Blog Action Day - Inequality

Today is Blog Action Day and the subject for this year is inequality. Very appropriate here in Scotland as this is Challenge Poverty Week and I make no apology for returning to this issue.

Yesterday, the STUC 'Decent Work, Dignified Lives' conference had a real focus on inequality with some excellent contributions that will be available on line.

Professor David Bell and David Eiser from Stirling University gave a very clear analysis of inequality in Scotland. They argued that the trickle down economics of the Thatcher era have been successfully challenged in books like 'The Spirit Level' and the more recent work by the French economist Thomas Picketty.

There is growing wider acceptance of the damage inequality does from contributors as diverse as the ILO, The Pope, Mark Carney and the World Bank. Even the IMF now accept that redistribution doesn't have a negative impact on growth.

The determinants of inequality are even better understood. Technological change and globalisation have changed trade, corporate power and deregulated labour markets. Taxation and benefits can have intended consequences towards redistribution, but regulation can have negative unintended consequences. For example, the price of utilities has been driven up by privatisation and regulation and that has a bigger impact on the poor because essentials constitute a larger part of their income.

The consequences are that as inequality rises the level of social mobility declines. In particular, there is less mobility between generations because wealth and other advantages are simply passed on to children.

Income inequality in Scotland is similar to the rest of the UK when you take London out of the equation. While still high in the league table of inequality compared to other EU countries, our level of tax redistribution is about average. It's income before tax that pushes the UK up the league.

So what should the policy responses be?

The obvious startIng point is tax and benefits. The problem is that relatively small changes have a limited impact on equality. As highlighted above, it's income before tax that is a feature of inequality in the UK. The main impact of the benefit system is to subsidise poor employers, while tax cuts for the rich has just encouraged fat cat bosses to lobby for higher wages.

The next area is labour regulation. The minimum wage does reduce inequality, primarily by improving wages at the very bottom, although it has not maintained differentials throughout the pay scales. Action on insecure employment would help, particularly access to employment justice and ending zero hours contracts. However, it is only through support for sectoral collective bargaining that we will make big strides forward in tackling inequality. Maximum wage or ratios are are also important as this week's IDS study shows - directors pay has grown from 40 times average earnings to 120 times since 2000.

The third solution gets less attention - public services 'In kind' spending. As the OECD has highlighted, income inequality in the UK is mitigated by public spending. Preventative spending on health and education, particularly for the under three's, could have a major impact - tackling intergenerational Inequality. Government action can, albeit unintentionally, also exacerbate inequality. A good example of this is government driving down the cost of social care through lower wages and insecure working conditions for care workers. Public sector buying power should instead be used to positively address inequality.

We cannot say often enough that a more equal society benefits everyone. A radical change of direction is required using a range of policy interventions. Progressive taxation, labour regulation and stronger public services would be a good start.

 

 

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