Yet another study has just been published showing that the UK is one of the most unequal countries in the world. In their report, the International Monetary Fund (IMF) says that ‘widening income inequalities is the most defining challenge of our time’. Forty years ago, 5 per cent of income went to the highest 1 per cent of earners. Today it is 15 per cent. Spare a thought for our cousins across the Atlantic; in the US the figure has risen from 8 per cent to 20 per cent. This trend of increasing income inequalities has occurred in most high income countries, but some less so than others.
This work follows on from another IMF report which came out in support of Nobel economist, Joseph Stiglitz’s analysis that inequalities are a drag on growth and can also make growth more volatile. The Organisation of Economic Co-operation and Development (OECD) has similarly rejected the ‘trickle down’ economics of the 1970s, so popular with Margaret Thatcher and other Thatcherites; this supposed that increasing wealth at the top would ‘trickle down’ to the rest of the food chain and that policies aimed at reducing inequality would reduce incentives and slow growth. Now the evidence is clear: inequalities have slowed not increased growth. Raising the income share of the poorest 20 per cent of the population increases growth by as much as 0.38 per cent over five years. By contrast, increasing the income share of the richest 20 per cent by 1 per cent decreases it by 0.08 per cent. In the UK, the Institute of Fiscal Studies (IFS) has shown that working people on low incomes, particularly families with children, have lost proportionately more of their income than any other group since 2010 as a result of tax and benefit changes. If cuts to public services are added to this, the disproportionate negative impact on people on low income is even starker.
In addition to income inequalities there are also inequalities in wealth (assets) with land and property being the largest real assets. In 2002 it was estimated that 69 per cent of the land was owned by 0.6 per cent of the population. In the six years to 2011 the number of landholdings had reduced by 10 per cent but the size of these holdings had increased by 12 per cent. So even fewer people own even more land. Many in housing policy emphasise that if we’re to solve the housing crisis in addition to building more homes, we need to tackle the cost and availability of land and address the volatility in the market. With average house prices in the UK over £180,000 (over £460,000 in London), it has been estimated that it would take 22 years for people on low and middle incomes to save for a deposit. As a result many young people, but not exclusively, are living with their parents, or are renting, the so-called ‘Generation Rent’. Inequalities are now becoming intergenerational.
Unfortunately, the Government’s policy measures have exacerbated these inequalities with the further concentration of land and property assets in the hands of a tiny elite. By waiving the mandatory quota of affordable homes in new housing developments, the Coalition allowed developers to build more properties for rent in the private rented market and by deregulating what is already the least regulated private rental sector in Europe, they opened the door to rogue landlords. After using £12bn of taxpayers money to guarantee £130bn of new mortgage lending, the ‘Help to Buy’ scheme will do little to help renters become buyers; instead it has fuelled increases in new house prices and will generate yet more private sector rented accommodation, as many owners either sell or rent out their property after the Government subsidies end. And extending the ‘Right to Buy’ to people renting homes from housing associations may increase home ownership but without building more social housing (currently at a 20 year low), it just reduces the supply of affordable homes for people on low incomes to rent.
Inequalities are not inevitable. In the UK after a decline in the share of all income received by the richest 1 per cent after World War 1 until the 1980s, the trend was reversed with a sharp rise in the accumulation of income until around 2005/6. There are various ways inequalities are achieved and then perpetuated. Regressive economic policies with the total tax burden falling predominantly on the poorest combined with low levels of public spending, especially on social security, are key. When wealth and power are concentrated in a tiny elite, there tends to be less investment in education, health and infrastructure, which particularly benefits people on low incomes and enhances productivity. In the last 5 years, for example, public spending as a percentage of GDP, fell in health from 6.6 per cent in 2009/10 to 6.1 per cent in 2015/16 and in education from 3.8 per cent to 3.1 per cent. In addition to reducing investment, Coalition policies from reducing access to education (by trebling tuition fees, scrapping education maintenance allowance), to facilitating exploitative, labour markets (poor quality jobs, zero hour contracts, deregulation) and restricting access to justice (with legal aid and judicial review changes), have further contributed to maintaining power with an elite.
But to do this requires buy-in from the voting public. To this end there has been a championing of the market and consumerism. ‘Get rich quick’ schemes like the 1980s British Gas ‘Tell Sid’ shares sell off symbolised this; ordinary people were sold an illusion – that elitism was good and that they could be part of it. At the same time the Thatcher Government started the commoditising and marketization of public services such as healthcare. The Labour Party hasn’t been completely blameless in this; as Chair of an NHS Trust in 2006 I remember warning the then Health Secretary of the dangers of pursuing the blatant promotion of healthcare consumerism under the illusion of ‘choice’, equating personalised care with a personal budget. Fortunately her successors listened.
