Dominic Lawson: Back with a vengeance... the politics of envy

As incomes across the board begin to feel the squeeze, things could really get nasty

If there is a bloody Bolshevik revolution in this country, I think I can guess the title of the inflammatory pamphlet which will be waved by the people putting the wealthy up against the walls and shooting them. It will not be the Communist Manifesto. It will be the Sunday Times Rich List.

The 2008 edition, published a couple of days ago, was more eye-poppingly voyeuristic than ever: 110 pages of non-stop salivation over fortunes which the rest of us could only dream about. It's almost enough to make a saint envious – which is where the Archbishop of Canterbury comes in.

A couple of days ahead of publication of this Book of Mammon, Dr Rowan Williams was interviewed by the BBC's John Humphrys; Dr Williams told Mr Humphrys that, "The more you have a disproportion between what people are earning and what they appear to be worth, the more we have astronomical sums with no clear rationale behind them, the less credibility the whole thing has." The Archbishop of Canterbury added that this "disproportion" resulted in "a degree of envy and cynicism ... that leads people to feel alienated from the rest of society."

Of course, if commitment to virtue was more financially rewarded than commercial acumen, then priests would be paid greater sums than the most successful entrepreneurs – and the Church of England's bishops might be even able to pay for the palaces they only occupy as Grace and Favour mansions.

Instead, however, we live in a system where wealth is allocated by the market place – which is to say, the accumulated decisions of millions of us, as consumers – rather than centrally-allocated handouts decided by a Government-appointed board of the great and the good.

The Archbishop of Canterbury is doing his duty by warning about an increase in envy. It is one of the seven deadly sins; but we would not nowadays think that it was right for a clergyman to blame male lust on women for becoming "too attractive", or indeed for the physically ill-favoured to blame the more shapely for any feelings of jealousy which they might have.

I suspect that Dr Williams – and I apologise in advance if I have misjudged him – is one of those who believes that over the past decade under the New Labour Government the least well-off have got poorer as the rich have got richer, and that the latter fact is in some way responsible for the former.

However much people say this, it really isn't true. According to the Institute for Fiscal Studies, since 1997 the people ranked as the "top 10 per cent" of earners have seen their income grow by 17 per cent in real terms. The bottom five per cent's income has risen by 13.5 per cent – again, in real terms.

We can see from these figures (and the IFS is universally respected in this field) that the poor have not been "getting poorer" – at least in the sense that the vast majority of the public would understand the term. However, it is true that the gap between the rich and the least well-off has increased – and this, I suspect, is what bothers many good people, not least the Archbishop of Canterbury.

The question then arises: should the very rich be taxed more, so that much greater sums could be allocated directly to the least well-off? The problem, despite the impression that you might gain from reading the Sunday Times, is that there aren't enough of the very rich to make a big difference to that equation.

Again, the Institute for Fiscal Studies has done the groundwork: as part of an investigation into how to help the poorest, it produced detailed research last week which warned that ratcheting up income taxes on those earning more than £100,000 would be counterproductive in the fight to relieve poverty through fiscal means.

The IFS calculated that the Government would maximise the revenue it collects from those earning over £100,000 by imposing a marginal rate – the additional tax paid on each pound of increased income – of 55.6 per cent. This, however, is perilously close to the current marginal rate of 53 per cent charged when income tax, national insurance contributions and indirect taxes are all included.

The IFS concluded that "there is not a powerful case for increasing the income tax rate on the very highest earners, even on redistributive grounds." As the head of the IFS, Robert Chote, observed, "These findings have important and perhaps uncomfortable implications for would-be tax and welfare reformers of all parties".

Anyone reading the Sunday Times Rich List might well find all that hard to believe: isn't it absolutely pullulating with multi-billionaires? Well, yes it is; but that is because an elite band of the super-rich from Russia and India have made London their home over the past few years.

As far as I can tell, 21 out of the top 30 "richest people in the UK" – owning a very large proportion of the total funds so lipsmackingly displayed by the Sunday Times – are in fact not British at all. They pay tax to the Inland Revenue only on what they earn here and on money they bring into this country; but even that (not inconsiderable) sum would immediately disappear with them offshore, if a confiscatory "envy-reducing" tax band was imposed on these highly mobile oligarchs.

It is not, in any case, as if we don't already have a redistributive tax system. According to the Government's own Survey of Personal Incomes, the top one per cent of earners receive 11.6 per cent of total pre-tax income, and pay 22 per cent of total income tax, while the bottom 25 per cent of earners receive 8.2 per cent of national pre-tax income and pay 2 per cent of the total income tax.

As the Institute for Fiscal Studies points out, if there is to be any further redistribution of income to the least well off, it will have to come not from the relatively tiny number of people at the very pinnacle, but from the vast numbers of people who are in the top half.

This, however, might only increase the "alienated" envy of the very wealthy that the Archbishop of Canterbury has identified; for much if not most of that envy is, I suspect, not a characteristic of the very poorest, but more a feature of people who might otherwise be described as "middle class".

As incomes across the board begin to feel the squeeze from the effects of the credit crunch, things could really get nasty, as each section of the population seeks to defend its living standards against the perceived special treatment awarded to the others. I don't actually believe that there will be a bloody revolt against the very rich – not even one provoked by the Sunday Times Rich List – but the politics of envy could be back with a vengeance, in all its pointlessness and stupidity.

d.lawson@independent.co.uk