A Major miracle on equality, by Richard Reeves

29 Jan 10
RICHARD REEVES | If the principal weapons against inequality were reports, commissions and panels, we'd have reached an egalitarian nirvana decades ago

If the principal weapons against inequality were reports, commissions and panels, we'd have reached an egalitarian nirvana decades ago. This week's report from the National Equality Panel - dubbed an 'inequality bible' by Harriet Harman - comes after dozens of think-tank reports and the publication of official poverty figures. But this report is important. Hills, when it comes to this kind of research, is the real deal - the Godfather of the Gini coefficient. The report he and his team have produced is a towering intellectual achievement. To me at least, a number of findings stood out:

1. Wealth inequality puts income inequality in the shade. The income gap between households 10% and 90% of the way up the income distribution is just over 4:1. (£806 a week versus £191 a week). In terms of net wealth, the ratio is almost 100:1 (£850K versus £9K).

2. The most pernicious gaps are no longer between social groups - such as men and women, or white and ethnic minorities - but between social classes: one of my favourite micro-findings is that Sikhs are now wealthier than Christians. As the report states: 'There is almost as much inequality between well-paid and low-paid women as there is between the well-paid and the low-paid overall.'

3. Economic inequality accumulates over the lifecycle – one reason, of course, for the massive wealth inequalities being recorded now – and indeed over the generations. Those born into a poor household start falling behind their luckier peers before they even reach schools, and thereafter their life-courses arc away from each other, as advantages multiply and disadvantages deepen.

4. Labour's redistributive efforts since 1997 have not been sufficient to reduce inequality, but they have been sufficient to prevent the gap widening further. Hills calculates that the poorest tenth of the population are 25% better off today than they would have been if Labour had continued Conservative policies on tax and benefits. Given underlying economic pressures to greater inequality, Labour's achievement in holding the line is not to be lightly dismissed.

One curiosity, though, in the recent history of inequality and poverty is what we might dub the 'Major miracle'. Plenty of attention has been given to the Thatcher years, when inequality rose, and to Labour's three terms, when strenuous efforts to narrow the gap were made. But during John Major's period of office, from 1990 to 1997, inequality fell slightly on some measures, and was at least flat against other benchmarks, as this graph from the Hills report shows. Given that Major did not embark on a Labour-style redistribution drive, this is remarkable.

What does all of this mean for policy? Two immediate thoughts:

1. The tax system needs to be more geared towards wealth redistribution than income redistribution. In income terms, the system is going quite well: remember that the richest 1% pay a quarter of all income tax, and the richest 10% more than half. The goal is to prevent income being automatically rolled up into massive wealth, which then begets itself through capital gains – and is passed down the generations in a cascade of wealth. So: capital gains tax on primary residences as a first step towards a land value tax; big increases in inheritance and/or gift taxes (remember if was Labour who doubled the IHT allowance!); an end to higher-rate tax relief on pensions; and a huge expansion in the Child Trust Fund.

2. Significant investment in early years education for the poorest kids, and more help for their parents, as suggested in our recent report Building character. Sure Start should be more intensive, and more targeted on the disadvantaged.

But it is not only the state that generates equality and fairness. The government's response to Hills stated that: 'The report confirms the view that the government is the only agency that has the capacity to take the action required to reduce inequality — through tax, benefits and public services.' The Tories are wrong to say that state can't reduce inequality, but Labour is equally wrong to say the state is the only agent of change. Families, communities, trade unions and charities friends can all act in ways that improve the lot of others, and make for a more equal society.

The state can do more to create more equality – and must. But equality will not be provided like a hip operation or a missile strike. Equality requires us to act differently towards each other, too. As the great, much-lamented, philosopher Gerry Cohen wrote: 'A change in social ethos, a change in the attitudes people sustain towards each other in the thick of daily life, is necessary for producing equality.’

Richard Reeves is the director of the Demos think-tank