Poverty is an anomaly to rich people. It is very difficult to make out why people who want dinner do not ring the bell.
– Walter Bagehot (Victorian journalist).
The quote above brings me, appropriately and neatly, to Johannes Vermeer – possibly the greatest artist of all with only Leonardo himself capable of eyeballing him. Vermeer has oft been described as the 'Master of Light' but he was also the master of perspective, colour, draughtsmanship, composition and everything else needed to paint a masterpiece. He made a lady reading a letter as dramatic an incident as lesser painters strove to make with wild waves and frantic battle scenes.
Vermeer knew the importance of the everyday; when a lady pours milk, Vermeer uses all his great skill to concentrate the viewer on that simple task – and to bring out the universe of meaning within it. He painted the simple, commonplace happenings and drew attention to their great significance. There is, after all, little of more importance than the processing of food and that is what the lady in his milk pouring painting is engaged upon.
Today, as never before, attention is upon those types of tasks and the ordinary (extra-ordinary) individuals Vermeer immortalised; today the filling of supermarket shelves, the delivery of supplies, the nursing of the sick, the cleaning of utilities – the importance of all has touched our general consciousness.
And the fact is that the individuals carrying out same are underpaid.
In previous articles, I have laboured on the growing gap between the richer and poorer members of our society. Although the spread of coronavirus will have some sort of levelling down effect, when things return to normal (and they will not – there will be a new 'normal') the stock market will rebound somewhat (but not all stocks and shares) and the wealth gap will start to grow again.
Now, we are fortunate enough to live in one of the world's most advanced nations. Worldwide, most people (it has been estimated at 80%) live in some form of poverty or another, whereas, in the UK, only around 20% do so: also, in the UK, there has been a growth in the number of individuals owning a bank account; at one time around 25% of the populace did not have one but now, excluding post office accounts, the number is under 10%: as opposed to this, worldwide, some 50% of humanity does not own such an account (but that is still up from the 1980s).
All that said, most accounts in Britain are of the type where the money goes in and then goes out – and many, if not most, end up in overdraft at the end of the wage period, be it a month or a week. The effects of coronavirus will also tell in this situation – and, ultimately, against the poorer members more than the richer. So that wealth gap still grows. Much of the cause of this is down to our tax system: indirect taxation has been growing steadily against direct taxation and indirect taxation benefits the wealthier.
Take this example: an individual earning £20,000 per annum buys a television at a basic cost of £500; VAT on top of this then adds a further £100 – or, 0.5% of that person's total earnings. If a person earning £40,000 per annum purchases the same model of television then their taxation bill represents only 0.25% of their total income. Thus a higher portion of the poorer person's income has been paid in tax.
You could say, as many on the right do, that this comes down to choice and the poorer person need not have chosen to buy the television – but the poorer person has as much right to do so as the richer. The basic cost of the machine cannot be helped but the taxable portion can. Even if the poorer person chooses a cheaper television, the percentage of VAT as a portion of their earnings will, in all probability, still be higher.
Equally, the richer person can afford to buy more items outright whereas the poorer may have to depend on hire purchase – again paying more for the same or similar items. Same with savings; the more you can put into savings the higher the interest rate you can command.
The poorer person is considered to have no 'nominal assets' (that is assets whose value is fixed at a nominal level such as in a cheque book account or in government bonds that are not index linked). Thus they are subject to inflation risk. Invested in a small savings account, the real value of cash steadily declines in proportion to inflation; if you hold £1,000 in such an account over a 10 year period you may make £100 (at today's terms) but your then £1,100 can only purchase what (say) £900 can today.
The really rich person has the opportunity to improve their purchasing power. They can buy a house and rent it out; after tax and, possibly, maintenance earning about 3% to 4% on it – excluding its rise in value which assures them of retaining the purchase price and, usually, advancing on the prevailing rate of inflation as house prices rise.
There is more of a risk in this – but not that great. And the same is (usually) true of stocks and shares – certainly pre-coronavirus. On average, stocks and shares rise at around the general rate of inflation and the investor receives, on top of that, an interest payment every year thus, overall, keeping well ahead of inflation and increasing their wealth. A really rich person can even afford to become a major investor in a company and, although there is an even higher risk, the rewards can be substantial.
Nothing illegal nor immoral in any of this – it is what most would do if they had the money. However a society where the rich, as per Walter Bagehot, lose touch with the realities of the poor is a less stable civilisation and begins to verge on the beginnings of an immoral society.
Would cutting indirect taxes and increasing the higher taxation rate solve this potential problem? Not completely – but it would certainly help and, I think, Walter and Vermeer would agree.
Bill Paterson is a writer based in Glasgow