution to their debt problems other than selling their house and renting it back.

            The evidence suggests that “homeowners in a financially and emotionally vulnerable situation end up selling their houses for much less than they are worth, in return for a tenancy that offers little security of tenure”. The state-run income support mortgage interest scheme and private mortgage payment protection insurance (MPPI) policies (held by one quarter of homeowners) are supposed to help in such situations. However, the former is woefully inadequate to protect those in greatest need of help and insurance companies often find ways to avoid paying out the latter.

            A CAB office in south London, for example, reported how a woman with mortgage arrears had been signed off work by her doctor because of the stress involved in trying to keep up with the terms of a court order suspending possession of her house. After her claim on a MPPI policy was turned down she resorted to a sale and rent-back company and signed an agreement without receiving any advice or comparative quotes from the salesmen who visited her. While the property was worth £350,000, she got only £200,000 – just enough to pay off her mortgage and unsecured debts. Although she also received a six-month £750-per-month tenancy agreement, the landlord then wanted to put it up to £1,300 per month, saying it had been incorrectly assessed. Shortly afterwards the poor woman was back in court facing possession for rent arrears.

            The report also quotes evidence from the housing charity Shelter ( http://england.shelter.org.uk/home/index.cfm) about the increasing use of credit cards to pay mortgages or rent, which has affected nearly 1 million people in the 12 months up to October 2007.

            Shelter’s chief executive Adam Sampson said, “Clearly, this is a huge problem which will only become more widespread as housing costs continue to rise. We would urge anyone struggling with the cost of their mortgage or rent to seek independent financial advice. The number of people hit by the credit crunch, interest rate hikes and unaffordable housing costs are rapidly rising.”

            “For many people trying to keep a roof over their head, desperation is driving them to short-term, high-cost borrowing. Ordinary people are being forced to seek more risky and expensive ways to stave off the threat of eviction and repossession,” he added.

            The loans have been used to transfer wealth into the hands of the ruling elite, and at the same time become a means of speculation. Backed by the big banks and brokerage houses, mortgage companies aggressively marketed home loans to households that in the past would have never been approved for such loans. Home buyers were assured that they were protected by rising home prices, which would enable them, if they found themselves in economic straits, to sell their properties and have more than enough money to pay off their outstanding balances. With house prices falling throughout the country this will no longer be the case and portends a social disaster for many people in 2008. Auditors KPMG have predicted that personal insolvencies in England and Wales will rise to more than 130,000 from 109,615 in 2007.