Peering back into the 1970s.

Photographer: Dan Kitwood/Getty Images

A U.K. Wage Cap? No Wonder Labour Is Unelectable

Mark Gilbert is a Bloomberg View columnist and writes editorials on economics, finance and politics. He was London bureau chief for Bloomberg News and is the author of “Complicit: How Greed and Collusion Made the Credit Crisis Unstoppable.”
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Labour Party leader Jeremy Corbyn wants the U.K. to introduce a maximum limit on how much people are allowed to earn, as a way of tackling income inequality. His proposal is an unworkable solution to a misunderstood problem. It illustrates just how out of touch his party is with what's actually happening in the British economy.

QuickTake Income Inequality

Corbyn, who earns about 138,000 pounds ($168,000) per year, told BBC Radio 4 on Tuesday that with income disparity worsening, a cap on earnings is needed:

We cannot set ourselves as being a sort of grossly unequal bargain basement economy on the shores of Europe. If we want to live in a more egalitarian society and fund our public services, we cannot go on creating worse levels of inequality.

The numbers, though, suggest the opposite is happening. Here's a chart showing how disposable incomes have developed since the financial crisis for each fifth of the population:

The Poor Get ... Richer
Relative growth in median household disposable income, adjusted for inflation
 
Source: Office for National Statistics

According to the Office for National Statistics, average incomes for the poorest fifth of British society have risen by 13.2 percent since 2007-2008, driven by "increases in both the wages and employment levels of people living in these households." In contrast, the top 20 percent of workers have seen incomes drop by 3.4 percent. 

"If I was still an adviser, I would have told him it's a totally idiotic unworkable idea," tweeted Dartmouth College economics professor Danny Blanchflower, who's a former Bank of England policymaker.

Blanchflower was asked in September 2015 to join a panel of economic advisers to the Labour Party. The committee only met twice, and was suspended after about a year. Corbyn "never spoke to me," Blanchflower told me on Tuesday.

It's not at all clear how Corbyn thinks he would enforce a cap on earnings. Previous Labour experiments with punitive tax rates to soak the rich suggest high earners will just find ways to shield their income. The introduction of a top rate of 50 percent in 2010, for example, saw government revenue decline, rather than increase.

Corbyn's desire to set a ceiling on how much money people can make suggests Labour is still stuck in the 1970s. In 1973, the then shadow Chancellor of the Exchequer Denis Healey told the Labour Party conference that "there are going to be howls of anguish from those rich enough to pay over 75 percent of their earnings." A year later, he threatened to "squeeze property speculators until the pips squeak." In 1974, he presided over a 75 percent tax take on earned income plus an additional 15 percent on investment income; the economy shrank in seven of the eight quarters between 1974 and 1975.

The most recent opinion poll from YouGov shows just 26 percent of voters would back Labour in an election, compared with 39 percent who support the Conservatives. Opposition parties typically steal support from the ruling administration between elections; no wonder the Economist magazine's front cover in September called Britain a "one-party state."

Labour is still fighting yesterday's war over class. That doesn't mean there are no problems to fix. Parental income and education still remain far too great a determinant of how their children fare than they should. Had Corbyn focused his attention more on Britain's lagging social mobility -- as Tony Blair and every British prime minister since have done -- he might have looked less retrograde.

Corbyn's insistence that income disparity is worsening when the reverse is true sends a message that he can't be trusted with the economy. And the less electable he looks, the greater the disservice he's doing to a country that's badly in need of an effective political opposition to challenge the government of the day.

This column does not necessarily reflect the opinion of the editorial board or Bloomberg LP and its owners.

To contact the author of this story:
Mark Gilbert at magilbert@bloomberg.net

To contact the editor responsible for this story:
Therese Raphael at traphael4@bloomberg.net