Are we ten years from the brink?

I listened to the book ’10 years to midnight’ by Blair Sheppard on today’s Turbo session. The author introduces the ADAPT framework to explain how the western civilisation is ten years away from the brink of collapse. ADAPT is an acronym for asymmetry, disruption, age, polarisation, and trust.

Asymmetry – increasing wealth disparity and the erosion of the middle class

Disruption – the pervasive nature of technology and its impact on individuals, society, and the climate

Age – demographic pressure on business, social institutions, and economies

Polarisation – Breakdown in global consensus and a fracturing world, with growth in nationalism and populism

Trust – Declining confidence in the institutions that underpin society

We have heard many negative headlines in the press since the IPPC Climate change report said we had 12 years to save the planet. These headlines usually tie in other social and economic emergency claims into these 12 years too. Fueled by my newfound distrust in the media institution that underpins society, I was curious about how real these things are in the UK, so I searched for some reliable data. 

I decided to look at the first topic of the framework, asymmetry. Two elements where mentioned, the first was, increasing wealth disparity, and the second was the middle-class’s erosion. The first result I got when I googled ‘UK erosion of middle class’ was a Guardian article titled ‘The demise of the middle classes is toxifying British politics…’ I did not click through to get the full title.

Wealth disparity

The Office for national statistics released two reports in July 2020 that looked helpful, the first was Household average income, and the second was analysis on household income inequality. The key findings of these papers:

Household average income

  • In financial year ending (FYE) 2020, the period leading up to the implementation of measures against the coronavirus (COVID-19), average household disposable income (after taxes and benefits) was £30,800 – up 2.3% (£700) compared with FYE 2019, after accounting for inflation.
  • Over FYE 2020, real earnings increased by an average of 1.5%, however more recently total annual pay growth for March to May 2020 fell by 1.3%, after accounting for inflation, which will likely impact adversely on income growth rates in FYE 2021
  • The increase in median income in FYE 2020 continues an upward trend seen since FYE 2013, where average household income increased by an average of 2.1% per year.

Household inequality

  • Income inequality, as measured using the Gini coefficient, has been broadly stable over the past ten years with disposable income (post direct taxes and cash benefits) reaching 34.6% in financial year ending (FYE) 2020 after peaking at 38.6% in FYE 2008 just prior to the economic downturn; however, the Gini coefficient is 6.1 percentage points higher than average levels throughout the late 1970s and 1980s.
  • Across all measures, however, there has been a slight increase in income inequality since FYE 2017. The Gini coefficient has increased* from 33.4% to 34.6%, while the S80/S20 ratio shows an increase from 5.2 to 6.1. This mainly reflects a fall in disposable income in for the poorest 20% of people between FYE 2018 and FYE 

So the general picture before March was that the median income was improving after tax and benefits. There has been some movement for inequality, but practically over the last ten years, it has been ‘stable’. A caveat, while these numbers have been corrected for inflation, they do not consider changes in the cost of living or large regional differences, but that is a subject for another investigation and another post.

Erosion of the middle class

Middle class: a social group that consists of well-educated people, such as doctors, lawyers, and teachers, who have good jobs and are not poor, but are not very rich. Cambridge English dictionary

The easiest way to get data on the middle class is by income, although most definitions, such as the one I have used, include education level and cultural elements. 

The OECD report from 2019 defines middle-income as an income of 75% to 200% of the median income. The report states that a middle-income group in the UK is 58% of the ‘slightly smaller’ population than the OECD average of 61%. Still, the UK has a greater percentage (11% vs the average of 9%) in the upper-income classification (>200% of median), and a smaller percentage in the Poor classification (0-50% of median).

The report also states that the UK has fewer middle-income jobs (and upper and lower-income jobs) at risk of automation than the OECD average, 12% and 18%, and fewer middle-income people (35%) have difficulty making ends meet in the UK that the OECD average (47%).

According to the Office for national statistics, the UK’s median income is £29,600, making middle income between £22,200 and £59,200. There is a dramatic difference in the financial opportunities for people on the bottom of that scale to those at the top, but if you earn £22,200 per year, you are considered middle class by many economists. 

Can we trust the doomsday calls?

A quick search and a focus on the UK only show a very similar picture to the one ten years ago. This search is a five-minute sense check and by no means exhaustive and is not making light of how tough it can be to live on the lower ends of the scale, particuarly with a family. Still, it is enough to start believing the declining confidence in institutions such as our media and politicians who make their living through clickbait. I am keen to get further thought the book and start to investigate the claims made.