We Are More Unequal Than Ever

My dismay over inequality was one of the two main issues (the other poor mental health care provision) which drove me into politics in 2014. I jumped in with both feet, determined to be a voice for the voiceless and make the world a more equal place.

But here we are in 2017 and the IPPR report just out shows we are more unequal than ever. The report was commissioned by Channel 5 to mark the launch of the second series of Rich House, Poor House, which sees two families from opposite ends of the wealth divide switch places. The report shows that the wealthiest 10% of households has five times the wealth of the bottom 50%. Absolutely ridiculous, that so much wealth is disproportionately in the hands of the few.

Our Lib Dem Leader, Vince Cable, who is also a gifted economist, comments:

This report reveals just how unequally wealth in the UK is distributed. When the richest 10% of the population are almost 1,000 times wealthier than the poorest 10%, it puts the very existence of social mobility in 21st century Britain into question.

Vince goes on to say what we need to do about it:

Tackling inter-generational inequality and the growing concentration of wealth will require radical solutions, including reforms to the taxation of land, property and inheritance.

Our current tax system, by focusing on income rather than wealth, facilitates the accumulation of unearned assets while punishing productive activity by individuals and businesses.

One of the most influential books I have read in recent years is the late Sir Anthony Atkinson’s last book, Inequality. Published in 2015 by Harvard University Press, Atkinson brings a life-time’s research together into a highly-regarded, peer-reviewed epic tome on how to fix inequality. His 15 proposals to limit the extent of inequality are worthy of reflection and debate. The ideas are fleshed out in detail in his book which I commend to you.

And still another report highlights the inequality in pay within our society: the Social Mobility Commission’s report on low pay has found millions of workers remain trapped in low-paid jobs.

Lib Dem Deputy Leader Jo Swinson comments:

We urgently need to invest more in education, including adult learning, to improve social mobility and help people escape from poverty.

Employment rules must be made fit for the 21st century, to strengthen rights and increase security for workers.

Getting rules and regulations right are key to furthering equality. It’s good to have Vince and Jo leading the way in fighting inequality, giving their voices to the voiceless.

 

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17 Comments

  • David Evans 19th Oct '17 - 9:13am

    The problem is that inequality is not just a recent phenomenon that we have recently discovered, but has been increasing for most of the last 50 years. Those who simply look to the Gini coefficient, do not take into account the disproportionate importance of the mega rich.

    Labour, Conservative – It hasn’t made much of a difference who has been in power. Indeed for five of the last seven years when we were in coalition with the Conservatives, inequality grew substantially in many ways. The problem we all have to face is quite stark – It isn’t that we need politicians to speak about it. What we need is politicians to *do* something about it.

  • Education as the key to excaping inequality? Perhaps not. A lot of low paid people will be graduates or have college qualifications, I suspect. Lack of good quality jobs stops these well-qualified people moving out of low pay. It might be that we are looking at a society in which there will be mainly two types of jobs; low paid and highly paid. Middle ranking jobs might be in the process of being removed due to economic, management and technological changes.

  • nigel hunter 19th Oct '17 - 10:26am

    One way to bring low pay into a higher pay bracket could be the development of robots being incorporated into human cooperation where the care worker works in conjunction with robotics. Training people in care practices AND robotics plus basic repair and engineering could increase skills levels raise the value of the caring professions. Remember the population is getting older frailer and the birth rate world wide dropping. Either migrants WILL be needed AND/OR the skills of our future work force will have to be improved. Japan has started to look at similar ways

  • Simon McGrath 19th Oct '17 - 11:34am

    Which is it you are concerned about – inequality or poverty? The two are very different. We can reduce inequality by making the better off poorer ( Brexit with its damaging effect on the City will achieve this).
    Liberals should be concerned about poverty as shown in the excellent quote from Jo Swinson.

  • Liberals must be interested in inequality as well as poverty. Failing to realise this is the biggest mistake any liberal can make, because massive inequality breeds extremism.

    A lot of the so called “poverty reduction strategies” over the years, have focused on taking from the middle and giving to the poor, while ignoring the fact that the mega rich got ever richer.

    The mega rich can insulate themselves from the world’s problems (global warming, international unrest etc. etc.) by owning homes and assets in many different countries and having much more than they would ever need to maintain them. Hence global warming means nicer weather on the beach or international tensions as an opportunity to sell more to the defence sector.

    We now have a man who was rich enough to tweet himself into the White House, and a Conservative party run by people rich enough not to worry about Brexit, and enough in their electoral coffers to pay for whatever is needed (influence, m’learned friends, whatever) to almost destroy a rival political movement. That should be much more worrying to a liberal than anything else.

  • Lorenzo Cherin 19th Oct '17 - 2:01pm

    It is indeed the extremely rich , especially those who try and unfortunately , succeed in preserving elements of their wealth that should be taxed.

    Sir Vince alas seems to often to make statements that do not attack the super rich but do , the individuals who , as middle or even working class hard workers or not, have done well to own their own home or save for a rainy day, and plan to bequeath to their own family.

