The British public are not aware that the rich have
become much richer, while the poor have not gained at all, as a direct result
of the policy of Quantitative Easing (QE) – which is essentially “printing
money”. However, it is not a secret. Most people inside the Westminster bubble
should know.
QE has cross-party support and is credited with having
prevented even worse an economic calamity than the UK has experienced since
2008. It has had, as a predictable side effect, a dramatic redistributive effect
in favour of the rich.
Since QE started in 2009, the richest 10% of households
are on average each between £100,000 and £350,000 wealthier as a direct result
of the policy. These gains do not appear
directly in their bank accounts. They have been made in the value of their financial
assets e.g. property, shares, paintings, antiques etc.
The reason why QE has increased asset prices is not
straightforward but at root it is that, as a result of printing more money, the
value of money itself diminishes and so the value of other financial assets
increases.
The sources which back up the figures above are impressive
– the Bank of England and the Office for National Statistics. The story was
reported in the Guardian, the Spectator, the Mail and the Independent in late
August 2012 but seems not to have been covered in the media since then.
Fraser Nelson, the Conservative supporting editor of the
Spectator has described QE as “the
biggest transfer of wealth to the rich of any government policy in recent
documented history.”
QE is a significant part of the reason why, at the same
time that most of the UK is undergoing the worst squeeze on living standards
for over 80 years, some parts of the economy are doing fine. Large corporations
are sitting on record cash mountains; shareholders are currently experiencing
the FTSE’s best period of growth for 30 years; property in places like London
is doing well; it’s a good time for people who invested in paintings, antiques,
fine wine or racehorses. The luxury market - from cars to handbags - is
booming.
Since 2009, Governments – first Labour and then the
Coalition – have, through QE, been engaged in an unprecedented money printing
operation on an extraordinary scale. All the numbers involved in QE are huge.
Since 2009 the Bank of England has created at the click of a mouse £375 billion
which it has used to buy gilts (government debt). To give some perspective,
£375 billion is equivalent to around a quarter of the country’s total GDP or a
third of its national debt. There has been remarkably little parliamentary or
press scrutiny of QE, in marked contrast to Budget measures which are often
small beer in comparison.
In August 2012 the Bank of England released a report with
the snappy title, The Distributional Effects of Asset Purchases. It explains that the effect of QE had been – as
was intended – to boost the value of financial assets e.g. property, shares,
antiques etc. The report calculates that the QE program at that time – and
there has been £50 billion more QE since – had increased the value of the
financial assets in the UK by no less than £600 billion. It notes that that sum is equivalent to
around £10,000 for every person in the country if everyone had the same amount
of financial assets. However, such assets are not shared equally.
The Bank’s report says:- “In practice, the benefits from these wealth effects will accrue to
those households holding most financial assets…” The effect of QE is to make those already with
financial assets richer. Those with the most financial assets are, obviously,
those who already richest.
The report does not spell out the actual distribution of
the £600 billion windfall among the population but it is possible to work it
out by looking at the ONS data on wealth distribution. The journalists who
reported the story in August 2012 did the maths. Their figures for how much each
of the top 10% of households had benefitted from QE range between £100,000 and
£350,000.
As QE has made the rich richer it has widened
inequalities that already existed – not only between rich and poor but also
between young and old, the South East and the rest of the UK and so on.
The richest 10% of households have received a windfall
gain from QE. Today it is reported that millions of the poorest people in the
UK are struggling with the costs of food. Will a politician have the courage to
make the case for measures to deliberately redistribute from rich to poor if
only to correct the redistribution that has taken place in the opposite
direction as a result of QE?
No.
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