Accompanying the praise of materialism, has been an insidious spreading of a culture of blame and fear. In the 1980s, the unions were the target, today the focus is on the poor and vulnerable. The narrative associated with the so-called welfare reforms has been one of ‘divide and rule’, deliberately attempting to vilify people receiving social security as the new undeserving poor. By using pejorative language such as ‘shirkers’ and ‘scroungers’ the Government has intentionally attempted to demonise social security recipients when in fact most of the social security budget is spent on pensioners. The regular misuse of statistics is another way the Government is trying to harden the public’s attitudes to the welfare state. And this is set to get much worse as the Government prepares to cut £12bn from the annual social security budget in July’s budget, including potentially slashing tax credits for the working poor as well as support for working age people with disabilities. But fear and blame is not just the preserve of the Conservative’s and it must be resisted at all costs.
Once again the Government justifies their regressive economic policies by blame and innuendo. Their policies are not about securing the UK’s economic future or balancing the books and they are certainly nothing to do with enabling everyone to get on; they are all about ensuring power and wealth is retained by a privileged few.
There is now overwhelming evidence of the wider effects of these inequalities on a range of factors. Nations with a wider gap between rich and poor have higher levels of infant mortality, lower life expectancy, less social mobility, higher crime levels, lower educational attainment. The UK imprisons more people than anywhere in Europe, in contrast Sweden has had to close jails because of a lack of prisoners. In some parts of the UK, life expectancy for men is lower than for men in India, with health inequalities between the rich and poor – the gap in life expectancy – increasing to 8 years for men and 7 years for women, as wide as the gap between the UK and Nicaragua.
Fairer, more equal societies don’t just benefit poorer people, they benefit everyone. In addition to enhanced growth and productivity and a reduction in pressure on public services, there is also evidence of greater levels of happiness and trust. In his evidence to the Oldham Fairness Commission which I established, Professor Richard Wilkinson said of unequal societies:
There are deeper issues [associated with inequalities] such as a decline in whom we trust and concerns about how people are judged. These higher levels of anxiety increase across all population groups in unequal societies. It is the gaps between people that are important.”
Knowing how inequalities stifle growth and damage society, as well as how they are perpetuated, what can we do about them? There is evidence that Britons want a fairer society. In a recent time-series analysis of British Social Attitudes survey data on welfare spending, 93 per cent of Britons born after 1979 reported that they would prefer to either increase taxes or keep them the same in order to support health, education and social benefits. The data also refutes the claim that the young are especially unsympathetic to the needs of others. This age group is the most likely to agree with maintaining support for both disabled people and low-income working parents.
So as a starting point any Government proposals to further cut social security support for the low paid, families with children or for people with disabilities need to be strongly opposed by Labour; cuts to housing benefit need to be linked to reforms with the housing market. Spending in education, health and international development as a percentage of GDP needs to be protected; over the next 5 years Labour needs to redefine what the welfare state for the 21stcentury should look like.
Labour needs to work with willing local authorities to introduce the living wage in all sectors as early as possible by, for example, linking this to business rate discounts as Brent Council has done. At the same time we need to be putting pressure on the Government to support employers to do this, for example through tax rebates.
For small businesses, the backbone of the economy, and woefully supported by the last Government, three key issues need to be addressed to enable them to flourish and productivity to increase: access to finance, business rates and late payments. Again we can work with local authorities on these, for example, by providing business loans and finance, both directly and indirectly through funding circles, to local businesses. Through local procurement, councils are also central to supporting their businesses and the local economy; but they can also help address issues in the labour market, from low quality apprenticeships, or zero hour contracts to disability employment gaps.
Housing costs are still the major cost to individuals and families. Whilst supply issues are being addressed, regulatory reform of the private rented sector is essential. Other areas to investigate include the potential of a land and property tax as Ireland have just introduced and how can we ensure support for home ownership particularly first-time buyers, rather than ‘buy-to-letters’.
The Government is unlikely to have a Damascene moment any time soon regarding fair taxation – where the total tax burden for people on low and middle incomes is not more than people on higher incomes as it currently is, and individuals and corporations are tackled about their aggressive avoidance or evasion in paying the taxes they owe – but this has to be a Labour goal.
Finally our politics needs to change. Empowering all of our citizens by actively engaging them in decision-making, not the passive piecemeal ‘consultation’ after decisions have already been made. This needs to be a new way of working, where politicians, local, national and beyond, are truly accountable every day not every few years at the ballot box. This has to be the politics of the future. With this we will rebuild trust from the people we serve. Devolution is part of this, but we must ensure that this isn’t just about devolving risk, as this Government appears to be doing, or adding another layer of bureaucracy at a local level and that every part of the country benefits not just our city regions. We’re not going to be able to stop all the havoc this Government is about to unleash and the impact this will have on inequalities, but we may be able to mitigate some of their effects at a local level. And it starts with our vision of hope for the future, where everyone can get on and no-one is left behind.
This was first published by the New Statesman