Members of Britain’s highest-paid 1% don’t feel particularly well-off, according to a new study by the London School of Economics – because of comparisons they make with the 0.1% super-rich. Members of the top 1% are often working for the 0.1%, and regular exposure to their lives and lifestyle can create feelings of disadvantage and aspiration to earn more. “While recognising their advantage compared to the general population, they experience disadvantage when ‘looking up’,” Katharina Hecht, a PhD researcher in the LSE’s Department of Sociology writes. “In their daily lives, the top 1% are surrounded by vast absolute income inequality, because the differences between top income earners are much higher than those between individuals situated in the middle of the distribution.”
A financial professional in the City of London said she did not feel her income was high compared with others working in finance in the capital – and that she would consider high income to be those “earning millions”.
“That’s partly because I see a lot of people who I have contact with on a daily basis who do earn millions.”
Here, we are reminded of Marx's observation that “A house may be large or small; as long as the neighbouring houses are likewise small, it satisfies all social requirement for a residence. But let there arise next to the little house a palace, and the little house shrinks to a hut. The little house now makes it clear that its inmate has no social position at all to maintain, or but a very insignificant one; and however high it may shoot up in the course of civilization, if the neighbouring palace rises in equal or even in greater measure, the occupant of the relatively little house will always find himself more uncomfortable, more dissatisfied, more cramped within his four walls.” (Wage Labour and Capital)
The top 1% in Britain are defined as those earning more than £140,000 before tax, according to HMRC’s latest Survey of Personal Incomes (SPI). The average income for the top 1% in the UK in 2010 was approximately £267,000 a year before tax, according to the 2016 World Wealth and Income Database, while the average earnings of the top 0.1% was £990,000.
A senior investment banker, who earns hundreds of thousands of pounds a year, said he “just doesn’t feel particularly wealthy” compared with other parents at his children’s private school who, he said, were sitting on £100m-plus family fortunes.
“I feel like I’m fairly well off and I earn multiples of the hundred thousands,” the banker told a researcher from the LSE’s International Inequalities Institute. “But I feel very poor in the context of the classmates of my children ... Their parents can spend a lot more time with them, because none of them really work, or some of them work but it’s working on their own terms: they might run a hedge fund but they can take the kids to school. “I’d say nine or 10 of their classmates’ parents have over £100m,” he added. “That to me feels wealthy, but earning a hundred thousand just doesn’t feel particularly wealthy.” He said it would be better to define the rich in terms of assets rather than earnings. “I think that’s where we see the kind of big change ... there are a lot more people within London who have £100m in assets.”
One hedge fund manager said he was able to achieve huge earnings because he had “unique pricing power” similar to professional footballers.
“If you’re someone like Wayne Rooney, you can go to Manchester United and say ‘pay me £200,000 a week or I’m gonna go to somewhere else’ and Man Utd just say ‘yeah fine’ because he’s got unique pricing power,” he said. “If you are a successful hedge fund manager, if you make money for your clients, you also have unique pricing power because of the fees that we receive.” However, the hedge fund manager interviewed said it would be “ridiculous” to say he deserved his huge income. “I can’t spend all of my multimillion-pound income. I mean, what can I do: buy some pictures? Yeah, but I already have pictures all over my house, so what should I do? No one could describe what I earn, or what people in my company earn, as being fair. It’s just the market...”
Hedge fund managers typically collect a management fee of 2% of all their funds under management, and 20% of the profits made on the investments. The world’s most economically successful hedge fund managers made $1.7bn (£1.3bn) in 2015. Chief executives of FTSE-100 companies now earn, on average, 386 times more than workers on the national living wage. Chief executives of FTSE-100 companies pocket an average of £5.3m each year, compared with £13,662 an hour for someone on the national living wage of £7.20 an hour.
One City of London worker included in the study said she found it hard to reconcile how much she was paid compared with teachers, firefighters, nurses and doctors, who “clearly do something that’s much more important”. She said her salary could cover the annual pay of seven teachers: “Why do these people get paid so little, and people like me get paid so much? Is it right? I certainly don’t think I’m worth £140,000; that’s the truth.”
The world’s top 25 hedge fund managers earned $13bn in 2015 – more than the entire economies of Namibia, the Bahamas or Nicaragua. Sir Chris Hohn, the billionaire founder of a hedge fund, the Children’s Investment Fund, was the highest-earning British fund manager, taking home $300m
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