    I know people who vote for this party who do not like that attitude. It is all very well to talk of generational inequality, but some who have struggled with real poverty , issues,disability issues, inequality issues, and have worked hard or been in areas of work often low paid or unappreciated, value their own chance to inherit a portion , between siblings, of family property , which , parents, have , responsibly , kept and not squandered , for that very purpose, mindful that the next generation , have not, had it so good , with work , rewards!

    Ukip seem to try to appeal to the working class and left , and want to abolish inheritance tax ! We could at least recognise that in wanting to target inheritance , we mean the super rich. Not every pensioner living in the south, like Sir Vince, has, in addition yes, to their own family home, a very lucrative career in their seventies, very high pensions, and speaking tours and the like which politicians and business leaders do !

  • Nonconformistradical 19th Oct '17 - 2:43pm

    “Liberals must be interested in inequality as well as poverty. Failing to realise this is the biggest mistake any liberal can make, because massive inequality breeds extremism. ”

    Quite

    @Simon McGrath – are you implying that the extreme inequality of today – especially if it is built on inherited wealth – is a good thing?

  • Vince makes a key point when he says:

    “Our current tax system, by focusing on income rather than wealth, facilitates the accumulation of unearned assets while punishing productive activity by individuals and businesses.”

    A century ago inequality was deemed an essential condition for investment and growth because rich people save more. Keynes wrote in 1919 that it was “precisely the inequality of the distribution of wealth which made possible those vast accumulations of fixed wealth and of capital improvements which distinguished [the Gilded Age] from all others”. More recently the focus has been on its incentive effect. Milton Friedman argued that greater inequality would spur people to work harder and boost productivity. Gary Becker, of the University of Chicago, thinks that inequality encourages people to invest in their education. Redistribution, in contrast, is said to bring inefficiencies as higher taxes and government handouts deter hard work. The bigger the state, the greater the distortion of private incentives.

    The problem with this analysis is that the savings of the very wealthy are not invested in building factories, industrial plant and equipment or in innovative research and development that spur productivity growth and wages in the economy. Capital instead is more often invested in rent-seeking activities such as residentail property and interest bearing financial assets that siphon off economic rents from productive activity.

    Instead of increasing the standard of living for all, the accumulation of wealth in the hands of a few draws off an increasing share of the surplus value created by individuals and businesses.

  • I partly agree with Simon McGrath, and i guess by extension Swinson: it should be the idea and language of fighting poverty on which we must concentrate, although I would say up to a certain point reducing inequality by making somebody else worse off and reducing real poverty are linked implicitly – if we are to invest in early years education, for example, it is logical we might need to increase taxation. Ultimately we should learn the lesson of Ed MIliband and his so-called ‘politics of envy’ in style and substance; it is not wise to assume the population are necessarily envious or socialistic, indeed we (of all parties) should have confidence that a degree of liberalism exists out there.

    Of course not everything about fighting poverty and reducing inequality necessarily involves increasing the tax burden alone, something can be done through breaking up monopolies (reviewing competition laws) and vested interests (like on housing by looking at planning/green belt laws and building affordable housing) or bringing in or reforming tax avoidance measures (Im sure Vince has commented on this). I would also recommend you read The Economist’s article ‘True Progressivism’.

    On Vince’s comments here, though I agree with what he says, the fact is he has been talking about shifting taxation away from business and income to property/land for a while now yet I haven’t seen any serious proposals to the party for this. If you want a realistic shot at making a land value or/and reformed property tax attractive it is imperative that you follow through the logic and also propose reductions on these various other taxes, however much that irks our traditional middle class lefties that obsessed over the 50% rate in the past.

    Lastly it is good to be reminded that there is an actual left-wing Labour party around now, and that it is easy for some for the party’s message on this matter to get drowned out and appear un-unique.. As some of you have correctly pointed out, Corbyn proposed nothing (or little?) of substance on property/land/wealth, and this might be a weak point. But do not think for a moment, if he felt electorally threatened, that he would not change tack and design such policies that would address the threat while keeping his base intact -forceful property requisitioning after Grenfell was only a taster, which the public surprisingly agreed according to polling.

    Otherwise, great article.

  • Alex Sabine 19th Oct '17 - 6:47pm

    @ Joe Burke “Capital instead is more often invested in rent-seeking activities such as residential property and interest bearing financial assets that siphon off economic rents from productive activity.”

    Which is why any “reforms to the taxation of land, property and inheritance” that Vince Cable might be contemplating should be focused specifically on economic rents and not on the ownership of transfer of assets per se. The “mansion tax”, higher taxation of savings income, higher capital gains tax, higher stamp duty etc fall into the latter category.

    Taxing capital heavily irrespective of whether or not it is “unearned” would not be a sensible way forward. The aim should be to spread the capital ownership more widely, not set up a false dichotomy between labour income (good) and capital accumulation (bad).

  • Richard Fagence 20th Oct '17 - 10:40am

    This is as concise a summing-up of the situation as I have seen. It is time we started taxing assets more than income. The current situation risks eventual civil unrest – or worse.

