George Osborne holds freshly minted coins during a visit to the Royal Mint in Llantrisant, Wales on March 25, 2014. Photograph: Getty Images.
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Inequality is on the up again - Osborne's boast is over

After the Chancellor boasted that inequality had fallen, welfare cuts mean it is rising again. 

To cries of disbelief from the Labour benches, George Osborne boasted in his last Budget that "under this government income inequality is at its lowest level for 28 years". Osborne's statement wasn't wrong. The Gini coefficient for disposable income in 2011-12 (the most recent figure then available) was 32.3 per cent, the lowest level since 1986. As I noted at the time, it's normal in periods of economic stagnation for inequality to fall as middle class earnings decline and the automatic stabilisers protect the incomes of the poorest.

But as I also noted, the Chancellor's boast was unlikely to last for long. Owing to the coalition's welfare cuts, many of which only took effect last year, inequality is forecast to significantly increase between now and 2015-16. In particular, 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." 

Today, the Office for National Statistics has provided us with an update and, exactly as predicted, inequality is on the up again. The Gini coefficient increased to 33.2 in 2012-13, the same level as in 2009-10 and is only likely to get worse (these figures are from the year before the top rate of tax was cut from 50p to 45p). 

While the Tories could take little credit for the earlier fall in inequality (which was largely due the decline in middle class earnings), they will deserve the blame for the rise. And with Ed Miliband making the need to reduce the gap his defining mission, Osborne may live to regret fighting on this turf. 

George Eaton is political editor of the New Statesman.

Photo: Getty
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Theresa May's Brexit gamble

The Prime Minister is betting that the economic hit from putting border control first will be delayed and go unnoticed. 

Britain’s European referendum was about immigration. That doesn’t mean the country was divided on it. Had the question been a Yes/No proposition on whether or not immigration was a good thing, it would have between a 78 to 22 per cent rout for Brexit.  As it was, what separated those who opted for a Remain vote over those who backed a Leave one was not whether or not you thought that immigration to Britain should be lowered. Remain did, however, 88 per cent of the vote from the pro-immigration majority.

The real dividing line was between people who thought that bringing down immigration would come at a cost that they were unwilling to pay, and people who thought that it could be done without cost, or, at least, without a cost that they would have to pay. Remain voters, on the whole, accepted both that there would be an economic consequence to reducing immigration generally and they’d pay for it personally, while Leave voters tended only to accept that there was a cost to be paid for it in general.

That leaves politicians in a bind, electorally speaking. There undoubtedly is a majority to be found at the ballot box for reducing immigration and there is an immediate electoral dividend to be reaped from pursuing a Brexit deal that puts border control above everything else.

But as every poll, every election and the entire history of human behaviour shows, the difficulty is that this particular coalition is single use only. It’s very similar to the majority that David Cameron and George Osborne won to cut £12bn out of the welfare bill. People backed it at the ballot box but revolted at the prospect of cuts to tax credits, one of the few ways that the cuts could possibly be achieved. In the end, the cuts were abandoned and George Osborne’s hopes of securing the Conservative leadership were, if not permanently derailed, at least severely delayed.

The nightmare scenario for Theresa May is that the majority for border control dissolves as quickly on impact with reality as the planned cuts to tax credits did.  That’s also the dream for the Liberal Democrats and Greens, who, due to Labour’s embrace of the Conservative approach of abandoning single market membership, are well-placed to benefit if everything comes unravelled.

Who’s right? In both cases, the gamble is clear. There will be a heavy economic price to be paid through leaving the single market. The question is whether that price will come in one big shock or be paid out over a number of years. If the effect of leaving the single market is an immediate fall in people’s standard of living, job losses and negative equity, then Theresa May will find herself in jeopardy. But if the effect is longer-term, and the consequences of Britain’s single market exit are only made clear when in 2030, the Chancellor of the Exchequer has to abandon promises made to pensioners at a time when the pound was worth more than the Euro, then May will be able to reap the electoral dividend of getting Britain’s borders under control.

But there’s a more pessimistic future than either of these. The worst-case scenario isn’t that we all become poorer and the freedom of future governments to do what they want is sharply reduced by its weaker financial consequences. It’s that the economic hit is immediate, noticeable, but that the blame centres not on the incumbent government, but on immigrants and minorities.  

Stephen Bush is special correspondent at the New Statesman. His daily briefing, Morning Call, provides a quick and essential guide to British politics.