Inequality is falling, and for once, Cameron would be right to blame Brown

Nothing the Government has done will help equality. That's why they're keeping quiet about it.

A piece by John Rentoul in today's Independent has been making waves. Rentoul argues that, because inequality in Britain fell in 2010-2011 – the first year of the Conservative government – the Coalition has actually lived up to its promise to ensure that "we're all in it together".

He writes:

In June, the Institute for Fiscal Studies (IFS) published an analysis of official data that found that, although all after-tax incomes fell in the first year of the Coalition (2010-11), higher incomes fell more than lower incomes, resulting in a more equal distribution.

This is true. Although it's hard to check, because he doesn't cite with any specificity, it appears that these are the findings he's referring to:

Three different measures of inequality, including the internationally-accepted Gini coefficient, all fell sharply in the first year of the coalition government. The Gini in particular fell to levels which Britain hasn't seen since 1997.

But although these are after-tax measures of inequality, attributing all the changes to the tax system would be incorrect. And although they happened during the first year of the coalition government, giving credit to that government would be inaccurate.

The IFS explain why inequality fell so sharply in section 3.6 of their report. Part of the rise in equality was because "the largest falls in income took place at the very top of the income distribution"; the introduction of the 50p income tax rate "is one of the major drivers" of that fall. So a measure enacted 37 days before the coalition came to power – and halved in magnitude in that coalition's second budget – is responsible for a lot of the fall in inequality which Rentoul is attributing to Cameron. Perhaps the Government deserves credit for not scrapping the tax band completely, but normally one praises people for doing good, not for doing less bad than they might have.

The IFS doesn't break out any further causes of the 2010-11 rise in equality, but it does point out that, between 1997 and 2010, Labour supported the bottom part of the income distribution with "significant increases in the amount of redistribution". It adds that, since the Government plans further spending cuts, "changes in private incomes and government tax and benefit policy… seem likely to lead to increases rather than decreases in income inequality in the coming years."

In other words, the Government would be silly to stake its reputation on a chance fall in inequality due mostly to the actions of its predecessor – because what it has got planned will make the situation much, much worse.

Rather than looking at what the government inherited, Rentoul should instead have looked at what it's got planned. That was in the IFS report as well. Here's the chart summarising it:


That's rather less sharing of the pain than Rentoul implied. The bottom four deciles are taking by far the most pain proportionally, and only then does the richest decile take its portion of the cuts.

The reason why the coalition hasn't been shouting from the rooftops about narrowing the gap between the rich and the poor is because it didn't do it. To quote Cameron from what seems like every Prime Ministers Questions since he was elected, "it was the fault of the last Labour Government". We will have to wait a bit longer to see what effects his vision of equality in Britain turns out to have; but judging by the changes he has implemented, they won't be pretty.

David Cameron in May 2010. His first action as PM was to travel back in time and implement the 50p tax rate, thus ensuring inequality would fall under his Government. Photograph: Getty Images

Alex Hern is a technology reporter for the Guardian. He was formerly staff writer at the New Statesman. You should follow Alex on Twitter.

Getty Images.
Show Hide image

Is anyone prepared to solve the NHS funding crisis?

As long as the political taboo on raising taxes endures, the service will be in financial peril. 

It has long been clear that the NHS is in financial ill-health. But today's figures, conveniently delayed until after the Conservative conference, are still stunningly bad. The service ran a deficit of £930m between April and June (greater than the £820m recorded for the whole of the 2014/15 financial year) and is on course for a shortfall of at least £2bn this year - its worst position for a generation. 

Though often described as having been shielded from austerity, owing to its ring-fenced budget, the NHS is enduring the toughest spending settlement in its history. Since 1950, health spending has grown at an average annual rate of 4 per cent, but over the last parliament it rose by just 0.5 per cent. An ageing population, rising treatment costs and the social care crisis all mean that the NHS has to run merely to stand still. The Tories have pledged to provide £10bn more for the service but this still leaves £20bn of efficiency savings required. 

Speculation is now turning to whether George Osborne will provide an emergency injection of funds in the Autumn Statement on 25 November. But the long-term question is whether anyone is prepared to offer a sustainable solution to the crisis. Health experts argue that only a rise in general taxation (income tax, VAT, national insurance), patient charges or a hypothecated "health tax" will secure the future of a universal, high-quality service. But the political taboo against increasing taxes on all but the richest means no politician has ventured into this territory. Shadow health secretary Heidi Alexander has today called for the government to "find money urgently to get through the coming winter months". But the bigger question is whether, under Jeremy Corbyn, Labour is prepared to go beyond sticking-plaster solutions. 

George Eaton is political editor of the New Statesman.