  • Jo Swinson is right to mention Education, BUT a recent report from the Education Policy Institute showed we are not making enough progress in closing the attainment gap in spite of huge efforts by the schools; this is because our schools cannot do it on their own. We need both schools and local authorities and the voluntary sector to work together; the demise of youth services is one element in the under resourcing of local services that will cause even greater inequality. A report in 2013 (Research and Information in State Education) reckoned that 80% of differences in achievement in school was due to factors OUTSIDE the school.
    The answer must surely lie in having people who work alongside those who struggle or are falling behind, remembering that young people are affected very much by their parents, other relatives and other people in their local communities. Opportunity is an overused word, forgetting that some people need help (financial and other kinds) to avail themselves of the opportunities.
    One element of the contribution from Education is the nature of the curriculum, in particular the divide between vocational and academic, with vocational being the underdog. A couple of USA experts in future use of new technology at work have looked at our Education system and say it is not fit for the future because it neglects creative and practical learning. This partly explains the point made above that even people with degrees sometimes struggle to get a well-paid job.

  • @ Richard Fagence “It is time we started taxing assets more than income.”

    Tread carefully here with regard toboth threshold entry level and type of asset. Experience with Council/poll tax showed there are many elderly people who are income poor but non realisable asset rich.

  • The late Sir Anthony Atkinson ihas left us a roadmap in his 15 point plan for addressing inequality.

    The first part of his book defines ‘inequality’ and how inequality has changed during the last hundred years. He concludes that in the immediate postwar decades, the welfare state was effective in containing the widening inequality of market incomes, but since the 1980s it has failed to do so.

    The economics of inequality are discussed, and the conclusion is that in order to reduce inequality, market income inequality needs to be reduced and governments need to achieve more redistribution through tax and benefits systems.
    The second part of the book makes detailed proposals for policy change: technological innovation to increase worker employability; a better balance of power between the different stakeholders in the economy; guaranteed public sector employment at the minimum wage; a national pay policy (including a living wage); a guaranteed positive real rate of interest on savings; a capital endowment payable at the age of majority; a sovereign wealth fund; a more progressive Income Tax; a broader tax base; an Earned Income Discount; a progressive lifetime capital receipts tax; a progressive or proportional property tax; increased Child Benefit; increased overseas development aid; and either a participation income or a renewal of social insurance.

    In the third part of the book, Atkinson tackles three possible objections to his proposals: that they would reduce economic growth; that globalization would make them difficult to implement; and that we wouldn’t be able to afford them. He shows that the welfare state makes a positive contribution to economic performance; that his proposals would have incentive effects in the employment market; that global competition restricts the scope for redistribution rather less than we might think; and that his proposals could be revenue neutral.

    All in all a tour de force and a manifesto that, as the author of this article notes, is worthy of careful consideration by policymakers going forward.

  • Peter Hirst 21st Oct '17 - 1:10pm

    Some inequality is good but it becomes obnoxious like many things in excess. The question is what is excess, how we measure it and what we can do about it? It is one of those measures that we should divide and monitor. Taxing wealth is a good start but it has implications. If your use of wealth in the form of land for instance is used to a common good like public access, then the tax should be decreased.

  • In 2015-16, the average weekly amount spent on housing costs for UK households was £165.. Mortgages (27%), net rent 20%) and charges (18%), such as Council Tax and water charges, were the top 3 housing costs.

    The breakdown of different types of households in 2015/16 was:

    rented households (both private and social): 36%
    mortgage held: 30%
    owned the property outright: 34%
    Since 2006, there has been an increase in the number of rented households in the UK and a decrease in the number of houses being bought with a mortgage. In 2015/16, there were 6 rented households for every 5 households being bought by a mortgage holder.
    Average weekly net expenditure for rent was £92.00. This averages out rent across all renting households, not all UK households. This means that 19% of a renting household’s total expenditure was spent on net rent, where net rent is the rent payment that the households have to meet themselves – benefits and rebates received by the households to help pay for rent have been subtracted.

    Average net rent varies widely throughout the UK. The average weekly amount spent on rent in London was £167.10; this is more than double the average in the majority of other regions, excepting the East of England, South East and South West. London has the highest proportion of renters in the UK, where nearly half of all households rent. Regional rent appears correlated with regional house prices, where London, East of England, South East and South West have the highest house prices.

    The 2015/16 average weekly mortgage payment was higher than the average rent, at £147.60. Again, this averages out mortgage payments across all households paying a mortgage, not all UK households. Although this is higher than the average net rent, it makes up 13% of total expenditure for mortgage holders. This is 6 percentage points less than the proportion of total expenditure spent on rent by rented households. This means that although average expenditure on net rent is less than the average expenditure on mortgage payments, rented households have less money to spend on other goods and services.

    While competition and free markets have brought down the relative costs of many consumer goods and services this is not the case with land, rail transport and fuel costs. It is where the market cannot efficiently address the issues (usually where monopolies exist) that we should focus our attention.

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