NS Essay - 'Brown's stealth socialism has backfired: public opinion is now more Tory than ever'

Popular political wisdom tells us that the well-paid won't vote for higher taxes. But only by persua

Which of the following countries is the most equal in terms of income: the UK, France, or the United States? You're going for France? Final answer? Sorry, the correct answer is the United States.

And the most unequal? According to new research, the UK tops the unfairness table. Naturally, there's a catch: the figures, compiled by the leading American economists Christopher Jencks and Gary Burtless, are based purely on money provided by the market - in other words, on people's incomes before the state has done any taxing or spending. Once government spending is factored in, the US returns to its usual place at the top of the inequality table (see graph, page 28).

"We were a bit surprised by these numbers," says Burtless. "People tend to look at the gap in wages, and we know that the US has higher wage inequality." He and Jencks speculate that the US economy does, however, have some powerfully equalising tendencies, too, in particular providing high employment levels and much more market income to pensioners - through private investments - than the economies of other nations.

But the bottom line politically is that inequality is not an inevitable product of wage inequality, technology or globalisation: it is a matter of government policy. "If the US redistributed as much income as the average OECD country, the dispersion of disposable incomes would be about the same in the US as in France or Canada," Burtless calculates. It's not the US market that lets the egalitarian side down; it's the US government.

The British story is not much less sorry. Our rates of redistribution are only sufficient to pull us down to second place in the inequality index - and there has been no improvement in the gap between rich and poor since Labour came to power in 1997. "The best we can say is that inequality has either remained the same, or even increased slightly," says Andrew Shephard, a research economist at the Institute for Fiscal Studies. "By any of the standard measures, there is no evidence of any reduction in the gap between rich and poor since 1997." Again, it is not free-market economics that is to blame: it is free-market politics.

Labour's achievement has been to help the poor keep up with the rich (which John Major also managed), without overt redistribution or taxation of the well- off. A panoply of targeted and highly complex tax credits and income guarantees has gone some way to lowering poverty levels. And the percentage of jobless parents in severe hardship has at least halved, according to the Policy Studies Institute.

But the modus operandi has been smoke and mirrors: a raid on advanced corporation tax here, a recalibrating of the Working Families Tax Credit there. The little redistribution which has taken place has been whisper-quiet. Generally, Labour has not wanted credit for its credits. This has been socialism by stealth.

For a while this seemed like smart politics. After all, if the electorate does not like manifest redistribution, the best you can hope for is to slip a little past them. With the 1992 "tax and spend" loss burnt deep into Labour's psyche, Gordon Brown's backstairs approach looked like realpolitik at its best. Brown was influenced, as in so many cases, by the US experience - in this case, by the sight of Bill Clinton pushing an increase in the Earned Income Tax Credit through a Republican Congress by selling it as a "tax cut for the working poor". Who could oppose that?

But stealth socialism has now run its course. In part this is because inequality is coming to be seen, and rightly, as a problem in itself, whether or not poverty is falling. It corrodes civil society, fragments communities, damages health and - perhaps most significantly of all - it reduces social mobility. Recent research in the UK shows that by the age of two, smart poor kids are starting to fall behind dumb rich ones in terms of development.

Burtless and Jencks point out that it is too early to know what the large rises in income inequality during the 1980s will do to inter-generational mobility. But they do show that the gap between rich and poor in college admission rates is widening. Jonathan Gershuny at the University of Essex also shows that life chances for those from poor backgrounds are deteriorating, especially among women. To be the party of opportunity, Labour has no choice but to be the party of equality.

The old-fashioned message of the Burtless and Jencks research is that if you want more equality, you need more state redistribution. Now that the government is running out of stealth options, this means more overt redistribution. And this, to many people in new Labour circles, means electoral suicide. (It will be interesting to see whether the arrival in Downing Street of Matthew Taylor, former head of the Institute for Public Policy Research, alters the stance. Taylor has been increasingly vocal about the need to spell out the case for higher taxation.)

The polling data, at first sight, seems to support the pessimists. Just 39 per cent of the electorate agree that "the government should redistribute money from the better-off to the less well-off" - a startlingly low figure, given that every government, of whatever political hue, always has. Only a similar minority support more spending on "welfare benefits". But the answers to these questions are highly sensitive to the language they adopt. Simply avoiding the "r" word helps a lot. While 53 per cent think that "the government should increase taxes on the better-off to spend more on the poor", 75 per cent believe that the government "should reduce the income gap between rich and poor".

Alison Park, from the National Centre for Social Research, who runs the British Social Attitudes survey, says that there is "a tendency for people to say 'yes, I think that taxes should go up for the better-off, but of course I'm not better off myself'". A forthcoming report from the Institute for Fiscal Studies on "Middle Britain" will show that people are hopeless at locating themselves accurately on the income scale and, in particular, that a great many people who regard themselves as having average incomes are in fact right at the top of the income scale. In this cognitive sense, we are indeed all middle class now.

The real concern with the attitudinal data, however, is the trend away from egalitarianism. Since Labour came to power, levels of support for equalising policies have dropped, in some cases fairly dramatically. In 1995, 87 per cent of the population thought that the gap between rich and poor was too large, but by 2001 this figure had fallen to 80 per cent. This would matter less if the gap had, in fact, narrowed. But, over the same period, inequality rose by every measure. Support for explicit redistribution has similarly plummeted; in the year before Labour came into office, 44 per cent agreed with redistribution, compared to 39 per cent today. British voters appear to care about equality less than ever even as, under a Labour government, the UK becomes less equal.

