Will income inequality pass ‘mitigation’ stage?

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.


12 thoughts on “Will income inequality pass ‘mitigation’ stage?

  1. The £10k tax proposals looks like being funded from increases in capital gains tax, ok not the mansion tax, but very much in the spirit of it. Taken together these measures are broadly redistributive (Tory backbenchers are already complaining). There are other advantages, taxing people on minimum wage is absurd, making work pay will help fight the debilitating and corrosive nature of the benefits trap – that strips away people’s dignity. Increasing CGT will make buying a second home less attractive – it is a scandal that my towns housing needs could be solved at a stroke if there were no second homes.

    Now I know it is an inconvenient fact, you don’t really want to deal with; but the Irish Green Party (which contests elections in the UK) is in coalition in the Irish Republic with Fianna Fáil. Liberal Democrats won’t always get their way, and I can’t pretend I’m delighted we’re working with the enemy at national level – we’re still fighting them at local level; but at the end of the day I believe we’ll do better in coalition than the Green Party in Ireland. Green Party ministers and TDs have agreed spending cuts of €4billion targeting child benefit, the young unemployed, the blind and community support schemes. Public servants’ pay has also been cut – including the lowest paid. Yet if the Irsh government had chosen not to give tax breaks on personal income and corporation tax was reduced to nearer the EU average ; cost to the exchequer would fall from €7.2 to €2.2 billion. This €5 billion saving would be more than €1 billion more than the cuts targeted at the poor and less well-off.

    We will have to wait and see whether the Green/FF Irish government’s or the Liberal/Conservative British government’s policies do better on income equality.

  2. Richard,

    I am not totally sure what you mean by that. Would the subsidiary be at a high or low level? Because there are existing schemes where you work when still getting benefits?


    Sorry, i phrased it wrong. I was referring to the cuts they are going to make to child tax credits. http://www.debtfreehelpline.com/debt-news/2010/05/21/cutting-child-tax-credits-could-push-more-children-into-poverty/AY that is an interesting read around the subject.


    So where is the funding from the NI rise, marriage tax, and other spending proposals? Are they all going to be funded from capital gains rise? I very much doubt it. There is going to be hefty cuts to public spending, whether you choice to admit it now or not. There is also going to be the increase of regressive measures such as VAT – there has been no talk of closing loopholes either – again, regressive.

    Well we will have to see indeed, but as you say, I am not talking about the Greens in Ireland. I am sure I could go and find country example of liberal parties making bad governmental decisions but I don’t as I am talking about the UK! You are not the first to come and use international examples of the Green party, interesting in itself I think.

  3. David,

    btw, I have just remembered. Capital gains tax was something the LibDems already set out to pay for the income threshold rise – I said above that the rise will be paid ‘primarily’ through public spending cuts – not all of it. So therefore, that is the only way that the libdems set out to fund it, that has remained? So as I have already mentioned, all the other things that are said to increase, such as NI and marriage tax – and also Cameron’s desire to cut taxes – how is this going to be paid for – obviously public spending!

  4. All the main parties admitted there needed to be cuts in public spending – yes even Caroline Lucas used the C word. The trick is to avoid hurting the most vulnerable people. The coalition has not said it will increase VAT, it may have to. The Green Party manifesto (some surprisingly good stuff in it)
    on page 16, proposes increasing the VAT take (albeit with a long term commitment to abolition).

    I’m sure there are both inspiring and depressing examples of both Liberal International and Global Greens affiliated parties around the world. However the Irish Green Party is a UK political party in the same way our LI sister party the Alliance Party is, because it contests Westminster elections. Irish Greens could have been sitting in the House of Commons voting on our laws, just like Alliance. In fairness some Greens like Jim Jepps have spoken out about the Irish Greens, but others have taken the view my party right or wrong.

  5. I agree, there needs to be cuts to public spending – but it depends on the rate and which aspects of public spending need to be cut. It will increase VAT, even if they haven’t said so. It is obvious, especially after the NI move – VAT seems so likely now. Well I don’t agree with increasing VAT – its regressive and unfair.

    I agree. I can see where you are coming from, I don’t know much about them and from the sounds of it they don’t sound very good. I would have to agree with people like Jepps who argue against it, if i was someone who said my party right or wrong, i wouldn’t be in the LibDems! The fact is the Green party is separate to a degree, as there is the England and Wales Green Party – so it is not totally related. But I can see where you are coming from.

  6. I have just looked at their manifesto, and it was wrong of you to say that they want to increase VAT in general. It is VAT in certain areas, mainly environmental areas such as aviation which is hardly regressive in its true sense. It is also not just an economic measure either, and least they are being honest about where the VAT changes will fall. If you can point out differently therefore, there is no part that I see them saying straight out they want a high level of the uniformed VAT rate.

  7. But I didn’t say Greens were going to increase VAT in general, (if I was going to misrepresent them, I wouldn’t have given the page number) I said they were going to increase the amount of revenue from VAT. Done right increases in VAT could be progressive – after all VAT is a tax on consumption. Most European countries with a better equality record than the UK have a higher level of VAT and less loopholes. Denmark, Sweden, and Norway 25%, Finland 22%.

  8. Fair enough. But the VAT rise that we are talking about to fund the current government’s debt and spending plans, in my opinion, will be regressive. We will have to see.

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