Deputy Prime Minister Nick Clegg claims in today’s Financial Times that the Coalition's policies are 'fair' and we shouldn’t get hung up on 'the numbers'. Nice try Nick, but no prize, I’m afraid.
It is easy to see why he should complain about 'the numbers'. Two reports in the past week have put a huge dent in the argument that it is possible to carry out 'progressive cuts' that are 'fair' to all. The first, and less noticed report, came from the Organisation for Economic Co-operation & Development – hardly a left-wing institution. Their careful analysis of trends in OECD countries over the past couple of decades shows that overall the advanced democratic capitalist countries have become more unequal during this unprecedented period of global growth, hence their title: Growing unequal.
The OECD report illustrates two very uncomfortable facts – first, that levels of inequality tended to rise even during periods of economic growth in most OECD countries. And second, that in those countries that supposedly 'successfully' implemented radical cuts in public spending – most notably Sweden and Canada in the 1990s – inequality rose as a result. The only exceptions seem to be some countries that managed, during periods of growth, to reduce inequality through active attempts to do so – most notably Greece, Mexico and Britain since 2000.
The second report, which captured the media spotlight and so enraged the Treasury and government, came from the Institute for Fiscal Studies. Having spent a decade using IFS figures to castigate the Labour Government, the Tories and their junior Liberal Democrat partners now apparently think the IFS can’t add up when it says the impact of their tax and benefits policies will be regressive. Incidentally, it is curious how Messrs Osborne, Clegg et al now ask us to believe Treasury figures about the Budget’s impact and disregard the independent IFS.
Only three months ago they were telling us you cannot rely on Treasury figures because they get politically biased and so we needed the 'independent’ Office of Budget Responsibility. Has HMT suddenly become non-political then?
The main argument in Clegg’s FT piece is that we all understand 'fairness' and it is just about fair opportunities. His 'killer' point about the IFS’s analysis is that it disregards the families who get jobs and move out of poverty. What he is saying, in effect, is it doesn’t matter how much inequality or poverty there is, so long as everyone has a 'fair' chance of escaping it.
But, as the OECD report says, inequality is about both opportunities and outcomes. Capitalism is generally good at creating wealth but it has two big problems: first, it is prone to catastrophic crises that destroy huge amounts of wealth; second, it is appallingly bad at distributing the wealth it creates fairly. Capitalism generates inequality as well as wealth. Advanced democracies – represented by the OECD – have evolved systems for trying to deal with both these problems.
On the equality front, every OECD country takes a substantial portion of national wealth, through taxation, and redirects it into benefits and services that create a more equal society. It should not come as a surprise to anyone, therefore, that if you suddenly and radically reduce the level of redistributive benefits and services, inequality will rise and the poor will be hit hardest.
So far we have only seen the start of the regressive impact of the reduction in benefits. In October, we will start to get the detail about the fierce cutback in public services that will have its own regressive impact. If it is difficult to reduce inequality in a period of growth, as the OECD report shows, how much more so in a period of radical cutbacks?
If, as the coalition hopes, we see strong growth in the private sector alongside a qualitative reduction in the size of the state, inequality in Britain will rise. If we see weak economic growth alongside retrenchment in the public sphere, it will probably rise even more, especially through rising unemployment.
I am not sure if it is Naïve Nick or Nasty Nick who is trying to gloss over this stark reality with talk about equal opportunities and ignoring outcomes, but either way it’s hardly the ‘straight talking’ we have been promised.
Noble Nick would tell us the truth – Britain will be a more unequal society, with higher poverty, in five years time. He can blame that on the previous Labour government if he wants, or on the banks if he’s more honest, but the one thing he can’t do is wish it away with fanciful talk about ‘fairness’ that just means we all have a supposedly equal chance of getting rich, or of ending up in poverty.
Colin Talbot is professor of public policy and management at Manchester Business School. This post first appeared on Whitehall Watch
