openDemocracyUK

This is how we solve economic inequality

Last week, the New Economics Foundation (nef) launched a report on how to reduce inequality in Britain. Here, they outline their key proposals.

Faiza Shaheen
17 July 2014
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Photo: Tim Beckett

I’ve blogged before about the most insidious aspect of economic inequality: its ability to hijack the democratic process, as the wealthy elite move seamlessly from Oxbridge into positions of power from where they have the clout to out-lobby, out-publicise and out-finance anything that challenges the status quo.

Setting a binding national target for reducing economic inequality, much like the recent target for reducing child poverty, would be a vital first step in defusing this effect. It would solidify government commitment to act, serve as a barometer of success and, most importantly, provide an important means for the public to hold them to account. Download NEF's new report to read more about how an economic inequality reduction target could work and the indicators we could use to measure it.

The inequality hit list

No one policy can single-handedly beat inequality: the roots of the problem extend into the very structure of our economy. The solution will instead require ambitious, concerted action on several fronts. Our proposals focus on five major policy areas that, targeted together, could help reverse the vicious cycle.

1. Make high-quality childcare available to all

We all know how critical the first five years of a person’s life are to social and cognitive development, yet the UK still has an eye-wateringly expensive childcare system that puts high quality care out of reach to those on low incomes.

Overhauling the system so that good childcare is affordable to all would help address unequal starting points and lay the foundations for a more equal society. NEF proposes state support to cap the costs of care at 15% family income, and a vast improvement in the pay, working conditions, training and status of childcare workers. More about the feasibility and cost of this in NEF’s recent report, The value of childcare.

Better, more affordable childcare would also have the bonus effect of giving mums and dads more choice over how to juggle their children, working lives and other important commitments – good for economy and well-being alike.

2. Tackle polarised pay

The economy may be growing overall, but the share of wealth going into employee pay packets (as opposed to shareholder profits) is shrinking. Average real wages have been falling continuously for decades, while executive pay rockets skyward.  In-work poverty has got so bad that the largest group of people claiming benefits are from families with at least one working adult.

Clearly this is not the route to a healthy, more equal economy. NEF proposes a department of labour tasked with rebuilding the link between the UKs overall economic prosperity and wages. There are plenty of places they could start: raising the minimum wage; requiring companies to publish the difference between the highest and lowest salaries they pay out; introducing pay ratios; and restoring the bargaining power of workers through embedding collective voice in the workplace. The opportunity exists for the public sector to lead the way, as spelled out in our recent report – Raising the benchmark.  

3. Create good jobs around the country

Our jobs market is not only geographically skewed towards London and the South East – it is hollow in the middle, as positions are increasingly divided between low-paid jobs in care, retail and hospitality and highly-paid jobs in sectors such finance, law and IT.

NEF has previously called on the government to extend the mandate of the planned British Investment Bank to not only boost lending to small and medium businesses, but ensure these businesses are capable of delivering well-paid, rewarding and environmentally viable jobs around the country.

4. Transform jobs into careers with better training

It is often implied that inequality is the result of the unwillingness of those at the bottom to work hard and climb the ladder. But as young people – graduates and non-graduates alike – are increasingly sucked into dead-end jobs with scant opportunity for progression, the reality is that, for many, this ladder does not exist.

We need a major investment drive in training and skills development, at all levels of industry from junior to management (which the UK scores famously poorly on). This could involve promoting pooled training investment by sector and channelling state support towards apprenticeships that lead to progression.

5. Fairer taxes

When you take account of direct and indirect taxes, those on low incomes in the UK are being hit too hard, while billions of pounds each year are being lost through tax avoidance and evasion at the top. Progressive tax reforms, such as a Land Value Tax, would help address inequality at root and redistribute economic power. Shifting the burden of taxes onto environmentally unfriendly activities would kill two birds with stone by relieving struggling families and speeding up the transition to a low-carbon economy.

Policy makers can no longer claim that there is little they can do to address growing income and wealth divides. Our report provides a menu of policies that the government could apply - some of which would cost very little. Political will is now the only barrier to action.

This piece first appeared on the nef blog.

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