The concentration of huge wealth in the hands of a small number of very rich people, and huge discrepancies in income, raise profound questions of ethics, welfare and the efficient use of resources. But international experience shows that, in an open market economy, fairness cannot be achieved simply through taxation. The key issue is not that a few rich people have far more money than they need but that our laws permit them to avoid paying taxes which morally they ought to pay and buy things that should not be up for sale: political influence; control of information; and privileged access to justice, education and jobs. The priority, therefore, must be to address the underlying causes of inequality: a distribution of power which is incompatible with real democracy; corruption in politics; an over complex taxation system which facilitates avoidance; weak and inappropriate laws and regulations; inequalities in access to objective information, educational opportunity and health care; and restrictions on labour market and social mobility.
Within a democracy, poverty and gross inequality are not a result of the laws of economics but of political failure. To claim that Britain performs worse than other Western European countries because of a tax and spending system that favours the better off is to put the horse before the cart. Simply expanding welfare is not a sustainable strategy. A more fundamental approach is needed, based on a recognition that failure to modernise our political system has handed power to those who benefit from policies that lead to a high levels of inequality.
This dynamic is reinforced by the fact that, without policies that actively promote the interests of those who are disadvantaged, inequality becomes self-reinforcing. Wealthier people live in areas with better schools: they can support their chldren through education and skills development. And they can help them in a housing market faced by a severe shortage of homes. At the other end of the scale, poverty traps young people in low paid, unrewarding jobs, with family and friends who see education as a chore and schools that may mirror these low expectations.
Countries that perform badly in terms of inequality, also tend to perform badly across a range of factors which reflect the quality of life. Wilkinson and Picketty, for example, assessed 21 advanced economy countries in terms of criteria they considered to be indicative of the health of a society and found a clear correlation with the level of material equality. According to their study, the UK was third from bottom in terms of both equality and health of society measures, with only Portugal and the US performing worse.
Income equality and growth
Defenders of the neo-conservative model assert that the negative aspects of inequality are more than balanced by faster growth. But both the IMF and the OECD have found that this is not borne out by experience. In fact, the claim that inequality is necessary for economic growth is demonstrably untrue: 9 of the 12 OECD nations which perform best in terms of income equality (Iceland, Norway, Denmark, Finland, Belgium, Austria, Luxembourg, Sweden and the Netherlands) have average incomes higher than in the UK. Indeed, IMF studies have demonstrated a robust correlation between low inequality and faster and more durable economic growth. Likewise, the OECD estimated in 2014 that growth in the UK would have been a fifth higher over the period 1985-2005 had income inequality not increased.
In the Post War decades, creating a more equal Brtain was an objective that was largely shared by the major parties. The creation of the NHS was a highly successful attempt to establish equality of life outcomes in respect to health. Other aspects of the Welfare State, such the provision of social housing to replace slums, benefits for those in need and full employment, provided a safety net guaranteeing a minimum standard of living. The UK was still a major manufacturing country, which helped to spread growing prosperity between the regions, and it became more egalitarian than ever before. But with the abandonment of the social market as a broadly accepted framework for public policy, this achievement has been progressively eroded.
On the basis of the generally accepted GINI index, the UK with a rating of 0.35 in 2013 (down from 0.31 in 1985), came 23rd out of 27 OECD countries in terms of equality, with a cluster of Nordic countries performing best with ratings of between 0.26 and 0.28. Using a different measure, Wilkinson and Pickett compared the average income of the top 20% with that of the poorest 20% in 23 countries and found a mutiplier of around four in Japan and the Scandinavian countries, six in Germany, seven in the UK and close to nine in the US. By this criterion the UK is again the fourth most unequal country of the 23 surveyed.
Equality and prosperity
The Radical Party understands that creating a fair society does not mean aiming for a society of absolute equality. Individuals want to live their lives in many different ways, have different conceptions of well-being and different abilities, skills and experience. No sensible person would argue that a brilliant violin player or footballer should be paid the same as a performer of average ability, or that outstanding entrepreneurs should receive the same pay as employees that they manage. At the same time, surveys show that the public object very strongly to what they see as unfairness, and there is good experimental evidence that this feeling is intimately tied up with what it is to be human.
To a certain degree, inequalities in remuneration are in the interests of society, helping to promote a rational use of human capital and enable the country to attract able and experienced staff from abroad, who can make a large contribution to economic well-being. But all too often, this argument is simply used to justify a tax system and remuneration practices which favour a small minority who have a powerful voice in politics and the media. While pay differentials do contribute up to a point in promoting economic development and prosperity, experience across the OECD shows that it is simply not the case that inequality of the kind that exists in the UK and the US is essential for prosperity. Indeed, the economies of countries which successfully combine wealth creation with a higher level of equality actually benefit through better social cohsiveness, and better standards of education and health.
Towards a fairer Britain
Taking as its starting point that gross inequality is closely linked to most of the serious social problems that we face, that the public desire to live in a fairer Britain, and that experience shows that this is both possible and desirable in terms of the economy, the Party proposes a strategy based on the following priorities:
- a national programme should be developed with a target of bringing the UK over a five year period from being one of the ten worst of the 37 OECD member countries in terms of income and wealth equality to one of the ten best;
- this should be led by the Prime Minster; it should be implemented across all of the key relevant areas of ministerial responsibility and should be subject to an an annual review of progress;
- the programe should encompass a radical reform of the system for taxing income and wealth to promote fairness, transparency and simplicity and reduce opportunities for manipulation;
- priority should be given to creating greater fairness in education, justice, health, jobs, welfare and economic development, as outlined in the following paragraphs and in Sections 3 – 7 below.
