Richard Exell

A new study by John Hills shows that the last government’s spending held back rising inequality and that cutting it is likely to be regressive. At the same time, an evaluation of the 1990s cuts in Sweden and Canada – often cited by the coalition as an inspiration – reveals that they led to significant increases in poverty and inequality.

I’m referring to a couple of articles by Daniel Pimlott that appeared on the Financial Times website this evening. Normally I’d just link, but as they’re behind a paywall, and they’re so excellent, I thought it would be worth briefly summarising them.

First up is a report on new research by Prof John Hills of the LSE – so new that, as far as I can make out, it isn’t on the LSE website yet – looking at the increase in public spending in the first decade of the last government’s existence. Prof Hills found that this spending boosted the incomes of the poorest more than any other group. He added that a £1,000 a year cut in services would represent 10 per cent of the income of the poorest and 1 per cent of the income of the richest fifth. Raising the same amount by tax increases, on the other hand, would reduce the final income of the poorest fifth by 3.4 per cent, compared to 3.7 per cent for the richest.

Possibly even more important is an article looking at the experience of cutting by Finland, Sweden and Canada. In all three countries cuts in the 1990s caused growing inequality. Mr Pimlott reports that:

Sweden – alongside Finland – suffered the sharpest rise in income inequality among developed countries in the late 1990s, a period when both were also carrying out the most aggressive programmes to improve the state of their public finances.

He produces evidence for a similar story in Canada. If you don’t have a subscription to the F.T. website it’s worth getting a copy of the paper for these two articles alone.