Friday 8 May 2009

Rising inequality ... not time to call for an end to redistribution

The depressing news that Britain's income gap is the widest since the early 1960s is well reported in The Guardian which has some good critical analysis by Larry Elliott.

The enormous excitement around the media and the Westminster village about MPs expenses today partly reflects just how much the lack of legitimacy of the expenses regime is proving enormously corrosive of public trust in politics. Still, I hope some of us might be forgiven for regarding the inequality findings as the most important political issue of this week.

The government will rightly be criticised for these outcomes. Labour's political mission should be a fairer and more equal society in which life chances depend less on the accident of birth and who are parents are. Reducing inequalities in income and wealth should form one important means to those ends. Significant efforts that have gone into addressing poverty (and child poverty in particular), though it reflects also the nervousness in the first two terms in acknowleding that narrowing the gap was a legitimate goal of government policy. Efforts to tackle child poverty and to address inequality must now be deepened and not abandoned.

As The Guardian fears in a sober editorial there may be little prospect of that now happening.

To cap it all, Britain is more unequal than it has been at any time since records began, in 1961. Back then the Etonian Harold Macmillan was in charge. Gordon Brown has sincere egalitarian impulses and must shudder at the prospect of bequeathing a more economically polarised nation to another Etonian next year.

If and when David Cameron takes up the reins, the new figures confirm Britain will be far more unequal than it was two generations ago. Chiefly, that is due to what happened in the 1980s and 1990s. Despite yesterday's data it is still too early to tell whether Labour's three terms have made things better or worse, because the numbers are so out of date


All the main parties have now committed themselves to miserly expenditure plans, and the prospective Conservative government is increasingly blunt in identifying tax credits as a potential source of savings. 2007 may have been the most unequal year ever. There could, however, very well be more unequal ones to come.

So it is important to note that the data does not support the David Cameron claim that the era of redistribution has come to an end - an idea occasionally made by a (very) few in the Labour party too.

Dig just a tiny bit deeper and the evidence rather does the opposite.

There was some progress on income inequality between 2000 and 2005, but that progress was reversed

Part of the reason were that the 1998 and 2003 budgets were among the more strongly redistributive, in creating the tax credits system and increasing expenditure on it. However, the current figures go up to 2007 - and the 2005, 2006 budgets were rather weak on redistribution. (The Guardian acknowledges some good measures in the 2007 budget, these were all overshadowed by the tricksy 2p cut in the basic rate which caused so much trouble at the bottom by removing the 10p rate, with later attempts to compensate for those regressive effects.

More recently, the 2008 pre-budget report had rather stronger redistributionist commitments than those of the previous three years. They are not reflected in yesterday's figures.

Much of the increase in inequality is driven by the advances of the top 1% and top 0.1%. So it is a shame that the government did not make changes such as the new 50p tax rate on earnings over £150,000 and the changes to pension tax relief earlier.

The coherence of those who criticise the government over inequality and oppose those measures must be in doubt.

John Rentoul argued yesterday about the new figures "no doubt they will be used by the Blair-Brown governments' critics of both left and right to pour scorn on its record on social justice. Instead they should make it harder for both groups".

Here is David Cameron reported in The Independent in 2006

The Tory leader endorsed his policy chief Oliver Letwin, who angered the party's traditionalists last December by saying he supported redistribution to try to narrow the gap between rich and poor. "He was saying something that was blindingly obvious: any party that accepts some sort of progressive tax system is in favour of redistribution. That's a very sensible thing to say," Mr Cameron told New Statesman magazine.


Yet here is David Cameron writing in The Independent in 2008;

Take the fight against poverty. We can see that in the 20th century, the methods of the centre-left – principally income redistribution and social programmes run by the state – had considerable success in relieving poverty. It would be churlish to pretend otherwise. But those methods have now run their course

Of course, redistribution through the tax system is not enough. An agenda for more equal life chances must address inequalities of assets and wealth, early years provision, education, skills and training too. But that must go together with an agenda for a redistribution of power and opportunity - of which income and assets are one important part.

New Labour's modest redistribution held back the tide of rising inequality, but could not contain or still less reverse it.

The right now says that inequality matters; yet it also criticises the top rate as the politics of envy and advocates priority being given to cutting inheritance tax for estates worth over £600,000.

Those who tell us that they will try to tackle inequality without redistribution are effectively pledging that inequality will rise further.


Calix said...

Quite right.

The cycle of inequality will not go away simply because everyone gets richer - this seems obvious to me but still the argument has been made again and again.

The financial crisis may yet have some long-term ideolgical benefits for progressive in Britain. Labour must reassess what it actually stands for, and cannot simply define itself as a more progressive and softer round the edges version of Thatcherism.

Anonymous said...

You miss the point entirely. It is not about income distribution at the top, taxing those with high incomes does not make the poor richer, it makes the better paid poorer. The rich stay the same, rich.

Politicians should look at wealth distribution and this Labour Government has done more to damage the chances of those on low incomes than anyone else in history.

Out of control property prices, which has resulted in millions unable to afford a home. A tax credit system that is actually less fair to those at the bottom than the very old FIS. Untackled effective tax rates of 85% on those on low incomes who need Housing and Council Tax Benefit.

Promising to oppose the Dearing report for education - then introducing loans and fees.

The creation of sink schools for the poor, that have left people unable to properly complete a basic job application for McDonalds.

The last 12 years are a disgrace for anyone that calls themselves a progressive. Thatcher was more progressive than Brown and Blair and it takes a lot for the left to swallow that.