NS Essay - 'Accumulation of wealth is unjust where it arises not from hard work and risk-taking enterprise, but from ''brute luck'' factors such as returns from property. Inheritance is a form of brute-luck inequality'

The gap between rich and poor is far too wide and there are things the government can do about it wi

This Labour government has devoted enormous amounts of energy to tackling inequality through helping the poor. Addressing the needs of the most disadvantaged people has been given priority over tackling overall levels of income inequality. The rich are largely left alone. It is far more important to concentrate on raising the floor: improving the economic and social position of the poor both in absolute terms and relative to median income.

But what about those at the top? What are the responsibilities of the rich and powerful in contemporary Britain? A mass of information is available in the social sciences concerning the poor and underprivileged but we have surprisingly little reliable data about high-earning professionals, and even less about the tiny minority of the rich. Yet these people are a part of the whole: the strategies used by the affluent in gaining concentrated access to the best housing, health and education plainly have their effect upon the life chances of poorer groups.

New Labour sought to break away from the traditional theme of the left: that the rich must have become so by exploiting others. Those who are economically successful often bring benefits to wider society as a condition of their drive, initiative or creativity. A prosperous economy requires these qualities; an aspirational society cannot be one in which success is heavily penalised.

Controversially, at least on the left, Labour did not raise income tax rates for top income earners, leaving them at a maximum rate of 40 per cent, and it significantly lowered capital gains tax rates for entrepreneurs.

Yet a fairer society cannot be built from the bottom up alone. This consideration raises the crucial issue of how community itself can be sustained in the face of market-driven economic inequalities. The centre left has long been concerned with the social fragmentation that arises as a consequence of Thatcherite economics and the concentration of wealth. New Labour, for its part, is understandably wary of antagonising those sectors of society where it has attracted supporters it had not had before, but others have argued the case for raising income tax rates to 50 per cent for those earning more than £100,000 a year.

What is required is a concerted strategy that addresses "social exclusion at the top", reconnecting the rich with the rest, and a more effective way of doing this than raising tax rates would be to concentrate on citizenship obligations and the reinvig- oration of the public good, using a mixture of regulation and positive incentives. Legal tax-avoidance schemes for the rich, for example, cost the exchequer far more than would come from raising top-level rates of income tax.

The top 1 per cent of earners, and even more so the top 0.5 per cent, have pulled away more sharply from the rest in the UK than in other European societies. This fact is almost certainly related to the aggressive nature of Anglo-American corporate practices, given that similar trends have occurred in the United States since the late 1970s. Further encouragement of shareholder activism, and other measures to promote corporate responsibility and corporate citizenship, might begin to redress this imbalance. The Treasury has re-cently begun to clamp down far more forcefully than before on tax avoidance and tax evasion, with some measure of success. This process should continue. We should also pursue fiscal incentives in a more thoroughgoing way to encourage philanthropy, charitable giving and responsible corporate behaviour. But there is also a case for taxing capital transfers.

The steady rise of inequalities in the distribution of wealth must be tackled. This requires asset redistribution, the democratisation of market capitalism, and the containment of excessive accumulation of wealth by a few individuals. Just as Edwardian social policy drew a distinction between the "deserving" and "undeserving" poor, these categories might be applied to the concentration of wealth. The accumulation of wealth is excessive and unjust where it arises not from hard work and risk-taking enterprise, but from "brute luck" factors such as rising returns on property and land. Inheritance itself is a form of brute-luck inequality, enabling citizens to share in the social product while violating the principle of reciprocity: if one citizen enjoys the fruits of another's labour, a good or service should be provided in return.

The case for liberty does not, therefore, defeat the case for taxation of wealth transfers. The present inheritance tax regime still offers loopholes for the affluent and is inequitable in its impact on the modestly well-off. The government should look again at a capital transfer tax extending beyond simply inheritance, and including all lifetime gifts.

If we tax wealth transfers more broadly, there is a strong case for hypothecating - earmarking - the funds raised to support something new: an imaginative universal capital grant scheme. This scheme would provide a time-limited, flat-rate benefit to low-income adults who are "participating" in the community in certain defined ways. They might be making their contributions through education or training, or by setting up a business, or they might be taking parental leave. The idea of the grants would be to reward and support a wider range of activities than paid work alone, and they embody the principle of reciprocity: the right to an income in return for the responsibility of contributing to society in recognised ways. Explicitly diverting the revenue to a scheme on these lines would greatly strengthen the perceived legitimacy of taxing concentrations of wealth.

While Labour can do more, it would be wrong to imagine that its policies to date have neglected or overlooked the problem of inequality. The 1997 government consciously adopted a strategy distinct from what had gone before, including its approach to poverty and inequality. Economic stability and stable economic growth, new Labour argued, are the keys to social policy. Moreover, programmes concerned with social justice must be related to issues of economic dynamism and employment creation, an outlook reflected in the extensive use of tax credits that marks Labour's reform model.

Previous Labour governments had foundered in economic crises of one sort or another. Some on the traditional left had fondly imagined there was a postwar age when radical measures were adopted to realise the goal of equality. But like most golden ages, such a time never existed. Until the current one, Labour governments had been in power for relatively brief periods. Brave talk about social justice was never much more than that, as fiscal instability repeatedly derailed Labour's efforts to create a more equal society.

