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7 September 2022

Liz Truss thinks we have to choose between inequality and growth – but it doesn’t have to be this way

Other countries do a better job of both redistribution and growth.

By Torsten Bell

The hustings are over and the UK has a new Prime Minister. Liz Truss says getting the economy growing again is a top priority, but who benefits from that is of secondary importance: Truss argued in a BBC interview the day before she was elected that looking at economic policy “through the lens of distribution is wrong”. 

In part her comment could be seen as a riposte to those, generally on the left, who argue that it’s the “going for growth thing” that’s wrong – and that we should just be aiming for a fairer distribution of what we’ve already got. However, central to understanding how to build a better Britain in the 2020s is recognising how it got into its current plight: we are living with a toxic combination of low growth and high inequality. 

With child poverty predicted to return to its highest levels since the 1990s, and poorer households suffering the most from rising energy bills, ignoring questions of distribution is just bad policy-making. But equally, those saying economic growth doesn’t matter are ignoring the fact that low growth is why workers’ wages have flatlined in recent years. Building a fairer country is far easier when it is done off the back of a growing economy. 

It’s time the UK’s political class woke up to the scale of the growth and inequality challenge. In the 1990s and early 2000s the country was catching up with its European competitors. Not any more. Compare ourselves with five nations most Brits would consider their international peers: Australia, Canada, France, Germany and the Netherlands. According to recent research by the Resolution Foundation think tank, 15 years of relative decline means that we are now a fifth poorer than them, on average.

We are often told that there is a trade-off between growth and inequality, but the UK is far less equal than any of the above economies; clearly, focusing on distribution hasn’t harmed them. If the UK was made as equal as these countries, absent any GDP catch-up, the incomes of the poorest households in Britain would be boosted by a fifth.

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It is staggering how far the UK’s lower- and middle-income households have fallen behind their European equivalents because of this dual failure on inequality and growth. If we had the average income and inequality levels of those five countries, the typical household income would be £8,800 better off. Economic failure has a high price. The new PM, and Britain’s political class in general, need to wake up to the urgency of getting growth up and inequality down.

[See also: Boris Johnson is as resentful and self-pitying as ever]

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