Photo: RonF
Originally published by the Guardian 10 July 2015.
Britain is the most unequal society in Europe in terms of wage distribution, according to a study by the European Foundation for the Improvement of Living and Working Conditions (Eurofound).
With such a dubious accolade, can we sink any lower? On the eve of the budget, at the Guardian’s inequality debate, Owen Jones – labelled by the other panellists as “the alternative leader of the opposition”, predicted: “The long-term trajectory on inequality of income is set to get a lot worse, not least because of what is going to happen [in the budget]; an offensive against in-work benefits.”
Sure enough, on Wednesday George Osborne announced £9bn worth of cuts from the benefits bill, much of it hitting families in work, with a four-year freeze on working-age benefits, the removal of housing benefit for 18- to 21-year-olds and tax credits limited to the first two children.
Fellow panellist and former Tory MP David Willetts was eager to highlight a section of a report from the Institute for Fiscal Studies (IFS) that showed income inequality had been reduced since the financial crisis. He said: “There were some crucial years when benefits were actually rising relative to earnings, which has meant that the gap between the top 20% and the bottom 20% has, if anything, narrowed since the crash.”
But if it’s true that relatively stable levels of benefits had previously put the brakes on inequality, major cuts in this area are likely to have the reverse effect. Indeed, that same IFS report predicted exactly this: “There is good reason to think that the falls in income inequality since 2007–08 are currently being reversed. As earnings growth catches up with inflation, primarily boosting incomes for middle- and higher-income households, cuts to benefits and tax credits are reducing incomes primarily towards the bottom.”
Jones was quick to pounce on the disparity in how the government treated the banks, which he dubbed “Britain’s most lavished benefit claimants”, and those on state welfare.
“Those at the top can plunge this country into one of the worst economic calamities it has suffered in modern times with huge amounts of state support, no questions asked,” he said. “For those at the bottom, that state support is ever more conditional. Do you know what that is? It’s socialism for the rich and it’s capitalism sink-or-swim for those at the bottom.”
The panel mooted the idea of a living wage, and Osborne took the perhaps surprising move of announcing his own version of it on Wednesday. At £7.20 nationally the “national living wage” is, however, considerably lower than the level calculated by the Centre for Research in Social Policy for the Living Wage Foundation, which uses cost-of-living calculations to arrive at a living wage of £9.15 in London and £7.85 outside the capital.
The Living Wage Foundation labelled the move as “effectively a higher national minimum wage”. At the debate, Jones noted that the current calculation of a living wage takes into account in-work benefits and would have to be upped to reflect any reduction in those.
The shadow budget
Together with the firebrand Jones, Labour MP Diane Abbott and the Observer’s ever-erudite Will Hutton put forth what might be considered the basis for a sort of shadow budget aimed at tackling inequality. For Hutton, one of the number one issues was the account deficit that is the result of Britain’s lagging exports: “We don’t have a productive heart of our economy that throws up high-wage jobs. Why is that? Because we have a disproportionate number of what I call ‘ownerless corporations’ who chase the share price, underinnovate and underinvest.”
In addition to tackling this, he was pretty clear that we need to start taxing the right things, namely property and wealth instead of income: “We as a country are complicit in the construction of dynasties at the top in the name of not wanting to have a ‘death tax’, and millions of our fellow countrymen are voting for them in the name of aspiration … The right call inheritance tax a ‘death tax’. I call it ‘we share in your good luck tax’”. Both he and Abbott concurred that council tax was sorely in need of a revision, with it still using property values from 1991.
Jones posited a move away from what he termed Britain’s “hour-glass economy” with low-skilled work at the bottom and professions with huge barriers at the top, towards a system akin to that in Germany that would require a proper industrial strategy. Abbott concurred, citing a rise in nepotism: “One of the things about the job market today and one of the reasons over a decade it’s become more unequal, is it’s about who you know in some of these professions … and that deepens and entrenches inequality.”
She was keen to note that inequality could not simply be measured by income levels and that the seeming collapse of stable and secure jobs has had a major role to play in eroding people’s self-esteem and making them feel less valued and more unequal. This lack of security in the labour market – which now sees more than 2 million in casual work – was widely acknowledged as a key issue.
A view from the right on inequality: education, education and … housing
Willetts noted that his party’s stance on inequality had undergone a shift in recent decades: inequality was a problem that concerns them now, he said. But he saw education as the key component: “Where I think the gap has widened – which is a crucial change in the labour market – is between graduates and non-graduates.”
On this point, Willetts found an unsurprising ally in Sheila Lawlor, director of the rightwing thinktank Politeia. She believes the prevalence of “low-skilled” jobs in Britain is a major driver of disparity: “What matters is that enough people are not equipped – and I would say this is a fault of our education system – to get a decent job and make the most of their opportunities in life.”
The other key area for Willetts when it comes to wealth inequality is housing. “The driver of wealth inequality is above all that has happened to house prices and that is manifestly influenced by the fact that under successive governments we’ve not been building enough houses,” he said.
With house prices predicted to keep rising, collective bargaining being eroded with a fresh attack on unions, the effects of the latest budget still to take hold and a political opposition that Jones described as “AWOL”, inequality looks here to stay. Perhaps it’s time for a cabinet clearout – the dubious trophy cabinet that is – as more unwanted awards on inequality could soon be inbound.
The Rose-tinted Analyst 