From the TUC

How to reduce inequality

19 May 2011, by in Equality, Politics, Society & Welfare

What works at cutting inequality? New figures show that we already do a great deal – and suggest how we could do even more.

There’s sometimes a terrible fatalism about inequality – most people agree that Britain is unequal and that this is a problem, but many believe that  this  is inevitable. This sense that nothing can be done about inequality is encouraged by Ministers who like to emphasise the large sums spent by the last government, and then add “but it didn’t do any good.”

A good example was Iain Duncan Smith’s statement response last week to the annual Households Below Average Income report, when he made a point of the “astonishing £150 billion injected into tax credits alone.”

But benefits and tax credits and the taxes that pay for them do make a difference to inequality – a massive difference. Today the Office for National Statistics published their annual report on The Effect of Taxes and Benefits on Household Income. This looks at the distribution of income before and after taxes and spending, looking at patterns of original, gross, disposable, post-tax and final income. Their summary of the figures includes a very useful diagram to show what these terms mean:

At each stage of this process this system reduces the level of inequality. If we look at original income – roughly, what you’d have if we didn’t have any taxes, benefits or services –  the poorest fifth of people had an average income in 2009/10 of £4,847 while the richest fifth had £77,896.

If you look at disposable income – how much money you’ve got to spend – the poorest had £10,535, the richest had £60,388.

And if you look at final income – roughly speaking, taking into account how much you’d have spend on the public services you use – the poorest have £15,125, the richest £58,070.

In other words, this country would be about four times as unequal without taxes and benefits:

There’s two really important lessons we ought to take from these figures. One is that fatalism about inequality is really an expression of ignorance: we already do a great deal to equalise incomes. The other is that if we want to do more, there are instruments to hand and we already know they work.

4 Responses to How to reduce inequality

  1. Carol Wilcox
    May 19th 2011, 2:47 pm

    How to fix inequality: cut out all unearned income at source – collect all land rent for public benefit – cut out the capitalist middle man – don’t allow money to make money – all land and capital goods owned by those who use them – everyone entitled to the fruits of their own labour and a share in the bounty of nature.

  2. Richard Wassell
    May 19th 2011, 3:50 pm

    This is helpful but too simplistic.

    In the lowest quartile, not everyone is entitled to benefits – and in any case an occupational pension for instance is not a “benefit” since it is funded out of one’s own past savings.

    Further, not everyone is in constant need of health support – and certainly not everyone has children requiring education.

    So at the very least we do need the figures differentiated a little more by category of circumstances. Would be interesting to contribute to that.

  3. Christine-Marie Esteve
    May 20th 2011, 10:46 am

    Family Tax credit was encouraged by the Labour Govt originally to encourage employers to take on more people. While it is true that FTC has on paper reduced inequalities, this is because the lowest paid have become increasingly reliant on this aspect of the social wage to make up their income. Corporations such as Tesco exploit the FTC system to depress wages and increase profits, so it is no accident that executive salaries and dividends have increased. The real answer to dealing with social inequality is to set a minimum wage based on a realistic living wage (this can be done regionally) as is the case in Germany and France. In essence the British taxpayer (80 per cent of them earning less than 40k per year) are subsidisng the grotesque profitsof these companies and corporations. In terms of lost tax Revenues and the costs involved, this is a much greater burden on the public purse than benefit payments.

  4. VAT rise will increase inequality – say ONS | ToUChstone blog: A public policy blog from the TUC
    Jun 16th 2011, 4:57 pm

    […] New ONS data out today considers the impact that taxes have on income inequality. Key findings are (as Richard has previously explored in some detail): […]