Tackling inequality: policy framework for a Labour Government
In relation to:
Labour Party manifesto
The Equality Trust would like to see an explicit commitment to inequality reduction anchored in:
- an inspiring and explicitly branded, and relentlessly communicated, theme of renewing the UK by making it materially more equal and fairer, and
- a comprehensive, long-term Inequality Reduction Strategy to which the following policies could contribute. This would require inequality reduction to be “baked in” to the UK so that it could not be easily reversed.
We advocate the reintroduction of Budget distribution analysis with prominence given to the effects of spending decisions on overall inequality. This means the Inequality Reduction Strategy should run across all departments of government and be co-ordinated in a joined-up manner so that the actions of all departments are pulling in the same direction. It would also involve commissioning the Office for Budget Responsibility (OBR) to estimate the net impact of the Budget on UK inequality. Finally, this vision of a more equal society must involve more comprehensive measures of well-being that extend beyond the one-dimensional obsession with GDP growth.
a. Macroeconomic policy
Government finances should be repaired and improved within an egalitarian framework that sees the richest pay more than the poorest. Proper progressive taxation of income and wealth, a comprehensive and persistent clampdown on tax evasion (and tax havens) and aggressive tax avoidance and the creation of good, well-paid jobs should be the central drivers of this process. The emphasis for reducing the national debt and the deficit should be switched away from public expenditure cuts towards taxation so that those with the broadest shoulders really do bear the greatest burden. In short, Labour should aim to replace the degradations of austerity with the delivery of dignity and decency for all.
Price stability can be helped by targeted interventions in the most egregious and iniquitous areas of market failure: e.g. housing rents, utility prices and transport costs. As a priority, the outdated and highly regressive council tax should be replaced by a progressive property tax. The rate of VAT should also be reduced when public finances permit, since it is a regressive tax.
Where market failure is so serious, nationalisation should be considered in order to protect the long term, strategic, public interest against profiteering and reckless mismanagement of key economic assets. However, we strongly recommend the Labour party looks at new and innovative forms of public ownership including hybrid ownership between the state (national and local), employees and customers to ensure control of public goods are in the hands of ordinary people. Furthermore, in the case of public transport, a Labour government should look at existing subsidies and how they can deliver greater equality, rather than simply channelling subsidies towards affluent commuters in the South East and London.
b. Restructuring the UK economy
This policy area has two aspects:
- spread the wealth in terms of ownership of economic activity and
- spread the wealth across the UK to tackle our deep-seated regional inequalities.
While inequality between regions is important, it is not as important as overall inequality. This is why an all-encompassing national mission to reduce inequality, of the type we are suggesting, should be the priority. However, it is clear that regional inequality is holding people back from achieving their potential. Addressing regional inequalities are perhaps best done through a national infrastructure plan and an active industrial policy.
c. Tax structure including distribution effects & macroeconomic impact
Our research shows that the poorest 10% pay more in overall taxes, as a proportion of their income, than the richest 10%. This must be reversed. The reversal will entail a general shift away from indirect taxation towards more direct taxation of income and, particularly, wealth. This could involve a greater focus on capital gains tax, inheritance tax, and a progressive property and/or land tax. As noted, council tax should be reformed to develop a progressive property tax, or to include additional higher bands.
We also note that transferring money from rich to poor will likely produce an economic stimulus as poorer people would tend to spend a higher proportion of any additional income than richer people.
d. Public investment
Priority within public investment should be given to the creation of good jobs – i.e. wherever possible, full-time, well-paid, secure and with strong rights and protections. The recent Trade Union Act should be repealed. Plentiful academic evidence shows that strong trade unions correlate strongly with greater equality, especially if they are able to bargain collectively.
The Equality Trust would like to see that where public money is used to support the private sector in its activities and job creation, then due acknowledgment is given to the role played by public money. Also, conditionality should be applied to the disbursement of public money, for example by requiring businesses to disclose their pay ratios and to pay the real Living Wage (as promoted by the Living Wage Foundation). This will have a key educative role in demolishing the “private sector good, public sector bad” mantra and demonstrate to people that public-private partnership can work effectively, but that it has to be done fairly.
e. Public regulation of business
The voluntary codes of corporate governance have had their day. They have proved to be woefully ineffective over many decades and, most recently, in the run-up to the financial crash of 2008. Our proposals include compulsory and substantial worker representation on the Boards of large and medium businesses, with the same businesses also being required to publish the pay ratio between their most highly paid and median paid employee.