This government's policies have met with considerable success. Indeed, it could plausibly be argued that this is the first Labour government to achieve a significant and sustained measure of redistribution in favour of the poorest. According to 2003 statistics, one and a half million people have been lifted out of poverty since 1997, where "poverty" is defined as living at a level under 60 per cent of median income. The social-democratic goal of improving the relative position of the worst-off in relation to the average remains a crucial objective. The government is on track to reach its target of reducing child poverty by a quarter by the end of the financial year 2005.

Since 1997 absolute poverty has fallen steadily. Levels of employment stand at a historic high of 75 per cent, and rates of unemployment, including long-term unemployment, are low. The number living in poor households has fallen from 13.9 million in 1996-97 to 12.4 million in 2002-2003. Median incomes have grown by 2.6 per cent per annum since 1997, compared with 0.7 per cent under John Major and 2.1 per cent under the Thatcher governments.

Poorer pensioners have also done far better than under previous governments, although the new provision - including new universal payments, the minimum income guarantee, a new tax credit and the new "second state" pension, all on top of the basic state pension - might usefully be simplified.

However, several core weaknesses remain. The evidence shows, for example, that Britain is a long way from conquering inequality of opportunity: the life chances of individuals today are still significantly influenced by the economic and social position of their parents.

One further area of concern is the strains that have emerged at the local community level in the UK. Even in the most deprived areas, more families have at least one member in work than was the case in 1997, and support for children, and the performance of children at school, is improving dramatically. But too often the community space that these families inhabit remains blighted. Official statistics suggest, for example, that 42 per cent of all burglaries happen to 1 per cent of all homes, principally those belonging to the poor and to single parents. For all the action-zone policies and strategic partnerships, too many of the worst estates and most deprived communities in Britain remain largely unchanged - bleak ghettos depressing the spirit of those who live in them, dominated by fear of crime and by racial tension. We need a new egalitarianism for several reasons.

First, Labour has made no commitment to the pursuit of egalitarian goals remotely comparable to its emphasis on the revitalisation of public services. It is time that it did so. Increasing economic equality is as necessary for rebuilding solidarity as are effective public services. Second, it is true that Labour's policies since 1997 have not only had a significant impact on poverty, they have also brought to an end the persistent rise in income inequality that has occurred since the early 1980s. The incomes of the bottom 10 per cent of earners grew by an average of 2.8 per cent each year in real terms between 1996-97 and 2002-2003. This compares to 2.6 per cent growth among the top 10 per cent. But, as mentioned earlier, there are still serious reservations about how far the existing policies will reduce inequalities further.

Finally, excessive attention has also been given to the contrast between "old" egalitarianism, focused on outcomes, and a conception of equality focused on opportunities. Outcomes and opportunities are, of course, closely connected, and inequalities of income and wealth undermine serious efforts to equalise opportunities. A more mobile, dynamic society, where individuals have greater respect for each other, is unlikely to come into being while the income gap between rich and poor steadily widens. There are still important distinctions between these egalitarian commitments, however.

"Old" egalitarianism treated economic dynamism as incidental to its basic concern with economic security and redistribution. New egalitarianism holds that expanding the productive efficiency of the economy is necessary for governments to have a long-term impact on the distribution of income and wealth. Social democrats such as Anthony Crosland in The Future of Socialism recognised this, but his writings lacked a coherent economic theory of the mixed economy, as growth was largely taken for granted in Britain during the late 1950s.

The Thatcherites quite rightly placed competitiveness and the generation of wealth at the forefront of their philosophy. This is ground that the left should never have surrendered. The new egalitarianism takes enhanced economic efficiency created by a flexible and dynamic economy as the necessary precondition for future redistribution. Economic dynamism and fairness, in other words, must go hand in hand.

The new egalitarianism focuses primarily on widening opportunities rather than conventional income redistribution - equality of outcome - per se. Yet to a large extent, as we have argued, the one reinforces the other. The left's usual distributive goals should be pursued not only through income distribution or solidaristic wage policies, but through more concerted action to change the initial distribution of assets and productive endowments.

The new egalitarianism is also sceptical about the virtues of pure meritocracy. Not only is the notion impractical, it is also incoherent. Impractical because most social mobility is, and is likely to remain, structural - brought about by shifts in the occupational structure. A high level of "exchange mobility", where many individuals exchanged positions over time, would in all probability be socially destructive. No society could cope easily with the large degrees of downward mobility that are implied in this; it would promote widespread feelings of disaffection and despair.

Such scepticism about meritocracy draws on the lengthy tradition of British egalitarian social democracy, stretching back to writers such as R H Tawney and G D H Cole, and to the radical liberalism of Leonard Hobhouse and John Hobson. As they argued, economic production has to be seen as a co-operative process, reflecting the inputs of many individuals as well as society as a whole, and not as something achieved by individuals working on their own.

Pure meritocracy is incoherent because, without redistri-bution, one generation's suc-cessful individuals would become the next generation's embedded caste, hoarding the wealth they had accumulated. Social justice demands that high incomes and large concentrations of wealth be spread more widely, in order to recognise the contribution made by all sections of the community to building the nation's wealth.

Patrick Diamond is a senior visiting fellow at the London School of Economics, and a former special adviser to the Prime Minister. Anthony Giddens is emeritus professor of sociology at the LSE. This essay is based on an extract from their latest book, The New Egalitarianism (Polity Press)

This article first appeared in the 27 June 2005 issue of the New Statesman, Smokescreen