Children play football in front of a residential development in the London borough of Tower Hamlets. Photograph: Getty Images.
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How inequality is costing the economy billions

The social consequences of inequality, such as reduced life expectancy and worse mental health, cost the equivalent of over £39bn every single year.

Since the late 1970s, the UK has become one of the most unequal countries in the developed world. As the rich have got richer, the rest of us have been left behind. Research released today by Oxfam shows that just five families now have as much wealth as the poorest 20 per cent of the population. It’s a frightening statistic, and for most people, one that offends their basic sense of decency. Can anyone really be "worth" this much? Can so many people be worth so little?

Worryingly, for some the answer appears to be "yes". For these people, an elite but small group of "wealth creators" are delivering jobs and driving economic growth. If five of these people happen to have the same wealth as a fifth of the population, well that’s just reward for their hard work and, no doubt, superior intellect. Perhaps even more concerning is the argument that inequality is not just acceptable, but desirable - driving the competitiveness vital to entrepreneurialism. But does seeing someone paid hundreds or even thousands of times more than you act as encouragement, or as a painful reminder of how little society values you?

The reality is that the consequences of the UK’s extraordinarily high levels of inequality are far-reaching and catastrophic. Of the developed OECD countries, the UK is ranked 17th out of 23 for life expectancy, 19th out of 22 on obesity, 17th out of 21 on teenage births, and 17th out of 23 for imprisonment. More equal societies, meanwhile, top the table on almost every measure.

Inequality shapes how we see others, our levels of trust in strangers, our sense of community. It erodes the bonds between individuals. But might it go even further? The IMF and others have pointed towards the damaging effects that inequality may have on economic growth. It makes perfect sense; if wages stagnate or fall for the majority of people, a consumer-led recovery becomes tricky to engineer without encouraging a huge growth in personal debt.

In addition, the impact of inequality on our health, wellbeing and crime rates may also have a financial cost. Research recently conducted by the Equality Trust has found that the impact on the UK of some of the social consequences of inequality, including reduced healthy life expectancy, worse mental health, higher levels of imprisonment and murder, could cost the equivalent of over £39bn every single year. If this was broken down to an individual level, it would show that the impact of inequality on every man, woman and child in the UK can be valued at £622.

Yet these figures may be just the tip of the iceberg. Many of the costs associated with inequality remain incalculable. For example, how does one value the higher level of community cohesion, trust, and social mobility associated with less unequal countries? Our estimate is based on a comparison between the level of inequality in the UK and the average level seen in developed countries. In other words, small changes to our level of income inequality would have a huge effect.

In recent weeks, the issue of inequality has gained significant coverage, it is now unquestionably part of the public and political narrative. But we need action to match the rhetoric. A living wage, a fairer tax system, and the creation of jobs with genuine opportunities for advancement should all be part of political party manifestos. But all parties serious about reducing costly social problems must also include an Inequality Test - an explicit goal that the net impact of their policies will be to reduce the gap between the richest and the rest. The benefits of reducing economic inequality are clear - a richer, healthier and quite possibly happier society. But we need politicians to have the courage and conviction to deliver real change.

Duncan Exley is the director of the Equality Trust

Duncan Exley is the director of the Equality Trust

Photo: Getty Images
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The twelve tricks in George Osborne's spending review

All Chancellors use chicanery, and George Osborne is no exception.

There is no great shame to a wheeze: George Osborne is no more or less partial to them than other Chancellors before him. Politicians have been wheezing away since history began. Wheezes aren’t even necessarily bad policy: sometimes they’re sensible as well as slightly sneaky. And we shouldn’t overstate their significance: the biggest changes announced yesterday were described in a clear, honest and non-wheezy way.

But it’s fun to try to spot the wheezes. Here are some we’ve found so far.


  1. Give people less time to pay their tax bills. Yesterday the Chancellor announced tax rises that will raise, in total, a net £5.5bn in 2019-20. A sixth of that total – £900m – results from the announcement that, from April 2019, anyone paying Capital Gains Tax (CGT) on the sale of a house will have to cough up within 30 days. Has the Chancellor made a strategic decision to increase taxes to pay for public services? Not really – he’s just moved some tax forward from the subsequent year to help his numbers stack up, at the price of bigger hassle for people who are selling houses. Not necessarily a bad thing – but a classic wheeze.


  1. Dress up a spending cut as a minor bureaucratic change. The Treasury yesterday announced what sounds like a sensible administrative change to the Government’s scheme for automatically enrolling people into pensions: “to simplify the administration of automatic enrolment for the smallest employers in particular, the next two phases of minimum contribution rate increases will be aligned to the tax years”. Nice of them to reduce bureaucratic hassle for the smallest employers. This also happens to save the Government £450m in 2018-19, because instead of paying an increased subsidy into people’s pensions from January 2018, it will do it from April 2018.


