Dead Men Left

Wednesday, March 30, 2005

"Poverty and Inequality in Britain: 2005"

Back from the Institute of Fiscal Studies presentation on “Poverty and Inequality in Britain, 2005”. They’ve crunched their way through the latest release of figures from the Department for Work and Pensions for low incomes, detailing the financial year up to 2003/04. The results make a less than convincing case for this government’s minimal reforms. (That doesn’t stop the IFS trying, however.)

A few results stick out. Pensioner poverty, measured as the number of pensioners living on below 60% of average income, has declined slightly under New Labour, from about 26% to 20%. Poverty for this group tends to move strongly with the economic cycle, since pensioners’ incomes are fixed when everyone else’s are free to rise. When the economy booms, pensioners are made relatively worse off; when it slumps, everyone else’s declining incomes cause pensioners to become relatively better off. It is, then, a marginal achievement that New Labour has broken this trend, though the decline is not pronounced, and fades next to cyclically-induced declines under Thatcher and Major.

Child poverty, another government target, has also declined, but somewhat less than expected. Faced with a complex tax-credit scheme and severe implementation problems, many of those entitled to increased handouts have gone without; the IFS estimates that around 160,000 less children would be in poverty without those two effects. The net result is that the government will fail, by some distance, to actually meet its target for this year.

Both these relative successes need to be set against the increase in poverty amongst workless households. This group includes, by-the-by, large numbers of the disabled and those on long-term sick-leave; and there are large increases in poverty amongst the 39% of the population that are working-age adults without children. Clearly, targeting has had some effect, and the deliberate attempts by New Labour to address specific social groups are one reason why it is not possible to dismiss them as driven solely by “line of least resistance” politics. But the policy has left significant chunks of the population with a noticeable deterioration in their position. Relative poverty has worsened under Blair for childless adults.

At first glance, income inequality appears to have declined over the last three years. However, the decline is not statistically significant, which means that we can’t be confident it actually occurred at all. Even if we allow that it did, income inequality is still higher now than it was when Blair first arrived in office. Prattle about Gordon Brown being the “most redistributive Chancellor ever” is hot air.

The IFS attempted to claim that Labour was “running to stand still”, citing major pressures working against equality, but could not – when pushed – convincingly name what these great demons were. The fall in unemployment should certainly work heavily in its favour, alongside long-term demographic changes; the most convincing, and partial, explanation the IFS offered was the presence of unequally distributed returns to education, with the incomes of the highly-educated rising faster than the average. This, alongside continued high job polarisation, probably accounts for a great deal of persistent income inequality. Even so, with significant forces acting to reduce inequality, New Labour’s achievement looks paltry.

The situation is still worse if we consider inequalities of wealth. From the Economist (26 March, p.33):

In 1997, the average British chief executive of the one of the top 200 British companies took home £955,000. The typical boss of a comparable sample of American companies was paid £2.86m, nearly three times as much. By 2003, the gap was down to 1.7 times: British bosses’ pay had risen 77% to £1.96m, compared with only a 6% rise (to £2.83m) in America.

“Salaries” here, by the way, does not mean stricly income, including also forms of wealth such as stock options. Wealth inequality in Britain has risen dramatically under Blair. The top 1% of wealthiest individuals, some 600,000 people, increased their share of the national wealth from 20% to 23% from 1996 to 2002. By contrast, the bottom 50%, around 30m people, owned 7% of national wealth in 1996, but only 5% in 2002.

It’s necessary to bang on somewhat about all this, since New Labour apologists of late have made an effort to defend the government’s social record. After eight years, it is extremely difficult to conclude that the “Third Way” – policy measures designed around targets, attempts to utilise market mechanisms for social justice – has delivered. This IESR paper provides a cogent critique of the targeted benefit approach. If it were possible to ignore Iraq, there would be little enough reason to reward New Labour with a vote.