The Institute for Fiscal Studies has reported that Blair and Brown ‘mitigated’ income inequality. This undermines one of the Tories’ central campaign themes, which focused on how income inequality has increased dramatically under Blair/Brown. Whilst it has hardly been reduced, the Institute claims that without the changes to the tax and benefit system, income inequality would have risen dramatically.
The ONS provides interesting figures on income inequality:
“There were substantial changes to the UK income distribution in the period between 1977 and 1991, while in contrast, 1992 to 2006/07 was a period of relative stability…During the 1980s, there was an increase in income inequality caused by greater inequality in the distribution of income from wages and salaries…In comparison, the changes which took place between 1992 and 2006/07 were much smaller…Income inequality narrowed slightly in the early 1990s, widening again in the late 1990s. It narrowed again between 2001/02 and 2004/05, only to widen once more between 2004/05 and 2006/07.”
Briefly put, it was the Tories and Thatcher that created the immense income inequality that still exists, and that there has been no real reduction of these inequalities.
What all this shows is that we have to be really wary of where this current government takes us in terms of tax and benefit reform. I have already commented on the regressive nature of the compromised change to the income tax threshold, but to repeat what I said, there is a quote from a previous blog below:
“This LibDem tax policy had been attractive before the election, however, it was far from redistributive in the true sense of the word, with those on higher incomes benefiting more. However, it will now be funded primarily through public spending cuts as the policies LibDems intended to fund it with(e.g mansion tax) have been dropped.”
There are other aspects of the government’s tax policies that are worrying, such as making child tax credits means tested, as well as a very likely regressive VAT increase (I know what I would rather have if it came to VAT or NI increase!). But attention should be paid to the benefit situation. For example, Left Foot Forward remark on the problems that making child benefits means tested would cause, interestingly referring to how 73% of children are within the bottom three fifths of the income distribution and thus most people who claim the benefit need it anyway. Means tested benefits just create am unnecessary stigma, and interestingly as the article points out, will actually cost money due to administration costs cancelling out any possible ‘savings’.
There are clear concerns over Iain Duncan Smith’s Dynamic Benefit proposals, especially by disability activists (see here for example). This would involve
“The replacement of 51 separate working age benefits with just two:
- Universal Work Credit would replace out of work benefits (JSA, IB, ESA, and IS), and would require participation in welfare to work programmes in order to ‘earn’ it
- Universal Life Credit would replace more general support benefits (HB, CTB, DLA, WTC, and CTC).”
Many have raised concerns over the practicality of the proposal and how specific needs will be ignored in an attempt to meet an ideological agenda to get everyone to work and fit into the ‘ideal’ capitalist machine. This is obviously going to result in people such as disabled people, being forced into work. Policies such as these will actual threaten a rise in income inequality, not a mitigation.
What is needed is a living wage, where wages are calculated to ensure people are not living just above or under a level of subsistence. Furthermore, there needs to be an increase in benefits, but not to the same level as the living wage so that there is still an incentive to work. This would reduce poverty within society, and ways to pay for this include introducing a maximum wage – this would actually help reduce the income inequalities, instead of just letting them carry on at a stable and damaging rate.