It may be that Labour has driven some of these changes in opinion. Remember Tony Blair calling for more millionaires, and insisting that Labour had no interest in cutting David Beckham's pay, while describing the cost of welfare as the price of failure? The rhetoric around the New Deal - "no benefit for staying in bed" and so on - certainly shifted opinion: 1998 was the year when, for the first time, more people thought unemployment benefit too high than too low. As John Hills, professor of social policy at the London School of Economics, puts it: "In both its action and its choice of which of these to stress, Labour has reacted to the constraints of public opinion. Yet its own rhetoric appears to have the capacity to shift some of those opinions."

This is the terrain on to which the battle for greater equality must move. It is no longer enough to tinker with the tax and benefits system; hearts and minds must be won. There are tentative signs that Labour is prepared to be bolder. Certainly, there is now a richer debate about the case for higher taxes to fund schools and hospitals, which is paying off - the next round of the British Social Attitudes survey will show a rise in support for higher taxes for "health, education and social benefits".

However, Labour will need to work much harder to shift opinion on taxing the rich more in order to fund higher welfare benefits for the poor. But there are two reasons why any Labour minister should be working towards shifting the opinions of voters. First, only by embedding social changes in social attitudes can any gains be secured politically. If the public remains sceptical about the need for higher taxes and redistribution, a future Conservative government will find it easy to unpick Labour's threads.

As Park points out: "It is certainly the case that parties and governments can shape attitudes. And it is very clear that if you simply follow the public view, things may well change very little. If you want change, you either have to go against prevailing public opinion, or try to shift it."

But there is a further, deeper reason why a shift in attitudes is necessary: without enlightened individuals, a more progressive society is a conceptual and practical impossibility. This thorny fact of political life is brought vividly to the surface by the Oxford philosopher Gerald Cohen in a critique of John Rawls's theory of justice, and particularly his "difference principle", published as If You're an Egalitarian, How Come You're So Rich?).

The difference principle states that inequalities are justified only to the extent that they make the poorest people better off than they would otherwise be. Rawls assumed that such inequalities would be required (as Cohen paraphrases it) "in virtue of the benign influence on productive motivation of the material incentives associated with economic inequality". Poor people need productive people to produce in order to get a share of the resources thereby generated - and those productive people will produce only if there is something in it for them.

But Rawls also asserts that a just society is one in which everybody signs up to the difference principle. This allows Cohen to detonate his philosophical firebomb. He points out that "an anti-egalitarian selfishness must be attributed to the more productive, as part of the explanation for why inequality is necessary".

As it happens, this attribution seems correct: support for redistributive policies drops sharply at the top of the income scale. But the question Cohen poses is whether self-interest should be taken as a fixed feature of human nature. After all, if talented, dedicated people were happy to work hard for no more material reward than their lazy, low-IQ neighbours, then Rawls's defence of inequality - not to mention the arguments of those to his political right - would fall away. As Cohen puts it:

Talented people . . . could not claim . . . at the bar of the difference principle, that their high rewards are necessary to enhance the position of the worst-off, since . . . it is they themselves who make those rewards necessary, through their own unwillingness to work for ordinary rewards as hard as they do for exceptionally high ones.

In a world of perfect selflessness, inequalities would be rendered unnecessary. But such a world smacks of Louis-Sebastien Mercier's Memoirs of the Year Two Thousand Five Hundred, a utopia in which taxation is voluntary but everyone gives much more than the suggested amount because, as the narrator's guide explains, "our tribute is not by compulsion, but founded on reason and equity. There is scarce a man amongst us who does not esteem it a point of honour to discharge the most sacred and most legitimate of debts."

We are some way from this view of taxation and inequality. None the less, it is surely true that if people remain selfish - or "incentivised", to use the kinder jargon - then inequality, like the poor, will always be with us. The challenge is not simply to address income inequality, but to address the self-interest that underpins it.

This is not to say that Labour should set out to create a society of Buddhists. It is to say that a legitimate goal of policy is to shape public attitudes: there is no doubt Margaret Thatcher thought so, and to a large extent succeeded. A true egalitarian will seek not only to reduce, in a Rawlsian fashion, the level of inequality to the minimum consistent with a given level of self-interest, but also to reduce that level of self-interest and the barrier it represents to greater equality.

So no political party interested in equality, whether or not in a strict Rawlsian sense, can content itself with the writing of rules, passage of laws or establishment of social and economic structures. It must also be concerned with persuading society towards more egalitarian views. As Cohen says, having lost his Marxist faith: "I now believe that a change in social ethos, a change in the attitudes people sustain towards each other in the thick of daily life, is necessary for producing equality."

The problem with Labour's stealth socialism is that it has failed to generate any such shift in opinion. If anything, the party of the people governs a country with views that are more Tory than those of the last Tory administration. The true mark of Labour's success will not be in the construction of new pieces of social engineering, but in the creation of a new social ethos.

Of course there are electoral dangers here. If Labour gets too far ahead of public opinion it may lose the election. But if it leaves public opinion where it is, the election may not be worth winning.