Inequality “narrows” due to Liberal Democrat policies

imageAn interesting report (£)  in the Sunday Times yesterday tells how official figures show that the gap between the richest and poorest is narrowing.

While most people have suffered a squeeze on incomes since Britain was plunged into recession six years ago — and only now is the economy getting back to pre-crisis levels — those on lower incomes have done relatively better than those at the top. Households Below Average Income, an official report published last week, showed income inequality, measured after taking into account housing costs, had fallen to its lowest level for nearly two decades.

Commenting on the figures, the independent Institute for Fiscal Studies said: “Benefits account for a relatively large share of household income towards the bottom, whereas earnings account for a relatively large share further up. After almost two decades in which inequality had changed little, this was enough to return it to its lowest level since 1996-7.”

Note that 1996-97 was before the Labour Party’s 13 years in power.

But to what is this shift attributed? Well, raising of the tax threshold gets a mention. Now, whose idea was that?

While a squeeze on benefits is under way, they had until recently been better protected against rising prices than wages, which have fallen sharply after allowing for inflation. Higher-paid households have also faced bigger tax increases and, in many cases, have benefited less from the coalition’s policy of raising the personal tax allowance to £10,000. Over the longer term, low-paid workers have benefited from the introduction of, and increases in, the minimum wage.

While this news is welcome and a vindication of the flagship policy of the Liberal Democrats, this doesn’t give us many laurels to rest on. There are still worrying trends. The Households Below Average Income report  highlights a small decrease in the number of children living in absolute poverty and shows that almost 1 in 5 are in a household with absolute low income. That this is significantly less than 16 years ago is relevant, but much more needs to be done. The figures show that households with children and disabled people in them were more likely to see their incomes fall and we shouldn’t be satisfied with that. We need to look at helping those whose incomes are less than £10,500 because further rises in the tax threshold will not.

Of course, help with childcare of up to £2000 per year, something that Nick Clegg has personally fought for, should help. It’s unlikely to make a radical difference though.

The party has a right to be proud that its flagship policy, which shows where its heart lies, has had some success, but must set out its next steps to reducing poverty and ensure that that is a key priority going into the Election.

* Caron Lindsay is Editor of Liberal Democrat Voice and blogs at Caron's Musings

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15 Comments

  • Would agree the Lib Dem push to raise income tax threshold was most welcome and one of the few bright spots to counter Tory policies in coalition.

    However this blog post does not really give an accurate picture of what is happening with regards to inequality in this country.

    The Sunday Times just paints a small part of the picture and is qualified noting inequality is falling under ‘some measures’. On plenty others it is rising. The most recent ONS figures showing the top fifth of earners saw their annual disposable income rise by £940, while the bottom fifth lost £381 and all other groups lost around £250.

    Meanwhile the The Households Below Average Income report notes the percentage of individuals in absolute low income AHC increased slightly to 23 per cent, the highest it has been since 2001/02. With 1 million food parcels handed out in 2013/14 and the ultra rich still shooting away from the rich as a former Lib Dem member and voter I can’t really see any credence in the Liberal Democrat strapline ‘building a stronger economy and fairer society’.

    Which is why of course a lot of people have abandoned the party.

  • What this survey most probably does not show is the contribution of capital-derived sources of income, which in the most part are denied to those in the lower half of the income tables. I simply do not believe that when set against vital service cuts, our policy of increasing tax thresholds, rather than steepening the sliding scale of income tax rates, has benefited those in the lower half of the income distribution. I should also say that we should be maintaining our push to equalise capital gains and income tax rates to mitigate the factor mentioned above. I think the party should be very careful in its use of the tax threshold issue – it has not strengthened our support at all, despite the fact that we have had plenty of publicity for it.

  • Caron Lindsay Caron Lindsay 7th Jul '14 - 11:16am

    Tim, there may have been a great deal of publicity about it, but people still don’t know – which is why I think that getting that message out by talking to people rather than delivering leaflets is key in the next few months. Agree about equalising CGT and IT – the 10% rise was good, but much further to go.

    Andy, like I said in the post, progress made but still a long way to go. It’s more progress than we’ve seen in some time, though.

  • The Institute for Fiscal Studies report also says it thinks the improvement is temporary and inequality will soon return to pre-recession levels.

  • The data is up till April 2013, before the benefits cap, the axing of the council tax rebate, the reduction of the 50p rate of tax, and most importantly before the effective reduction in benefit levels by holding them below inflation. Read the IFS reports on poverty and inequality rather than the Tory press and it’s clear that the reduction in inequality we have seen will unwind as Coalition policies feed through.

    Looking forward, a return to real earnings growth and cuts to benefit and tax credit entitlements imply an upward trajectory for income inequality.The reduction in inequality as a result of the recession is likely to prove a temporary rather than permanent phenomenon.

