This week the OECD published its latest analysis of inequality in the UK, including (another) graph in which 1997 is not a turning point but rather this time 2005:
With inequality having been rising since 2005 there is so far not enough data in their set to show if the current government is doing much differently to that trend than Gordon Brown’s government, but some of their conclusions about what happened under previous governments are very relevant to current policy making:
- Transfers and taxes became less redistributive. Between the the late 1970s and mid 1980s, the tax-benefit system in the UK offset more than 50% of the rise in market income inequality. This effect has fallen in the subsequent decades.
- Benefits became less redistributive despite being more targeted towards the poor. This was largely driven by declining benefit amounts. It was also due to more people working, often at low-wage jobs and so not qualifying for benefits. And lastly due to tighter eligibility conditions.
- Taxes became less equalising. Reduced progressivity has cut the redistributive effect of income taxes approximately by half. Lower progressivity was due in part to the removal of the higher-rate tax brackets and a reduction in the basic tax rate.
- But public services improved their impact on reducing inequality. Social spending in the UK relies more on public services (such as education, health etc.) than on cash transfers: spending on services amounts to over 15.4% of GDP while spending on cash transfers is some 10%. These services reduce inequality more than almost anywhere else, and this impact has increased over the 2000s.
As a result, the OECD recommends looking at tax and benefits policies which would cut inequality but in addition points to employment and education as being key factors in determining levels of inequality.
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2 Comments
Labour, in a majority, shamefully increased the gap between rich and poor over 13 years of power. While we Lib Dems in Coalition at a time of financial crisis and carrying the incubus of 300 Tory MPs have it so much tougher the challenge to do better is one of the criteria by which I will judge the Coalition in 2015.
Always about income inequality!
Important though that is, it is very difficult to do anything about. Why are there so few, if any, studies of inequality of unearned inherited wealth, which are so much easier to do something about. Perhaps that answers the question!
Some inherit billions, often tax free: others inherit nothing. That is wrong from the point of view of young people in each new generation.
Those UK citizens who inherit great fortunes should pay more tax so that all UK-born UK citizens can inherit a basic minimum UK Universal Inheritance at the age of 25.
The average wealth of every adult and child in the UK is about £100,000. Finance UK Universal Inheritance by a 10 per cent Capital Donor Tax deductible from a progressive Lifetime Unearned Capital Receitps Tax starting at the same rate.
Start introducing it now! £2,000 for 25 year olds in 2012 up to £10,000 for 25 year olds in 2016 and hopefully more thereafter.
This would increase spending and entrepreneurial activity by the less well off.
Think differently! Replace conservative dynastic capitalism by conservative and liberal democratic and popular capitalism. Let Britain lead the way with national universal inheritance schemes to spread more widely the private ownership of wealth in each new generation, as Margaret Thatcher did with privatisation of state assets.