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Just over a week ago tens of thousands of people marched in London against further austerity. Undeterred, on the following day George Osborne and Ian Duncan Smith pledged to press on with welfare cuts, including further reductions of the so-called ‘benefit cap’ and in-work benefits for the lowest paid. On the next day the Prime Minister set out his case for the plans for £12bn of further benefits cuts, again highlighting in-work benefits and suggesting that his policies would increase opportunity and help to raise wages. In a remarkable feat of doublespeak David Cameron presented this as part of a ‘one nation’ strategy.
Since the general election the Labour Party has lamented the mistakes it made in the campaign, with several high profile figures suggesting that the party needs once again to re-focus its efforts – á la New Labour – on appealing to a politics of aspiration. Two of the front-runners in the leadership election – Andy Burnham and Yvette Cooper – have been distinctly coy about the extent to which they would oppose further benefit cuts.
All this confounds the widespread trailing in the media of data to be released this week that is expected to show that child poverty has risen, not to mention concerns expressed by the OECD that further welfare cuts will impact negatively on the working poor.
This is familiar ground in UK politics, where inequality is frequently subordinated to a discussion about equality of opportunity and the pursuit of social mobility across generations. These were themes that I addressed in my paper at the ESRC/SPERI workshop on Rethinking the Hidden Costs of Recovery held this April just before the election.
I argued at the workshop that the focus of successive governments on equal opportunity had been part of the reason for rising household inequality. What this means, in short, is that treating gender, race, disability, sexuality or child poverty as distinct from economic class is not only intellectually blinkered, but may also increase inequality.
Income inequality rose in the UK during the 1980s, before stabilising in the late 1990s and early 2000s and then increasing again from the mid 2000s up to the onset of the crisis of 2007-8. Despite claims made earlier this year (and featured in the Conservative Manifesto) that inequality may have fallen, this is a misleading claim. This is because it ignores both actions taken by the very wealthy to avoid the introduction of the 50p tax rate and the effects of welfare payments introduced in the immediate post-crisis period to protect the poorest from negative effects.
Since that time, asset values have started to rise (increasing the income of the wealthiest) and benefit cuts have eaten into the incomes of the poorest. Several other factors feed into short-term trends in income inequality, such as falling wages and earnings across the distribution, but especially at its bottom. These declines have reinforced inequalities for some social groups (such as some ethnic minorities) which already faced disadvantage before the recession. Similarly, while women and ethnic minorities are catching up and sometimes now exceeding white men in terms of their skills acquisition, this has not yet resulted in pay equalisation.
Probably the most severely hit by the crisis have been young people, with policy choices to protect pensioners augmenting labour market trends that have seen younger age groups particularly affected by unemployment, casualisation and lower pay growth even when in work. Reductions in both hourly and weekly earnings were most pronounced in the post-crisis period for younger age groups. Both men and women under 30 in 2013 were paid more than 10% less than their predecessors in 2007-8 in terms of hourly earnings. This was exceeded in relation to weekly earnings for all sub-groups of the under 30s. By contrast, older age-groups experienced much smaller declines in earnings and indeed some gained.
Other longer-term trends also suggest that across generations the effects of inequality between households may increase in the future unless something is done about it.
First, it is the case that household formation is a significant part of the explanation for inequality between households. Because people form reproductive partnerships with those with similar characteristics (including socio-economic background, qualifications and professional experiences), high earners are more likely to partner with one another, as are low earners. As original inequality has risen at the same time as increased female labour-market participation, this means that rising wage inequality for individuals has been accentuated in terms of household inequality.
A policy concern rightly focused on increasing formal gender equality in the labour market has proven so far to be too narrow. It has not only left many other aspects of gender inequality untouched (including in the labour market where women are disproportionately present among the lower paid), but may actually have contributed to increasing household inequality too.
Second, these changes occurred at the same time as the more widespread increase in household property ownership. Because wealth acquisition through property ownership is a feature of differential income in the first instance and because these differentials are cumulative through household formation, this has meant that property ownership has not just become more widespread; it has additionally become more unequal. Moreover, differential wealth acquisition reinforces income inequalities, given that the poorest struggle with higher interest rates on property loans and higher earners are able to earn net revenues from property in rents. This is becoming a structural feature of the UK economy since the crisis, with home-ownership plummeting and becoming much more unequal among younger age-groups.
Young people born in the 1990s and entering the labour market in the last five and next five years are not just experiencing declining pay and employment security relative to older groups. This is also being more unequally shared within their age cohort. Those suffering from this can also expect that their families will have an unequal capacity to protect them from the effects of declining pay. The net result is that, as younger age groups inherit unequally, there will be a further long-term and structural pressure toward greater inequality in the UK on top of current trends in the labour market.
This suggests that, in order to understand inequality in the UK, it’s not enough to focus on static pictures of income and earnings for individuals. Neither is it enough for policy-makers to focus on equality of opportunity. The point is that gender, ethnicity and other aspects of identity inequality need – always – to be analysed alongside class. We need as well to focus more sharply on the ways in which both households and society are socially reproduced over time.
Such a long-term focus on households and their reproduction reveals that the UK is not divided into aspirational hard-working families and the undeserving poor who refuse to work. Rather, it shows just how much the welfare system helps a very large proportion of householders at one time or another in their life cycle. Furthermore, encouraging families to be ‘aspirational’ is unlikely to be successful. It is not that some households are not aspirational enough, but that income is becoming more unequal, not just within but between generations. No amount of aspiration or opportunity will resolve that problem without structural change in the distribution of power and resources in society.
This article originally appeared on SPERI Comment, the Sheffield Political Economy Research Institute blog. You can read more from this series here. This article is part of the Austerity and Recovery series.