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3 December 2014

In attempting to fix the economy, all parties have neglected to fix inequality

An Autumn Statement for the few.

By john Hood

Autumn Statement post-mortems always involve a key question – who are the winners, and who are the losers? Have pensioners done well? Have the young benefitted? How have families done? It’s a tried and tested method but it misses a far simpler and more important issue for many – how have the richest benefitted, and how does this compare to the rest of us.

In the past few months the UK’s extreme inequality has grown as an issue of public concern. Politicians from all parties have taken note. Ed Miliband’s Senate House speech focused largely on the idea that our current level of inequality is not accidental, but is instead fuelled by ideology. David Cameron has shown a similar desire to discuss inequality, celebrating statistics that saw a reduction in the Gini coefficient during the coalition’s term. And north of the border, Nicola Sturgeon has promised a “strong focus” on closing the gap between rich and poor under her leadership.

So does anything from today’s Autumn Statement match this rhetoric? Certainly some policies announced will have an important role to play in reducing inequality. An extra £3m to tackle national minimum wage avoidance is to be welcomed, as is a review of business rates. And there were also encouraging noises on further targeting of aggressive tax avoidance.

Stamp duty proposals should be an important progressive move, but the 98 per cent of people they are purported to help will be those able to buy a house. Many people are nowhere near being able to afford property. A far more important policy on property would be to replace council tax with a truly progressive property tax, this would benefit most those who are genuinely struggling to put a roof over their heads.

Making student loans worth up to £10,000 available to all young people taking post-graduate masters degrees is all well and good, but this ignores the important need to make funding available to those on vocational courses as well.

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What we can categorically say is that no one will be “lifted out of tax” as has been suggested by raising the personal tax allowance. Raising this threshold will lift people out of income tax, it does not include the huge amounts of their income they currently pay on VAT, council tax and other taxes. For the very poorest, who already pay no income tax, raising this threshold has absolutely no further benefit.

Among all this, there is the worrying feeling that all parties have once again largely shunted inequality off the table. Do any of the parties have a clear strategy for its reduction? Everyone else is well aware of how much inequality is hurting society and damaging our economy.

The CBI has echoed IMF evidence on the damage inequality inflicts on long term growth, and even the world’s richest man has expressed fears that extreme inequality “undercut[s] the ideal that all people are created equal” and advocates a role for government in offsetting its effects.

Rupert Murdoch weighed in at the G20 with his thoughts, joining Bill Gates and Warren Buffett as members of the super-rich voicing concerns about economic polarisation. It is not only national minimum wage workers championing inequality reduction.

Others outside of the political arena have made a concerted effort to see inequality discussed and debated, and to acknowledge growing public anger at its sheer scale. Channel 4 last month even ran two programmes exploring relative pay packets and the rising incomes of the richest.

Despite previous encouraging noises from politicians there is a danger that these conversations will slowly dissipate among decision makers. Though broad consensus seems to have been achieved that something must be done, it seems we are held back by a combination of reluctance and perceived inability to act. Partly this stems from the fact that inequality is a complex issue, making it difficult to control its many moving parts, but there is also the reality that many developments almost unanimously viewed as positive (like advances in technology) may ultimately contribute to the problem.

But there are reasonable, sensible policies to achieve a substantial reduction in inequality. We have recommended tangible policy proposals for example like the reinstatement of the 50p rate of income tax, a more progressive system of property taxation, and the adoption of worker’s on remuneration committees.

As many commentators have noted, delivering an Autumn Statement is a tricky balancing act requiring the appeasement of core voters and the wooing of those who are wavering. It’s tough enough to deliver when the public coffers are swelled; it’s devilishly hard when they’re not quite so flush. This is true of course for all politicians at all times. But inequality is now a genuine potential vote winner, with 80 per cent of people agreeing the gap between rich and poor is too great and 70 per cent believing it is government’s job to reduce it.

What we need, from all political parties, are policies that matter to us all, policies that make a measurable difference to the quality of life of us all. More than any “rabbit from the hat” we need political parties to commit to reducing inequality.

For this, an important first step would be for parties to commit to ensure the net result of their policies will be to reduce inequality, and for whichever political parties make up the next government to annually submit their policies to “inequality testing” by the OBR, to ensure that the net impact will be to reduce the gap between the richest and the rest of us. 

John Hood is media and communications manager at The Equality Trust