A contradiction lies at the heart of the contemporary political consensus – on the one hand, inequality is increasingly recognised as a serious problem; on the other, Mrs Thatcher’s legacy is seen as a precious inheritance. She reversed Britain’s decline, the commonly accepted wisdom goes, and nothing must be done to reverse that.
The trouble is that the inequality is, in large measure, the result of those policies. This is highlighted by some new statistics, released today by the Office for National Statistics. One of my favourite annual ONS publications is called the Effect of Taxes and Benefits on Household Income. This is vital for seeing how the tax/benefit system and public services reduce inequality and which taxes, benefits and services are most effective. As I’ve noted before, original income is much more unequal than “final” income (after taking taxes, benefits and the value of services into account.)
Today’s release presents these figures going back to 1977. There’s a lot to take in, but one of the first points I’ve picked up is how inequality has changed over time. The table below is calculated from some of the figures released today. It looks at the ratio of the final income of the richest tenth (“decile”) of the population to that of the poorest tenth, that is, how unequal we are after everything we do to redistribute income is taken into account:
A couple of points jumped out at me. One is that the last government brought down this ratio slightly; the other is that the biggest change was the increase between 1984 and 1991 – it really does look like a ‘step change’. This is the period when tax and benefit rates and spending on services were changed radically. It’s the period of Geoffrey Howe’s and Nigel Lawson’s Budgets.
If we want to reduce inequality we are going to have to take another look at the ‘achievements’ of Thatcherism.