Why inequality has fallen and why it's set to rise from now on

The gap between the rich and the poor has narrowed as real earnings have fallen but the coalition's welfare cuts mean it is set to widen from now on.

The most notable finding from the ONS's annual report on "the effects of of taxes and benefits on household income" is that income inequality fell betwen 2010-11 and 2011-12 to its lowest level since 1986. It notes: 

The Gini coefficient for disposable income in 2011/12 was 32.3%, a fall from its 2010/11 value of 33.7%, and the lowest level since 1986. This fall in income inequality is partly due to earnings (including income from self-employment) falling towards the top of the income distribution but increasing for the poorest fifth of households.

This is not as surprising as some suggest; it's normal in times of economic stagnation for inequality to fall as middle class earnings decline and the automatic stabilisers protect the incomes of the poorest. The decision of the rich to delay earnings until 2012-13 in order to benefit from the cut in the 50p tax rate is also likely to be a factor. But it's still a finding the Tories will hail as they seek to prove that "we're all in this together". 

They would be wise, however, to resist the temptation to do so. Owing to the coalition's welfare cuts, many of which only took effect this year, inequality is forecast to significantly increase between now and 2015-16. In particular, George Osborne's decision to cap benefit increases at 1 per cent for at least three years (an unprecedented real-terms cut) means the poorest will see a sharp fall in their incomes. The IFS expects inequality "to rise again from 2011–12, almost (but not quite) reaching its pre-recession level by 2015–16." 

While the Tories can take little credit for the fall in inequality (which is largely due the decline in real earnings), they will deserve the blame for the rise.

George Osborne delivers his Mansion House speech on June 19, 2013 in London. Photograph: Getty Images.

George Eaton is political editor of the New Statesman.

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Scottish Labour's defeat to the Tories confirms a political transformation

The defining divide is no longer between left and right but between unionist and nationalist.

It was Scotland where Labour's recovery was supposed to begin. Jeremy Corbyn's allies predicted that his brand of left-wing, anti-austerity politics would dent the SNP's hegemony. After becoming leader, Corbyn pledged that winning north of the border would be one of his greatest priorities. 

But in the first major elections of his leadership, it has proved to be Labour's greatest failure. A result that was long thought unthinkable has come to pass: the Conservatives have finished second (winning 31 seats). For the first time since the 1910 election, Labour has finished third (winning 24). Scottish Labour leader Kezia Dugdale stood on a left-wing platform, outflanking the SNP on tax (pledging to raise the top rate to 50p and increase the basic rate by 1p), promising to spend more on public services and opposing the renewal of Trident. But rather than advancing, the party merely retreated.

Its fate confirms how Scottish politics has been realigned. The defining divide is no longer between left and right but between unionist and nationalist. With the SNP as the only major pro-independence party, the Tories, led by the pugnacious Ruth Davidson, framed themselves as the pro-UK alternative - and prospered. In contrast, Dugdale refused to rule out supporting a second referendum and suggested that MPs and MSPs would be free to campaign for secession. The result was that Scottish Labour was left looking dangerously irrelevant. "Identity politics. Labour doesn't get it," a shadow minister told me. Its socialist pitch counted for little in a country that remains ideologically closer to England than thought. The SNP has lost its majority (denying it a mandate for a second referendum) - an outcome that the electoral system was always designed to make impossible. But its rule remains unthreatened. 

Corbyn's critics will seek to pin the baleful result on him. "We turned left and followed Jeremy's politics in Scotland, which far from solving our problems, pushed us into third," a senior opponent told me. But others will contend that a still more left-wing leader, such as Neil Findlay, is needed. Dugdale is personally supportive of Trident and was critical of Corbyn before his election. Should she be displaced, the party will be forced to elect its sixth leader in less than five years. But no one is so short-sighted as to believe that one person can revive the party's fortunes. Some Corbyn critics believe that a UK-wide recovery is a precondition of recovery north of the border. At this juncture, they say, SNP defectors would look anew at the party as they contemplate the role that Scottish MPs could play in a Westminster government. But under Corbyn, having become the first opposition to lose local election seats since 1985, it is yet further from power. 

In Scotland, the question now haunting Labour is not merely how it recovers - but whether it ever can. 

George Eaton is political editor of the New Statesman.