Friday, 9 October 2009

Labour's record on poverty and inequality

Perhaps the most audacious aspect of David Cameron's speech to the Conservative Party conference this year was his attempt, while reconnecting with Thatcherism, also to project his party as the party of the poor.

Part of this strategy involves presenting Labour's record on inequality and poverty as one of downright failure.

So what is the reality? What is Labour's record on poverty and inequality?

The place to look for reliable data on this topic are the regular publications by the IFS. Reviewing them, these seem to be the key facts.

(1) Inequality increased enormously under the Conservatives. The Gini coefficient, a standard measure of inequality, rose from around 0.25 for income inequality in 1979 to around 0.34 in the early 1990s. In the IFS's words: 'The scale of this rise in inequality has been be unparalleled both historically and compared with changes taking place at the same time in most other developed countries' (Brewer et al, 2008, p.27).

David Cameron joked about the way Labour refers to the 'wicked Tories'. Well, there's a reason for that. The last time they held power for a significant period of time they produced an 'unparalleled' increase in income inequality.

(2) Yes, inequality has increased under Labour. The Gini rose to 0.35 under Labour's first term, then fell in the second term, back to where it had been in 1996/7 (about 0.33). In Labour's third term, inequality has increased again and is estimated at about 0.36 for 2007/8, higher than at any time since the relevant records began in 1961 (Brewer et al, 2009, pp.23-24).

(3) But Labour has been consistently redistributive. IFS analyses show repeatedly, however, that Labour's budgets have been consistently redistributive in their effects. That is to say, if you look at who has gained and lost from the changes to the tax-benefit system since 1996/7, the gains are biggest at the bottom, disappear in the middle, with losses at the top (Phillips, 2008).

(4) And Labour has (probably) reduced 'counterfactual' income inequality. To assess the impact of Labour's policies since 1996/7, it is not enough to just look at where inequality is now compared to then. One has to ask: Where would inequality be now if we had just continued with the old tax-benefit system inherited from the Conservatives (with appropriate adjustments for inflation and the like)?

In Poverty and Inequality in the UK: 2007, IFS researchers calculated what the Gini for income inequality would be in 2005/6 under unchanged Conservative policies. The actual Gini in 2005/6 was 0.347. The 'counterfactual' Gini, reflecting unchanged Conservative policies, was 0.378 (Brewer et al, 2007, p.22). I have not managed to find a more recent calculation of this sort. But up to 2005/6 at least, it seems that Labour's redistributive budgets were preventing inequality rising by as much as it would otherwise have done - as much as it would have done under the policy regime inherited from the Conservatives.

(5) Poverty, on most indicators, is lower for most groups than when Labour came to office. If we turn from inequality to poverty, the basic story seems to be, first, that on most measures, and for most groups (children, pensioners, etc.), poverty rates are lower than in 1996/7 (Brewer et al, 2009, pp.34-36). Accordingly, I would judge any broad-brush claim that 'Poverty has increased under Labour' or that 'Labour has been bad for the poor' as risible.

The usual headline measures of poverty focus on those with incomes less than 60% of the median. One Conservative line of attack has been to switch the attention to those in 'severe' poverty, defined as those with incomes less than 40% of the median. Analysis shows that 'severe' poverty rates have increased since 1996/7. However, the most recent IFS report on this subject argues that the data on those with incomes at this level is hard to interpret. Many of those in this group record expenditure well above their income level, suggesting that they might be on temporary low incomes and using savings or borrowing in expectation of higher income to maintain their living standards. There might also be some recording error. The IFS researchers are thus sceptical that we should regard those in this group in general as really in 'severe' poverty (see Brewer et al, 2009, p.32).

(6) Labour's third term has been bad for poverty reduction. Labour's progress on reducing poverty went into reverse in its third term. Looking across the various groups (children, pensioners, etc.), poverty rates are higher now than they were in 2004/5 (Brewer et al, 2009, pp.32-34), though still lower for most groups than in 1996/7.

It should be noted, however, that IFS researchers expect child poverty to fall by 500-600,000 up to 2010/11, on the basis of existing policies and allowing for likely economic changes (Brewer, Browne, Joyce and Sutherland, 2009).

Overall, then?

Labour has (1) pursued consistently redistributive policies - it has shifted resources from rich to poor - and these policies (2) have had some effect in reducing poverty and (3) have probably helped to check, without altogether preventing (let alone reversing), increased inequality.

The Conservatives say they can do better. But, as part of the rhetoric of 'progressive Conservatism', they also tend to downplay the role of redistribution in tackling poverty and inequality. For they want the 'progressive end' of reduced poverty or inequality while using 'conservative means' (i.e., not redistribution).

To test what you think about this claim it helps to consider the 'counterfactual' exercise I mentioned above: If the Conservative approach - eschewing greater redistribution - had been applied since 1997, in place of Labour's consistently redistributive approach, do you think poverty and/or inequality would be lower today or higher?

I think the question just about answers itself.


Ian said...

labour were in office for 10 years before they had to face an economic downturn. Tax revenues were booming, government spending ballooned. And a supposedly 'progressive' party didn't manage to reduce the gini measure one bit. That is their great failure.

Would the conservatives have done differently? I don't know. But labour were voted in to reduce inequality- and they haven't

AD627 said...

What is the relevance of comparing inequality measures from 1979 to those of “the early 1990s” in assessing the record of the Tories in government? The last Tory government lasted until 1997. Your choice smacks of cherry-picking the evidence to support your assertion.

This government has certainly been redistributive. Unfortunately, that redistribution has been largely from those in gainful employment to those on benefits or in public employment. Such redistribution is clearly not sustainable.

Stuart White said...

Dear AD627: fine, if you want to compare 1979 to 1997, then the Ginis are 0.25 and 0.33 - yes, there is a whole 0.01 difference if you take 1997 as the point of comparision rather than the 'early 1990s'. I think you'll find that this still counts as an almost 'unparalleled' rise in inequality historically and transnationally (I think New Zealand, pursuing Thatcherite policies, also saw a huge rise in inequality over this period). (By the way, my comparison between 1979 and the 'early 1990s' is the one made in the IFS reports - I was reflecting that, not 'cherry-picking' - for, as you can now see, it makes hardly a jot of difference whether the comparison is between 1979 and 1997 or between 1979 and the 'early 1990s'.)

On your point about the direction of redistribution under New Labour: Have you checked this claim by looking at any research?

Ian: I am not saying Labour's record is great or even satisfactory. I am just pointing out what the record IS - and that it almost certainly does include making our economy less unequal than it would be under the policies of the previous Conservative government.