Labour and income inequality

The gap between rich and poor in the UK has widened since 1997, according to the results of a recent study by the Institute for Fiscal Studies. It found that income inequality in 2007-08 was higher than when Labour came to power and ‘higher than in any year since at least the 1950s’.

On the face of it, this is unwelcome reading for Labour supporters. What is the point of 13 years of Labour Government if it cannot prevent widening income inequalities?

Dig deeper into the IFS’s analysis, however, and it becomes clear that the gap between rich and poor has widened despite the Government’s efforts, not because of them. In the 1980s, when government policies seemed designed to benefit the rich, income inequality increased by an enormous amount. The increase in income inequality under Labour has been far smaller because changes to the tax and benefit system since 1997 have favoured poorer households at the expense of richer ones.

But what is missing from this analysis is an understanding of the causes of the increases in inequality that have occurred before the effects of government policy are taken into account. Throughout the last three decades, it seems, underlying inequality has been increasing. In the 1980s, this was exacerbated by government policy; over the last 13 years it has been mitigated by it. But under Conservative and Labour governments alike, it has remained a powerful trend.

There are a host of explanations for this trend, including globalisation, technological change and the dominance of the financial sector in the UK economy and we need to develop a full understanding of them because – as Richard Wilkinson and Kate Pickett have demonstrated so conclusively in their book The Spirit Level – greater inequality leaves everyone worse off.

So, while it is right to challenge the main political parties during the election campaign on how their tax and benefit policies might affect income inequality, it is perhaps more important to ask them what they intend to do about the growing disparity in pre-tax incomes. If they are, to quote Lord Mandelson, ‘intensely relaxed about people getting filthy rich’, they shouldn’t be.

Tony Dolphin

Society and the state: does size matter?

Anyone tuning into political debates over the last few months would be forgiven for thinking we were back in the 1970s. ‘Government has got too big’, the Conservatives argue. ‘We need an active government’, Labour reply.

But there’s a key difference this time round. While in the 1970s the Conservatives wanted smaller government in order to give more room to market forces, this time it is society that they feel has been squeezed out by the state.

I’ve recently been involved in an online debate on this topic with Policy Exchange, who claim that the Government spends too high a percentage of GDP, warning that this can 'crowd out important aspects of society such as family, clubs, faith groups, charities'.

A quick glance around the world tells you that things are more complicated than this. There are plenty of countries that have small states with very weak participation in society (think the USA) and plenty of countries with a big state that score well on levels of civic participation and social ties (think the Scandinavian states). And it is a bit silly to suggest the reason people break up their marriages and don’t join clubs or go to church is because of the size of government – it’s because they want to spend their time in other ways.

By the end of the debate I was convinced that politicians and the media get too hung-up about the size of the state. Debates that focus on size miss the far more important question – about how effectively the government works. Just as bad government can sometimes stifle economy and society, good government can support and enable people to take and use their power. It’s time to move beyond the argument that assumes an irreconcilable trade-off between active government and strong society. We need both.

You can read the full debate between ippr and Policy Exchange here .

Jonathan Clifton, researcher, ippr