    Living Standards, Poverty and Inequality in the UK: 2013

  • One way of helping lower earned income bracket raise NIS threshold at least in line with income tax while ensuring that low pay still qualifies for state pension accrual

    At pension age replace bus passes with a travel allowance so that the pensioner can choose how they spend the income.

  • The fact is that that report does not chime with the harsh realities that people live under here in Glasgow. Do you want to go to tell the service users in Maryhill food bank that they have never had it so good? Here is a short interview with Julie Webster of Maryhill food bank. The story from 5.10 to 7.50 is particularly moving…http://www.youtube.com/watch?v=djZHc0jMwG8

    The fact is that the UK government’s uncaring welfare policies have plunged 30,000 more Scottish children into poverty with up to 100,000 more set to follow by 2020 unless there is a yes vote in September to bring social security (remember when we used to call it that?) under Scottish control.

    http://www.holyrood.com/2014/07/30000-more-scottish-children-in-poverty/

  • Adam Corlett 7th Jul '14 - 11:29pm

    I think there’s some unintentional cherry picking of stats here.

    These HBAI stats show before-housing-cost inequality remained steady at 34% (two other measures were also unchanged). For after-housing-costs there’s a fall from 39% to 38%. But none of these changes (or lack thereof) are statistically significant. But I don’t remember an article last year when inequality by that measure rose from 38% to 39%.

    On the other hand, I do recall a LD infographic and article last year which used a different data source to proclaim a big drop in inequality. Well, that stat was also very recently updated and shows an increase in inequality between 2011-12 and 2012-13, reversing much of the previous drop. I don’t imagine we’ll be getting an infographic for that stat this year! (For those interested, the 2013-14 inequality figure will be released in Feb/Mar 2015, earlier than expected and in time for the election!) Those stats also showed that only the richest 20% saw an income increase in 2012-13, with the poorest 20% seeing the biggest drop.

    So there’s at least 6 measures of inequality, only 1 of which shows a (statistically insignificant) fall in inequality in 2012-13. It’s very easy to cherry pick each year (even before looking also at poverty rates and income growth).

    Claiming the credit for any (positive) change is even more suspect, especially when the data is so out-of-date. Income drops at the top and inflationary benefit increases at the bottom were the result of the recession, not this government. Personal allowance increases and tax-free childcare certainly haven’t helped, I’d say. A better judge of coalition policies are projections for 2015 and beyond, so I hope you get a chance to write about the IFS’s assessment of inequality and poverty trends when it comes out next week.

  • Tony Dawson 8th Jul '14 - 11:01pm

    Nice to see a reminder of the true nature of Blair and Brown’s Labour Party (with Miliband in the Engine Room). Possibly the greatest income inequality we shall ever see in this country

  • Paul in Wokingham 9th Jul '14 - 10:31am

    Perhaps the headline should have been “Inequality” narrows rather than Inequality “narrows”.

  • Caron – I think it would be good if you addressed Adam’s point. A year ago you said the falling gini was ‘certainly progress’. Is the substantial rise in that measure in the latest data a clear sign things are getting worse again? Or maybe that you jump to the conclusions you want a little easily?

  • Tony Dawson

    “Nice to see a reminder of the true nature of Blair and Brown’s Labour Party (with Miliband in the Engine Room). Possibly the greatest income inequality we shall ever see in this country”

    The greatest inequality this side of the war by far was during the 80’s when Maggie was in power.

  • This is figleaf politics. All the parties play it. Their donors demand increasing inequality, and they provide it. But to obfuscate, they also implement lesser measures which, at the margin, tend to reduce inequality. They then shout very loudly about the tiny reductions in inequality, and keep very quiet about the major increases in inequality.

    Thus, when Labour introduced tuition fees, they made great play of how they would provide a few bursaries to help poor kids.

    When the Coalition promoted academies and free schools to direct more educational resources towards the better off, they also brought in the pupil premium to create the impression of doing the opposite.

    When the Coalition implemented the squeeze on benefits, the reduction in the top tax band, and the other measures described by AndrewR, Adam Corlett and others, they took care to introduce a headline-catching increase in the tax threshold. The Lib Dems claim credit, but they were knocking on an open door. George Osborne understands the reasons for figleaf politics just as well as Nick Clegg does, and supports the same policies for the same reasons.

    Meanwhile, true social inequality increases remorselessly, as rich donors take charge of all the parties, a rich political elite take control of all the parties, a rich media elite teaches people to support the political Right, and democracy goes to the dogs. The Lib Dems used to offer a solution, but now they are just part of the problem.

  • Peter Davies 10th Jul '14 - 7:49am

    Two factors not mentioned:

    Employment has fared better in this country than most rivals. Credit mainly to those bosses, unions and workers who made avoiding redundancies a priority.

    The basic pension has risen relative to other incomes. Steve Webb’s reforms have made this sustainable by reducing the number of people who will depend on basic pension in the future.

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