Building an education system that ensures equal opportunities for all must be at the centre of any programme to create a fairer Britain. This needs to start with a major increase in support for pre-school education and carry right through to post graduate, continuing and part time adult education. But the issue is not just one of resources: it is also a matter of raising expectations among people from disadvantaged backgrounds and demonstrating the will to ensure that opportunities in the education system are available on a fair basis. For example, according to the Education Statistics Authority, 25% of first year medical students in UK universities are from private schools – which account for only 7% of all school pupils. At the same time, research published in the British Medical Journal shows that pupils from non-selective schools performed better in medical examinations than those from private or grammar schools. There can be no good reason for allowing this kind of injustice to persist.
Ensuring access to good quality nursery care is a key element in building a society of equal opportunities and for creating conditions where mothers and fathers have equal access to employment and career development across their working lives. This is especially important in economically disadvantaged areas of the country, which are often poorly served. The cost of a place at a nursery school imposes a heavy burden on many parents just at a time when finances are most stretched. Meanwhile, public support for nursery places for the children of parents on low income is generally insufficient to allow parents to work full time, without help from relatives or friends. The Government’s “30 hours free childcare” initiative has encouraged parents who already have children in nurseries to increase their hours but it has been less successful in encouraging new families to send their children to nurseries, a fact which highlights to need for better funding.
The Party considers that the UK should move as quickly as possible to a situation where nursery education is available free or at modest cost for all children, with priority in the roll-out going to families living in areas of deprivation. The benefit to the economy of enabling young parents to return to work as soon as they want would far outweigh the additional cost to the public purse. It would also bring far-reaching benefits in terms of promoting equality of earnings and career deveopment as between men and women across their working lives.
The Party considers that:
- high quality nursery care should be made available free or at an acceptable cost for all children;
- priority in rolling out a programme of accessible nursery care should be given to families living in areas of deprivation with free child care being made available for all children of living in wards experiencing high levels of poverty;
- measures should be taken to raise the terms and conditions and status of childcare workers.
Equal pay for work of equal value is a legal right for all employees and also an essential element of a fair and just society. The slow progress made so far in implementing equal pay for women has been brought dramatically to public attention by revelations of gross analomalies across a range of areas of employment. The fact that the UK performs badly in this regard compared with most comparable European countries highlights the need for better information and stronger action. Public awareness is increasing and case law is progressively clarifying how the equality of value of different forms of work is to be interpreted in practice. These developments should help to improve the situation, but it is clear that greater transparency over pay is also needed, together with awareness raising to encourage and support women in demanding that possible abuses are investigated and addressed promptly and effectively. It is essential that a more proactive approach is adopted by government, employer organisations and trade unions, with speedier investigative and enforcement procedures.
- consideration should be given to introducing a kite mark for all employers who can demonstrate best practice in equal opportunities at work.
Calls for changes in taxation that would lead to a fairer distribution of income and wealth are regularly countered by claims that the UK is already over taxed in comparison with other countries and that higher taxation would lead to lower economic growth. However, OECD figures do not support this conclusion. Government revenue as a share of GDP among 35 OECD member countries averages 45% with a range from 25% to 56%, with the UK, at 38%, being the fifteenth lowest. Corporation Tax in the UK is levied at 19%, the lowest rate among comparable OECD member states apart from Ireland. At the same time, the UK’s top rate of tax (including National Insurance) at 48% is, lower than the rates which apply in, for example, Austria (59%), Australia (55%), Belgium (53%), Denmark (56%), Finland (55%), and Germany (55%), all of which have achieved higher income per head than has the UK.
Equity between generations
Successive governments have pursued electoral advantage by pushing the responsibility for paying for services and infrastructure onto the shoulders of future generations. This has led to a situation where many young people are denied advantages, such as home ownership, which their parents took for granted. Devices concocted to shrink the public sector borrowing requirement, such as student debt, the Public Finance Initiative and the long term price guarantee underpinning the Hinckley B power station, are wasteful and inequitable. They amount to a system of taxation without representation on future generations and should be replaced by more equitable and transparent systems of funding.
The Regional Dimension
Tackling inequality between different parts of the UK must play a central part in bringing about social justice and ensuring that the nation’s human capital is used effectively. Office of National Statistics figures show that in the period 2013 to 2015, life expectancy at birth was ten years lower in the most deprived parts of England than in the least deprived, with the difference in the number of years that an individual can expect to stay healthy approaching 20 years. The Party believes that devolving real power to the regions must play a key part in bringing greater equity between different parts of the country. Experience in a number of advanced economy countries demonstrates that democratically controlled regional structures and initiatives can play a significant part in ensuring that the economic interests of the regions are effectively represented in central government and in supporting investment and modernisation.
The Party considers that:
- student loan-based funding of post-18 education should be replaced by a system which shares the burden fairly between generations ad recognises that the state has a legitimate interest in promoting fairness and in ensuring an adequate supply of skills in critical areas of the economy;
- a code of conduct should be drawn up to govern the behaviour of public authorities, and the powers of the Office of Budget Responsibility extended to encompass monitoring decisions affecting equity between generations, to ensure transparency and minimise the scope for cushioning current expenditure at the expense of future tax payers and consumers;
- the proposed regional authorities should be made responsible for promoting economic development and inward investment in their regions.