"Rather than failing to achieve a growing economy because we have been too focused on achieving more even distribution of incomes, our economy has stagnated while at the same time we’ve done little to make it fairer and more equal."
Has discussion about the distribution of incomes in Britain dominated the economy for the past decade? It’s an assertion by Liz Truss in a BBC interview yesterday that explains a lot about how she will approach her role as Prime Minister.
The implication of her remarks is that Britain has been too focused on inequality, so we haven’t pursued policies that would generate economic growth. The UK has such a poor record of growth over the past decade because we haven’t wanted it enough.
There are various sources of evidence to assess this claim that inequality has been an overriding priority for policymakers. Firstly, the UK’s record on distribution of income, which is pretty terrible. The ‘gini coefficient’ of income distribution hasn’t really changed over the last decade, and we are still one of the most unequal high-income countries in the world. The OECD ranks the UK 8th most unequal out of 40 major economies, more unequal than every EU country except Bulgaria.
If we really have been obsessed with distribution, it’s not been a productive obsession.
Secondly, amongst high income countries, the UK is widely considered to be relatively speaking a more small-state, laissez faire economy. According to the ‘Our World in Data’ project at Oxford University, the government spends a smaller proportion of GDP on ‘social spending’ like housing, social security or healthcare than any country in Western Europe except Ireland or Switzerland. This isn’t exactly a proxy for concern about income distribution, but given that social spending is funded from progressive taxation (ie. disproportionately paid by the rich) and benefits lower/middle income households it is quite a good indicator.
By any useful benchmark then, economic debate in the UK isn’t governed by concern about income distribution and inequality. Indeed a lack of concern for these issues is probably one of the defining characteristics of the UK economy compared to most other countries.
It follows that the almost exact opposite of Truss’s view of things like tax cuts for the rich is true… Rather than failing to achieve a growing economy because we have been too focused on achieving more even distribution of incomes, our economy has stagnated while at the same time we’ve done little to make it fairer and more equal.
This is further evidence that we don’t need to fear the economic impact of measures that would reduce inequality, and that we can expect little benefit from policy measures that favour the rich.
Luke Hildyard is director of the High Pay Centre