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Who Needs to Be a Millionaire?

18/03/2014 14:54 GMT | Updated 18/05/2014 10:59 BST

In a recent interview in the Observer, Vince Cable admitted that he '[doesn't] understand why people need a million quid a year'. He isn't the first to question the growing divide between rich and poor, but he is one of the most high-profile politicians to do so in recent times. He also revealed that bankers had justified their extortionate bonuses on the basis that everybody else received them, so why shouldn't they, an attitude which he described as 'ludicrous'.

These very bonuses once more came to the fore last week, as the Bank of England announced that they could be rescinded, in the case of proven malpractice, up to 6 years after having been awarded to bank employees. The British public's indignation in the face of such bonuses is understandable; the banks are seen as at the root of the financial crisis which has driven down their quality of life, and yet those at the head of them are continuing to flourish financially.

It has also emerged that Britain's five wealthiest families possess £28.2 billion, which is roughly the same wealth as its poorest 20% of citizens, who together have £28.1 billion. Such figures are irrefutable proof that there is a significant wealth divide between rich and poor in the UK, which is on the increase. The bonuses awarded to those in the financial sector are not the sole cause of this divide, but they are symptomatic of a political culture which turns a blind eye to such blatant inequality.

It isn't a surprise that the government hasn't rushed to make fundamental changes to the distribution of wealth in the UK; in 2012, the combined wealth of the Cabinet amounted to £70 million, with Cameron's personal wealth estimated to be just under £4 million. On Saturday, moreover, Education Secretary Gove himself described the number of Old Etonians in the current Cabinet as 'preposterous' for a developed nation such as Britain.

A report by the Institute for Fiscal Studies also published in 2012 showed that income inequality rose dramatically in the 1980s, yet successive governments have failed to tackle the problem. Whilst there was a relatively sharp decrease in inequality in 2010-2011, attributed to the introduction of 50% on incomes of over £150,000, the report predicted that substantial cuts to welfare would have a larger impact on low-income families, and thus increase income inequality to unprecedented levels.

Successive policies implemented by the Coalition government have hit the poorest hardest. According to David Phillips, a Senior Research Economist at the Institute for Fiscal Studies, the recent welfare reforms 'were a bigger hit in cash terms for those in the bottom half of the income distribution', with the impact at its largest for the lowest fifth of earners. 'Overall,' he says, 'the impact of reforms... is regressive across the bottom 90% of income distribution'; the richest ten percent still lost less as a percentage of income than everybody else.

According to the Office for National Statistics, the average wealth of UK households stood at £232,000 in 2010. This is approximately one sixteenth of David Cameron's personal wealth in 2012, even allowing for slight increases due to inflation since 2010. In the wake of Gove's criticism of his own Cabinet's privilege, Labour branded the coalition government as 'out of touch' with the vast majority of British households. Given the disparity between Cameron's fortune and that of the average UK family, it would seem that such criticism is well-founded.

It isn't just politicians who are relatively wealthy, however. The average UK wage was £26,500 in January 2014; the average salary of a bank employee is nearly double this, at just under £49,000. In itself, this wage isn't especially remarkable; in modern capitalist Britain, it is unsurprising that employees in the financial sector earn more than those in public or other sectors. Whilst a wage roughly five times higher than the minimum rate might be seen as acceptable, is there a salary which is simply too high to be justifiable?

Living in the UK is expensive. Research conducted by the Joseph Rowntree Foundation recommended that a salary of £14,400 is the minimum a single person requires to live and to 'participate fully in society'. Whilst it is difficult to calculate an annual minimum wage, working 35 hours a week for 47 weeks a year, at a rate of £6.31 per hour, would bring home just over £10,000, which is far short of the Foundation's recommendation.

In fact, there is a significant disparity between the minimum wage and the living wage. According to the Living Wage Foundation, the hourly living rate sits at £7.65, or £8.80 in the capital. Despite the proposed increase in minimum wage, from £6.31 to £6.50, there remains a considerable shortfall between what is earned, and what is needed to live. More worryingly, a Resolution Foundation think tank found that 20% of employees in the UK were earning less than the living wage in 2013.

Against this backdrop of relative poverty, with a fifth of working Britons not earning enough to 'participate fully in society', it becomes more difficult to justify spiralling wages and extortionate bonuses. As Cable's comments showed, bonuses in the banking sector appear to be sustained by a culture of greed and self-interest, rather than by any genuine need for such financial rewards. It's hardly surprising that he branded their mindset as 'ludicrous', because quite simply, it is.

Faced with criticism of such payouts, advocates of bonuses generally fall back on scaremongering and traditional arguments; we are told that bonuses are necessary to prevent an exodus of our most talented financial experts to other countries that would reward them as richly. Yet this argument doesn't seem to hold water, according to Luke Hildyard of the High Pay Centre think tank. He suggest there is a lack of 'convincing evidence that a bonus cap would drive people abroad', which leads us to question why there aren't stricter limits or controls on bonuses.

Even if a bonus cap might have a negative effect upon the City, there is no justification for earning a million pounds a year. In the context of so many British employees earning less than the minimum wage, it becomes difficult even to justify earning hundreds of thousands. Beyond a certain wealth, money is earned for money's sake. How many houses does a family need when there are others below the poverty line struggling to feed themselves, let alone to participate in society?

The senior bankers who accept these bonuses should rightly be vilified, particularly if their motivation is one of wanting what everybody else has got; the last thing we need is children running our banks and financial institutions. The coalition government has made its position clear; it is firmly on the side of high salaries, of bonuses, and of a parasitic financial sector. Their rhetoric is a hollow one; they aren't looking out for the lowest earners or the 'squeezed middle class'.

Instead, many in the Cabinet come from privilege, and their personal wealth sets them apart from the ordinary people whose interests they purport to protect. Through its legislation, it seems determined to perpetuate cycles of poverty and wealth which increase income inequality and decrease quality of life for the poorest. These cycles have enabled many of them to amass significant fortunes, to succeed financially and professionally, and to establish their positions at the head of our countr; why would they want to implement change?