  1. “Tuck under”.  The phrase “tucking under” is a Whitehall term of art, best illustrated with an example. We learnt yesterday that “DfID [the Department for International Development] will remain the UK’s primary channel for aid, but to respond to the changing world, more aid will be administered by other government departments, drawing on their complementary skills.” That sounds like great joined-up government. It also, conveniently, means that the Government can continue to meet its target of keeping overseas aid at 0.7% of Gross National Income, without having to increase DfID’s budget at the same rate as GNI: instead, other departments pick up the slack. Those bits of other departments’ budgets have thus been “tucked under” the ODA protection. See also: the Government is “protecting” the schools budget in real terms, while slashing around £600m from the funding it gives to local authorities to support schools, so that schools will now have to buy those services from their “protected” funding – thus “tucking” the £600m “under” the protected schools budget. (See also: in the last Parliament, the Government asked the NHS to contribute to social care funding, thus “tucking” some social care “under” the protected health budget.)


  1. Cumulative numbers. Most of the figures used in the Spending Review are “in-year” figures: when the Government says it is giving £10bn more to the NHS, it means that the NHS will get £10bn more in 2019-20 than it got in 2015-16. Then you read something like: “The Spending Review and Autumn Statement provides investment of over £1.3 billion up to 2019-20 to attract new teachers into the profession.” That’s not £1.3bn per year – it’s the cumulative figure over four years.


  1. Deploy weasel words. The government is protecting “the national base rate per student for 16-19 year olds”. Sounds great – and it will be written up in many places as “Government protects 16-19 education”. But the word “base” is doing a lot of work here. Schools and colleges that educate 16-19 year olds currently get a lot of funding on top of the “base rate” – such as extra funding for disadvantaged students. Plans for that funding have not yet been revealed.


  1. Pretend to hypothecate a tax. The Chancellor announced yesterday that – because the EU won’t allow him to reduce the ‘tampon tax’ – he’ll instead use the proceeds of that tax to pay for grants to women’s charities. This sounds great – but all he’s really saying is that, among all the many other millions of pounds of grants issued by the government to various causes, £15m will be given to some women’s charities, which might have got that funding anyway. It’s not real hypothecation: it’s not as if women’s charities will get more if there’s a spike in tampon sales. See also: announcing that local authorities can raise council tax so long as they use it to pay for social care – LAs would probably have spent just as much on social care anyway (and other services would have suffered).


  1. Shave away a small fraction of a big commitment. The Conservative party made great play in the election campaign of its commitment to provide 30 hours of free childcare to 3 and 4 year olds in working families. In the July Budget, it made more great play of re-committing to this. Yesterday, it announced that “working families” excluded any parent working less than the equivalent of 16 hours at the minimum wage, or more than £100,000. That sounds like a fairly small change – but it saves the Government £125m in 2020.


  1. Turn a grant into a loan. If government gives someone a grant, that is counted as spending and increases the public sector deficit. If instead the government gives someone a loan, that doesn’t count against the deficit, because it’s assumed that the loan will be paid back (so the loan is like an asset which the Government is holding). Recently we’ve seen a lot of government grants turning into loans – in the July Budget it was student maintenance grants; yesterday it was bursaries for trainee nurses.


  1. “Reverse” a decision that hasn’t happened yet. In 2012 the Government announced that, from April 2016, it would remove the 3% “diesel supplement” that puts a higher tax on company cars that use diesel than on others. Yesterday, it cancelled this, saving over £265m per year for the rest of the Parliament. People complain less about you cancelling a tax cut when you haven’t done the tax cut yet. (Perhaps this doesn’t qualify as a full wheeze, but there’s something wheezy about it.)


  1. “Protect” things in cash terms. If you really want to protect an area of spending, you should at least increase it in line with inflation, so that it can still buy the same amount of stuff. This government – like the Coalition before it – enjoys protecting things only in cash terms. Examples yesterday included the basic rate of funding per 16-19 year old in education, and the entire children’s services budget.


  1. Freeze things in cash terms. Yesterday the government announced that the repayment threshold on student loans – the level above which ex-students must start paying back their loans – will remain frozen in cash terms for 5 years, instead of increasing with earnings (which is what has happened to date). This saves the Government £200m in 2019-20. In a particularly bold move, the Government has even applied this rule to loans that have already been issued – changing the terms on which students took out the loans in the first place.


  1. Hide all these wheezes in sweeping statements. The first chapter of the Spending Review tells us that “£3 billion [of reduction in the deficit] is being delivered through reforms such as Making Tax Digital and further measures to tackle tax avoidance.” The innocuous phrase “reforms such as” covers the bringing forward of £900m in Capital Gains Tax (see number 1 above) and the £450m saved by delaying automatic enrolment into pensions (see number 2 above).

Catherine Colebrook is chief economist at the Institute for Public Policy Research