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

Why might we want a Child Poverty Act?

The Child Poverty Act, which commits future governments to meeting Labour’s goal of eradicating child poverty by 2020, received Royal Assent yesterday. But why might we want an Act of this kind?

The obvious answer is that ending child poverty is the right thing to do and making it law will ensure the goal is met. But the greatest progress on child poverty was made in the first part of the 2000s, before Labour had even thought about enacting a child poverty law. Tony Blair’s pledge to end child poverty was made in 1999, yet the idea of enshrining it in law wasn’t aired until Gordon Brown’s 2008 conference speech. So why do we need a law now?

Child poverty rates began to creep up after 2004, which reflected a slackening off in investment in anti-poverty measures. So perhaps Labour felt that it needed a law to make itself put its investment back on track. Let’s hope not – it would be a slightly odd way of going about things. And it hasn’t worked, as the meagre child poverty measures in Wednesday’s Budget showed.

A more plausible explanation is that this is a political move, because it forces the Conservatives to stick to Labour’s poverty goals. The Tories have come round to the idea of relative poverty but often argue that poverty is about much more than income. Should they form the next government, they may prefer not to have their hands tied by an Act that so explicitly prioritises income-based measures of poverty.

The other view is that the government wanted to look like it was doing something on child poverty at a time when the figures were, and still are, going in the wrong direction yet it was difficult, and still is, to find the cash to put things back on track. Drafting a bill and steering it through Parliament is a lot cheaper than putting an extra £4 billion into tax credits, which is what the Institute for Fiscal Studies said it would cost to half child poverty by this year.

It’s important not to get too cynical and forget the very impressive work that this government has done in tackling poverty, particularly among children and pensioners. But if you set yourself challenging and important targets, you have to do everything in your power to meet them. Now that we’ve got a Child Poverty Act, we should use it at every opportunity to hold the government, now and in the future, to account – but ending child poverty takes real action not just legislation.

Kayte Lawton, research fellow, ippr