Corbyn calls for limit on ‘grotesque’ earnings

Spot the difference: The Equality Trust says the top 20% of UK society gets 40% of its income.

The UK’s Labour Party leader has suggested introducing a maximum cap on income to reduce inequality. No democratic country has done the same — so is this visionary, or dangerous radicalism?

The new year champagne had hardly gone flat last week when ‘Fat Cat Wednesday’ arrived. By January 4th the average FTSE 100 CEO had earned as much in 2017 as the average UK worker would in the whole year. The CEO makes roughly £1,000 per hour; the average worker earns £28,200 per year.

Yesterday Jeremy Corbyn, the Labour Party leader, suggested an idea to try to reduce this gap: the government should set a limit on the maximum amount someone can earn. ‘If we want to live in a more egalitarian society, and fund our public services, we cannot go on creating worse levels of inequality,’ he told BBC Radio 4’s Today programme.

Corbyn said the idea would help to prevent Britain becoming ‘a bargain basement economy’ with low wages after Brexit. And while bosses would have less money, ‘more would go back into the company and our society as a whole’.

The UK’s pay is the seventh least equal of the 35 OECD countries. This inequality has become a significant political issue — especially since the 2008 financial crisis, when the government spent large sums of taxpayers’ money bailing out failing banks with highly-paid executives.

Research suggests that 71% of employees think bosses’ pay is too high. Even many of those who benefit are concerned: more than half of the Institute of Directors say ‘anger over senior levels of executive pay’ is a threat to public trust in business. And shortly after becoming prime minister last year, Theresa May suggested forcing firms to publish ratios showing their pay gap between workers and directors.

Companies such as John Lewis have voluntarily limited these ratios. Campaigning group the High Pay Centre says the government should enforce a limit — but similar proposals have failed in Egypt and Switzerland.

And Corbyn’s proposal was even more radical: currently no democracy has a maximum wage law. Last night he even seemed to back away from it after two of his former economics advisers called it ‘absurd’ and ‘totally idiotic’. Are they right?

To cap it all

Corbyn’s supporters say society cannot function when bosses and workers live such unequal lives. They become increasingly atomised, distrustful and unable to understand each other. Inequality demotivates workers, depressing growth. And is a director paid £1,000 per hour really so much more valuable than a worker on a fraction of that?

Opponents say a cap would drive away the business that enriches everyone. It is unhealthy to resent talented people who work hard. It is impracticable for government to set their earnings. And bosses pay a disproportionate share of tax, funding the services everyone uses. Society always has winners and losers, but harming one does not help the other.

You Decide

  1. Would you care if your boss earned many times more money than you?
  2. Should there be a maximum limit on the amount someone can earn?

Activities

  1. You have the chance to interview the highest-paid person in your country. List five questions you would ask. As a class discuss why you chose them.
  2. Think of three jobs you would consider doing when you are older. Research how much you would get paid in each. What do your findings mean for you, and for society? Write a one-page summary for discussion.

Some People Say...

“We should not just let people get rich — we should celebrate it.”

What do you think?

Q & A

I don’t have a job. Why does it matter what people get paid?
After you leave school, you will need a job if you want to live independently. And you may consider getting a job while you are at school, for experience and extra cash. But even before then, pay will affect people such as your family and neighbours. Their happiness and standard of living will have a knock-on impact on yours.
But I’m never going to earn millions. Can’t I just ignore people who do?
You may think that people getting rich and making the most of themselves is great. But you may also worry that it is unfair for some people to make vast amounts more than others. Either way it will have an impact on you — because, for example, your government will get more tax or people will become more suspicious of each other.

Word Watch

£1,000
According to the High Pay Centre. In contrast, someone on the national living wage makes £7.20 per hour.
Seventh
According to the Luxembourg Income Study. But the UK’s wealth distribution is roughly average among OECD countries, according to Credit Suisse.
OECD
The Organisation for Economic Co-operation and Development, a group of countries committed to promoting global prosperity.
Research
Conducted by the Chartered Institute of Personnel and Development.
Theresa May
May’s stance is striking: business leaders have traditionally favoured her Conservative party.
Egypt
In July 2011 the Egyptian government announced a maximum wage of 36 times the minimum wage. But many bankers resigned and it has not applied the law.
Switzerland
In a referendum in 2013, the Swiss people refused to limit bosses’ pay to 12 times that of their lowest-paid staff.
Democracy
Currently only Cuba, a socialist dictatorship, has a maximum wage law. Corbyn’s idea is reminiscent of former US president Franklin Roosevelt’s suggestion of a 100% tax on earnings over $25,000 (£330,000 in today’s money).

Subjects

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