Inequality is now widely recognised as one of the most important issues affecting our country. Ed Miliband says that tackling inequality “will be Labour’s mission in 2015”, while Cameron Osborne and Cable have boasted that inequality has fallen under their stewardship. But no government policy in the last 30 years has actually come close to bringing inequality down to average OECD levels.
A regularly used excuse for ignoring inequality is the country’s fragile economic recovery. The thrust of the argument is that “one has to think about how to grow the cake before one thinks about how to share it”. It rests on the assumption that high inequality is not only a necessary by-product of a successful economy, but that it is in fact integral to economic growth. The problem with this argument is that it is nonsense. Clearly some level of inequality is required to encourage people to strive. But there is increasing recognition among economists, academics and business leaders that excessively high levels of inequality, as experienced in the UK, are incompatible with economic strength. IMF research has shown that high levels of inequality makes periods of growth rarer and shorter. Germany, Finland, The Netherlands, Austria, Norway, Sweden, Denmark – the list of nations with higher GDP per capita and lower inequality than the UK is long, and shows that inequality isn’t necessary for prosperity and growth.
There is a widespread public belief, borne out by evidence, that economic growth without greater equality doesn’t help most people. People are told that the recovery is underway, but they can’t be fooled into believing their bills are suddenly easier to pay or that there is more money left at the end of the month. Some politicians, such as Nigel Farage, are already appealing to voters who feel left behind, with frequent references to the “elites” who oppose his “people’s army”.
The simple truth is, reducing inequality is vital to building a stronger economy. The Equality Trust’s recently published Fairer, Stronger Economy makes some suggestions:
All parties should adopt an explicit goal to reduce inequality
The first step in reducing inequality is for politicians to truly commit to the goal of reducing it. Each party should make an explicit commitment in their manifesto to reduce the gap between the richest and the rest. Whichever party wins the next general election should make sure they can be held accountable to that goal, by asking the OBR to vet their budgets to determine their effect on inequality. Last week Labour called for this to be the case for the Child Poverty Target, this must be extended to include inequality.
The rate of the National Minimum Wage should be increased to a Living Wage
Our low wage, low productivity economy is trapping people in working poverty. The main UK parties have voiced aspirations to raise the National Minimum Wage to £7.00 or link its value to median pay, but more can be done. Cutting national insurance for those on the minimum wage and those who employ them can help ensure that everyone takes home a fair day’s pay for a fair day’s work.
Accredited vocational courses should be included in the student loans system
At the moment all 18-25 year olds who pursue education outside of the university system get very little help with living costs, while those who go to university get up to £7,751 a year in loans. The student maintenance loan makes university more accessible to people from all backgrounds and only has to be repaid when a person is earning close to the UK median wage. The same generosity – and respect -should be extended those who invest in their skills outside the university system.
The government should establish a Workplace Commission
As recommended by the CIPD the government must convene a Workplace Commission to increase productivity through measures to share more responsibility and reward throughout the workforce, “as if the whole team matters to success”. This could be achieved through better co-ordination between government, employers and skills providers to help create a high skill, high productivity economy
The 50p top rate of income tax should be reinstated
Our research shows that increasing the top rate of tax would decrease inequality without harming the economy. It is a popular policy that would mean the broadest shoulders bear the greatest burden. All parties must now adopt it.
There is no silver bullet policy that will both reduce inequality and deliver economic growth felt by all. But these proposals would signal a beginning. We need a transformation in the way we view inequality in order to turn our dangerously unstable and unequal economy into a fairer and stronger one, and we need this to start now.
Tim Stacey is from The Equality Trust
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