NS Essay - 'We can and should take action if the earnings of the rich set them apart from society'

NS Labour conference 2004 - Anthony Giddens argues that new Labour needs to embrace a new egalitaria

The government is often criticised from the left for having done nothing to counter inequality. It is said that Labour's clas- sic mission - to create a socially just society - has been largely abandoned. Instead, new Labour has opted for an essentially Thatcherite mix of more privatisation and flexible labour markets, with a few nods in the direction of social justice. Are these claims true?

Certainly, this Labour government, from the start, took a different line from its predecessors on poverty and inequality. The intellectual leader on the issue was Gordon Brown rather than Tony Blair. Brown argued that economic stability and consistent growth were the keys to social policy. Indeed, the fons et origo of new Labour was the idea that social justice should go hand in hand with economic dynamism and job creation. The realisation of "human potential" was at the centre of it: only if individuals were free to make the most of their capabilities was it possible to move towards greater equality.

It is difficult to think of a single area of government intervention since 1997 which has not been related to questions of poverty and inequality. The child tax credit, working tax credit and pension credit; the minimum wage and the New Deal; the child trust fund and child benefit increases; Sure Start and the childcare tax credit; education action zones and a veritable maze of other programmes directed at deprived areas; large-scale investment in public services - the list goes on and on.

Far from betraying Labour ideals, the emphasis upon keeping labour markets flexible, above the floor of a minimum wage, has helped to further social justice. Old Labour, as much as new Labour, saw the importance of full employment. Getting a job is the best way of moving out of poverty. And by any orthodox meaning of the term, full employment has been achieved. Levels of employment stand at a historic high. The UK has 75 per cent of its adult population in jobs, one of the highest proportions in Europe.

Since 1997, new Labour has achieved significant reductions in levels of poverty overall, and in levels of child poverty and pensioner poverty. By 2002-2003, the numbers living below 60 per cent of national median income - the standard EU measure of poverty - had fallen by about 1.5 million. Experts agree that the government will almost certainly reach its target of reducing child poverty by a quarter by the end of the current financial year. From ranking 15th out of 15 among EU countries for child poverty, the UK in 2003 had moved up to 11th. Pensioner poverty should in principle be eliminated more or less completely through the combination of pension floor and pension credits.

There has been redistribution, even if not from very top to very bottom. The long rise in income inequality appears to have levelled off since the late 1990s. The lowest 10 per cent of earners were 8 per cent better off in 2003 than they were in 1997 - largely, according to the Institute for Fiscal Studies, because of tax and benefit policies.

This may be the first Labour government actually to effect redistribution, rather than just talk about it. The critics hark back to a golden age when Labour leaders really believed in equality. That they did nothing effective about it could be safely ignored. Previous Labour governments were either in power for too short a period or became rapidly mired in economic crisis.

Yet there are many questions to be asked. How are the targets of halving child poverty by 2010 and eliminating it by 2019 actually to be met? An emphasis on getting people into work is all very well, but what about those who can't work? Have we reached the limit of the usefulness of tax credits? Are targeting and means-testing being used too widely, given their known problems?

A recent report, The State of the Nation, from the Institute for Public Policy Research (IPPR), recognises the successes while observing that "there is a strong sense that Labour's reform programme is incomplete and vulnerable to challenge" as well as "lacking in vision". However, the answer is not to put up taxes by another hefty whack, to stiffen the regulation of labour markets, or to invest in public services without bothering to reform them. The first is not remotely possible if Labour wants to stay in power; the second would cause unemployment to rise again; and the third would simply waste taxpayers' money.

We do far better to stay with the Brown vision. Wherever possible we should look for win-win policies - those that simultaneously promote prosperity and social justice. When there are trade-offs between the two - as there often are - we should confront them openly. We should accept and work with the changes which have transformed our society: the growing intensity of global competition, the emergence of a service-based economy, and the individualisation of lifestyles.

In other words, I think that egalitarianism still makes sense, and that Labour should renew its commitment to it. But it should be a New Egalitarianism.

What would this involve? New Labour's difficulties in articulating a vision of social justice surely derive partly from the scatter-gun nature of its policies. There are many programmes relevant to reducing poverty and inequality - so many, that even experts have a hard time adding up what they all amount to.

It has been calculated, for instance, that there are more than 70 policy initiatives for deprived areas alone. The child poverty review, announced in 2003, came up with 18 relatively minor initiatives. Labour's anti-poverty programmes should be simplified, co-ordinated and integrated. A more spelt-out, egalitarian vision would surely help to achieve this, while showing how the government's various commitments fit together.

The German political scientist Wolfgang Merkel lists five priorities of social justice in postmodern conditions. First, to fight against poverty: not because economic inequality is a bad thing in itself but because poverty (above all enduring poverty) limits individual autonomy and self-esteem. Second, to build the highest standards for education and training, rooted in equal and fair access for all. Third, to ensure employment for all those willing and able. Fourth, to build a welfare state that provides protection and dignity. Fifth, to limit inequalities of income and wealth where they hinder the realisation of those four goals or endanger social cohesion.

Though the devil is always in the detail, this formula provides a good ideological basis for NE. It is simple and luminous; it recognises that equality of opportunity must have prime place in a diverse society. It also makes clear why reducing child poverty is so crucial. The greater the proportion of those who suffer poverty as children, the more chance that all five goals will be compromised. And it indicates why we must concern ourselves with the affluent as well as the poor.

