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Think tank: 'Measures to help economy made the rich far richer'

Moves by the Bank of England to inject money into the economy in the wake of 2008's financial meltdown significantly added to the wealth of the richest people in Britain while average wages across the UK steadily declined, a new report by a think tank states.

The paper, published by the Sheffield Political Economy Research Institute (SPERI), highlights how quantitative easing - the process by which the Bank of England boosted the economy by purchasing private-sector shares and bonds - increased the value of financial assets in the UK by £600 billion.

Drawing on research by the New Economics Foundation, SPERI claimed this amounted to an increase of between £128,000 and £322,000 in the wealth of Britain's most affluent families over the last five years. By contrast, average earnings fell by 7.9% between 2008 and 2013.

The report's authors, Scott Lavery and Dr Jeremy Green, said the UK Government was in danger of repeating the mistakes of the past by deepening the imbalances at the heart of the economy.

They said: "By boosting the stock market to stimulate recovery, quantitative easing (QE) increased the wealth of those relatively affluent members of society with large-scale holdings of shares and other financial assets. Yet workers on median and low incomes have suffered an unprecedented squeeze on their living standards.

"Concentrating huge amounts of wealth at the top can encourage speculative and risky behaviour in the financial markets, as we saw in the run-up to the 2008 crash. At the same time, stagnant or declining wages encourage consumers to build up debt.

"Taken together, these trends suggest the Coalition has put the British economy on a very dangerous path. What we have seen is a two-track recovery that privileges asset-holders and bypasses ordinary wage-earners."

SPERI's report warned that the prolonged decline in average pay contrasts with previous recessions, which were followed by relatively fast real-term wage increases. This undermines Chancellor George Osborne's claim that the UK economy is back on track after figures out last week showed pay rising in line with inflation for the first since the financial crisis.

Lavery and Green said: "Four years after the recession of the early 1980s, real average weekly earnings were 9.2% higher than they were before the downturn, while four years after the recession of the early 1990s, wages were 6.7% higher than their pre-recession levels.

"So the situation we have now, where wages are still much lower than they were in 2008, is extremely worrying. The fact that pay is only now catching up with inflation - and may not reach its pre-crisis level until 2019 or 2020 - suggests that there is something very peculiar about this recovery."

SPERI's findings come just days after Scottish union umbrella body the STUC estimated that as many as 85,000 Scots are employed on low-paid zero-hours contracts, which allow employers to hire staff without giving them a specific guaranteed level of work each week.

According to Stephen Boyd, assistant secretary of the STUC, the growing prominence of insecure and poorly paid work in Scotland illustrates the UK Government's failure to resolve the problems that plagued the British economy before the crash. Boyd said: "The Coalition seems intent on turbocharging the model which collapsed so spectacularly in autumn 2008.

"The distributional impact of recent policies has been grim. Those at the very top have benefited from a significant tax cut, while the vast majority of workers in Scotland have suffered huge cuts in real wages. The social and economic impacts will be felt by Scotland's workers, their families and communities for years to come."

Martin Sime, chief executive of the Scottish Council of Voluntary Organisations, echoed the concerns of SPERI and the STUC.

He said: "To QE and wage restraint must also be added the tax cut for top-rate payers and benefit cuts for the poor. The big picture then is of a vicious exploitation of economic circumstances facilitating the transfer of ever more wealth to the few.

"SPERI's conclusions come as no real surprise to us. The key point which bears repeating is that, as deployed, QE and austerity have widened the gap between the haves and the have-nots, which is bad news for everyone."

The Bank of England has previously defended its QE policy, saying: "Most people in the UK would have been worse off without this response, including savers and pensioners. All assessments of the effect of QE must be seen in that light."

Contextual targeting label: 
Finance

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