Tackling economic inequality must be central to Ed Miliband’s vision of 'one nation'. He needs to be bold and use ‘predistribution’ to achieve this
To most of us policy geeks it seemed Ed Miliband’s speech at Labour’s conference managed, at last, to get the party revved up and ready to go. But as PM David Cameron pointed out, creating slogans is the easy part – translating the rhetoric into action is where it gets difficult.
Miliband would do well to start articulating how he would achieve his ‘one nation’, otherwise he risks being ridiculed by the political right and seen by the public as yet another politician who is all-talk.
Policies that tackle economic inequality must be central to any approach that Miliband proposes. Creating one nation depends on a sense of shared experience and understanding, but when the richest 1 per cent have more aggregate wealth than the entire bottom half of the population, it is inevitable that social fractures and mistrust will occur.
Tackling these inequalities is not straightforward. As is clear from the New Labour era, the traditional model of ‘tax and redistribute’ is not sufficient to reverse income and wealth polarisation. Tax and redistribute has been failing in terms of efficiency, sustainability and robustness.
Firstly on efficiency, the redistribution approach does not tackle problems at root. It allows incomes to be very unequal and then tries to make up for this by moving the chips around. This simply papers over what is happening within the system. While the Labour Party was busy redistributing, median wages were stagnating and personal debt levels, especially among the middle and working classes, were soaring.
When you do not tackle problems at root, you bear the risk of them getting more expensive. More inequality requires more redistribution, which, of course, requires higher taxes. Even countries like Sweden, known for their progressive systems, have struggled to keep inequality at bay with just redistribution alone.
Furthermore, as inequality grows so too do the social, economic and health problems they cause – all of which require public money to ameliorate. Add to this the fact that an ageing population will take a greater share of the tax pie and the traditional model of redistribution looks altogether unsustainable.
Finally, apart from being inefficient and unsustainable, relying on redistribution to tackle inequality is not a robust approach. Tax levels are subject to political persuasion – where one government may feel comfortable with higher taxes on the rich, others will not.
Any progress made on poverty by New Labour is being quickly undone by the current government. The situation is made worse by the way in which increased wealth in the hands of few creates a bias towards their needs and policy desires.
So if redistribution is not the way forward, what is?
Predistribution? Put briefly predistribution is an approach whereby you intervene before economic inequality sets in. It tackles all the failings of redistribution because it corrects the economic system and labour market at source, in effect hard-wiring more equal incomes and outcomes. This makes it harder to undo.
Recently both Ed Miliband and the Shadow Chancellor, Ed Balls, have spoken of the need to predistribute, and a number of policy experts have discussed the principles behind the policy approach.
The New Economics Foundation published a paper on the concept over a year ago, detailing a life-cycle approach whereby interventions would be used to break the vicious cycle of inequality that gains momentum from birth, through the education system, the labour market and retirement.
Tax is included in our model, but we emphasise the need to tax wealth or land, rather than just incomes. We will be updating the paper for release early next year.
Predistribution alone cannot solve the problem of growing polarisation and there will always be a need for a progressive tax system. However, along with the ‘one-nation’ concept, it does represent a much-needed shift in politics and policy – from a curative to a preventative approach.
If Ed Miliband is to achieve his ambitious ‘one-nation’ he will also need to be bold and adopt a predistribution agenda.
Faiza Shaheen is senior researcher at the New Economics Foundation. This post first appeared on the nef blog
