The vast gap in living standards is the political issue of the moment
Inequality has become one of the most contentious topics in political and economic debate. Technological advances and financial innovation (or con-artistry) are generating vast sums of money for quite a small number of people, while at the same time, over a million food parcels were handed out in Britain last year to households who couldn’t afford to feed themselves. In the developing world, millions continue to lack such basic human requirements as drinking water and sanitation.
Whether or not we could reduce this vast gap in living standards a bit more substantially and a bit more quickly is perhaps the most important political question of the moment.
So what do the political parties propose to do tackle inequality?
Conservatives – It’s a sign of how serious the issue of inequality has become that the Conservatives are aggressively talking about how they’re the best party to reduce it. Their manifesto claims that the rich are paying more income tax and inequality is down under the Coalition and that this is something to be proud of.
The Conservatives’ signature policy in terms of raising the incomes of the lowest-paid is the increase in the income tax threshold. But most of the benefit from this change will accrue to higher earners, rather than the lowest-paid who already don’t pay much tax on their earnings. They focus on job creation as a means of tackling inequality, achieved mainly through cuts in taxes on business – a laissez faire approach that rather assumes that if government just gets out of the way, the problem will take care of itself.
Unfortunately, the same section of the manifesto includes an utterly dismal section on curbing trade union rights. Research repeatedly shows that empowering workers to secure a better deal on pay and rights at work – largely through trade unions – is one of the most effective means of cutting the gap between rich and poor.
Furthermore, only a complete fool could argue that overly-powerful trade unions were a significant problem for the UK economy, or had caused anything other than the most minor inconvenience on very rare occasions for the overwhelming majority of businesses and the UK public. Making it harder for unions to organise and reducing the means available to them to exert pressure for a better deal is the exact opposite of what a sensible government should be doing.
Similarly, for anyone concerned about inequality, the Tories’ pledge to raise the inheritance tax threshold is also troubling. This is a tax cut for the very rich on income they haven’t worked for – the very antithesis of fairness.
Labour – Rhetorically at least, Labour’s manifesto is much more forceful on the issue of inequality, with frequent references to how the economy isn’t working for ordinary people and how those at the top need to play by the same rules.
Unlike the Conservatives or the Lib Dems, Labour also recognise that a more equal distribution of wealth probably does necessitate higher taxes on the rich. Data shows that the richest one per cent of the population have a lower share of total incomes in countries with a higher top rate of tax. Importantly, the International Monetary Fund has found that redistribution doesn’t negatively impact on economic growth, though unfortunately for Labour, it probably does impact on the Maserati-driving, swan-eating habits of certain influential business leaders and newspaper-owners, meaning that other modest redistributive measures in the manifesto, such as the abolition of non-dom status or the mansion tax will continue to prove contentious.
Labour also pledge to raise the minimum wage, abandon the prohibitive costs that the Tories have applied to employment tribunals and introduce tax rebates for Living Wage employers, but perhaps their most interesting policy for tackling inequality involves giving worker’s representatives a seat on the ‘remuneration committees’ that set executive pay at listed companies.
This will mean that when Britain’s biggest corporations want to award their CEO with a seven or eight figure pay package, they’ll need sign-off from their employees. This represents a real challenge to the rancid culture of huge bonuses for those at the top and pay freezes for everybody else.
Lib Dems – Like Labour, the Lib Dems propose a new tax on high-value properties. Like the Tories, they are proposing a further hike in the income tax threshold. They also identify more technical points around closing capital gains tax loopholes and removing rights for rich pensioners to free TV licenses and the winter fuel payments.
On top pay, the Lib Dems have a slightly confused version of Labour’s policy. On page 47 they promise merely to hold a consultation on whether companies should consult employees on executive pay, while on page 137 they commit to worker representation on remuneration committees. This probably needs some clarification as the two points appear to contradict each other.
The Lib Dems would also require companies to disclose the ratio between the highest paid individual in an organisation and the median level of pay. This is a potentially useful way of raising awareness of the scale of pay gaps in the UK –It is now commonplace for CEOs to be paid hundreds of times their average worker and the Lib Dems are right that companies who think this is justifiable should be forced to put the information in the public domain and defend it.
Finally, the manifesto’s section on education emphasises ‘unfair divisions in our society’ and ‘the gaps between rich and poor’. This is a laudable focus for education policy, but does also reflect a worrying trend for solutions of inequality to take the form of vague promises of ‘better education.’
High quality schools, teaching and childcare are critical to a fair society, but so is power – and Britain ranks 27th out of 28 European countries in terms of worker representation in company decision-making, giving UK workers less opportunity to improve their pay and working conditions. The failure of the Liberal Democrats to boost democracy in the workplace, where people spend half their waking life, feels like a bit of a missed opportunity.
Other parties – Polling suggests that Green Party supporters are particularly exercised about poverty and inequality, and the issue is more prominent here than in any other manifesto. Commitments include a Wealth Tax on the top one per cent, Robin Hood Tax on financial speculation and 60 per cent rate of income tax on the highest earners. Proceeds would be invested in public services and in energy efficiency and renewable energy programmes.
UKIP offer a programme based on tax cuts that would largely benefit high earners, including the complete abolition of inheritance tax. This would surely exacerbate inequality even more starkly than the Conservative plans raise the threshold.
Both the SNP and Plaid Cymru oppose social security cuts and support higher taxes for the rich and worker representation on company boards, a sign that in Scotland and Wales, inequality is likely to be an even more important election issue than in England.
Luke Hildyard is a contributing editor at Left Foot Forward. Follow him on Twitter
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