Business must be made to accept that it has a vital social as well as economic role and it therefore has responsibilities that go beyond the bottom line and profit-maximisation. This will require a long term and deep-rooted culture change to take effect and legislation and enforceable rules (with penalties) is the only way to set this in motion. Corporate voluntarism and nudge-style politics are inadequate for the task.
f. Economic ownership
Economic democracy cannot be solely achieved through small improvements in worker rights, it can only be achieved through workers being given genuine control over their working lives. We would like to see a Labour government make an explicit commitment to grow the ethical business sector (EBS) in the UK to at least 25% of private sector economic activity as a central part of its vision to create the equivalent of a “People’s Home”. In the ethical business sector, we would include: coops, mutual, employee-owned business and social enterprises. We are not yet convinced of the case for including B corps or so-called “businesses with a social purpose” but they should be reviewed.
Policies to achieve the necessary growth of the EBS are (but not necessarily restricted to):
- A democratic economy bank – nationally or regionally structured to provide short-term finance
- A democratic economy investment fund – for longer term / strategic investment
- A democratic economy one-stop government portal – practical help to start a democratic company/org (e.g. setting up a co-op should be as easy as setting up a for-profit company but it isn’t at present)
- A democratic economy syllabus for schools, colleges/universities and other educational providers (e.g. WEA)
- A review of current legal forms to see if new vehicles are needed.
EBS has far lower levels of pay disparity compared to the rest of the private sector (particularly the larger private companies) and, if its role was hugely expanded, would be a powerful driver of a more equal and fairer UK. The wider benefits of greater economic democracy, including potential increases in productivity, would also address some of the key problems afflicting UK businesses.
There would be significant challenges in achieving this policy, not least around investment, but we believe that if significant political will could be devoted to growing and promoting EBS, then it could be truly transformative for the UK. Commitment to an expanded EBS is also entirely consistent with the values of the Labour party and the wider labour and co-operative movement.
f. Environmental sustainability including energy policy
The best guarantee of long-term environmental stability is to make the UK a more equal, fairer country. Only that way can the necessary civic-mindedness be fostered such that people will accept the changes we require to transition to lower carbon and lower consumption living, especially the rich who tend to pollute more and have a larger carbon footprint per person than poorer people. Further reading can be found as follows: in the pamphlet A Convenient Truth, in The Spirit Level - and in this blog written for the Green Economy Coalition, of which we are members.
g. Labour market policies
A Labour Government should reform Universal Credit (UC) so that it provides a decent income floor and a genuine route out of poverty. UC is a good idea in principle, it is just not generous enough and the withdrawal rate penalises those trying to work their way out of poverty with extremely high marginal tax rates. We would like to see the withdrawal rate reduced to 55p of every additional pound, and the two-child limit on UC removed. See our Aspiration Tax report for more on this.
A rise in the minimum wage proposed by Labour requires that social security provision also rises so as to not lose touch. Labour must end the pernicious narrative of “strivers and shirkers” and reframe the debate around welfare in progressive terms. Children’s social security provision should be protected with a ‘triple lock’ (increasing them in line with earnings, inflation or 2.5 per cent, whichever is greater), and a Labour Government should scrap the benefit cap.
h. Social policy
The Equality Trust believes that the creation of a more equal, fairer society will solve many of the pressing social problems such as housing and care provision. A better resourced and healthier population delivered through greater material equality will mean reduced demands on remedial social services. That said, we are not complacent. High priority needs to be given right now to ensuring that people have affordable and decent housing as well as high quality health and social care services.
A Labour government should set up an Inequality Commission to look at the pressing social problems that we face and set the terms of reference to include considerations of inequality, poverty and how we pay for our public services. This would draw on expert testimony and could be used to instigate a national conversation, and forge a national consensus, around difficult issues.
Given that housing is perhaps the single most pressing issue facing the country, impacting on wealth and health inequality, solving the housing crisis should of course be a priority for any incoming government. In addition to a substantial commitment to public house building, including a significant increase in social housing, we believe a Labour government should also consider a programme of civic house building, such as that outlined by Shelter in the charity’s report ‘New Civic House building’.
Such a programme would focus on development “in favour of the citizens” with land purchased “on reasonable terms” rather than simply by the highest bidder, as occurs with our broken system of speculative house building.