Can we pursue NE effectively if tax levels remain more or less as they are now? The evidence suggests we can. Much of the argument that we need to raise taxes rests on the mistaken belief that more egalitarian countries have much higher levels of social spending than we do. In fact, as the OECD's Willem Adema has shown, these countries often claw back their spending by taxing benefits. If this is taken into account, social expenditure in Denmark, for example, is not much greater than in the UK.

Yet that still leaves open the question of what to do about the affluent. We can't have a fairer society by concentrating policy only at the bottom. The top 10 per cent of earners take home collectively as much income as the bottom 40 per cent. The top 1 per cent, and especially the top 0.5 per cent, is doing even better, having pulled away from everyone else over the past few years. Wealth inequality is also growing: between 1990 and 2002, the proportion of wealth held by the richest 10 per cent rose from 47 per cent to 54 per cent.

Labour needs to remain new Labour on this issue. To seem to punish initiative or success would not be good policy, in either economic or electoral terms. There should be no return to squeezing the rich until the pips squeak, which was in any case another piece of empty rhetoric.

We can't and shouldn't object to the existence of the rich, however they are defined. But following Merkel's fifth point, we can and should take action if their earnings, and how they are achieved, set them apart from the rest of society. We should tackle social exclusion at the top as well as at the bottom.

Raising rates of income tax for the top 1 per cent would be a totemic gesture. We should think more laterally. Top incomes have risen steeply in the UK, as in the US, but they haven't in most EU countries. One reason is almost certainly the increasingly aggressive nature of Anglo-Saxon corporate culture. Further empowerment of shareholders could help check the excesses of boardroom salaries. We should clamp down more firmly both on tax evasion (illegal) and tax avoidance (legal). Paying taxes is an obligation of citizenship - and obligations should apply as much to the top as to the bottom of the social ladder. Legal tax avoidance schemes, it is estimated, cost the public purse £19bn a year. Tightening on these - as the Treasury is doing - would make a significant contribution to curbing runaway earnings. Nor should we exclude wealth. The issue of inheritance, especially for the wealthiest, should be brought back on to the agenda. Again, the problem is not so much tax rates as the exploitation of loopholes.

And what about the top 10 per cent - essentially the upper echelons of the middle class? This group seems more or less invisible in Labour's policy thinking - but it shouldn't be. Here, too, are big issues of social exclusion. I don't see much chance of further downward redistribution from this group. The key issue here is different: the relation between private and public in British society, one of the great fault lines of inequality. Public sector reform has put the emphasis on improving services for the less fortunate. New Labour has assumed that, as public services get better, the affluent will eventually return to state education, health and so on.

However, the purveyors of private education and private healthcare will try to keep ahead, and, without further policy intervention, will probably succeed. The government is on the right track in one thing - seeking to break down the division between public and private. It is phoney egalitarianism to keep them rigidly separate, pretending that in the public sector everyone is equal. Countries that are more genuinely egalitarian - such as the Scandinavian countries - have more of a public-private mix. Allowing health service users to pay for top-ups, for example, helps draw in more affluent patients who might otherwise desert.

Again, we cannot abolish private schools - as many in the Labour Party once wanted to do. But we should be looking for ways of integrating them with the rest of the school system, and helping them take a wider range of pupils than they have in the past. The government has been reluctant to support proposals such as those put forward by the educational philanthropist Peter Lampl, but we should take such ideas seriously. He argues that, while private schools are here to stay, we can at least make them more meritocratic. He proposes a system of needs-blind admission, modelled on the practices of American universities such as Harvard. The schools would admit children purely on ability. Their parents would then be means-tested and those who could not afford the full fees would receive scholarships. A pilot scheme at the Belvedere School in Liverpool has shown remarkable results, with a far higher proportion of students from poorer backgrounds gaining admission than before.

There could be problems: the private schools might simply draw off the best students from the state system. We must debate and confront such issues, however. It is an example of the creative thinking we need if we are to progress towards a fairer society.

Anthony Giddens, former director of the London School of

Economics, is the author of The Third Way (Polity Press, 1998)

Inheritance tax

A recent IPPR report suggested reforming inheritance tax. Instead of the current flat rate of 40 per cent on all estates valued at £263,000 or more, the report proposes a sliding scale. This would levy nothing (as now) on estates worth less than £263,000, 22 per cent on the value of estates between £263,000 and £288,000 (the same as the standard rate of income tax), 40 per cent on the value between £288,000 and £763,000, and 50 per cent on anything above £763,000. The IPPR calculates this would net an extra £150m for the Treasury. But Labour is unlikely to adopt a scheme that would allow the Tories to brand the 50 per cent rate as a precursor of higher tax rates on income.

The Treasury is trying to close loopholes in the existing legislation. Dawn Primarolo, the Paymaster General, said on 18 May that clauses in the Finance Bill would tackle schemes whereby "wealthy persons appear to give their assets away so that they can take advantage of the inheritance tax exemption for lifetime gifts". The former Beatle George Harrison avoided almost £40m in taxes in this way. Many schemes of this sort will now be blocked. More needs to be done to make such legislation effective and to extend it.

The government should not adopt a purely punitive attitude, however. It should try to encourage solidarity and good citizenship, too. It should use inheritance tax law to develop a more philanthropic culture. Rich Americans give away a far higher proportion of their wealth to good causes than rich Britons.

This article first appeared in the 27 September 2004 issue of the New Statesman, The real Tony Blair