{"id":2605,"date":"2019-05-10T10:07:27","date_gmt":"2019-05-10T10:07:27","guid":{"rendered":"https:\/\/politicalquarterlyblog.preliveweb.site\/?p=2605"},"modified":"2022-06-17T17:00:03","modified_gmt":"2022-06-17T17:00:03","slug":"the-story-of-inequality-and-poverty-is-written-by-governments","status":"publish","type":"post","link":"https:\/\/politicalquarterlyblog.preliveweb.site\/?p=2605","title":{"rendered":"The story of inequality and poverty is written by governments"},"content":{"rendered":"\n

Forty years ago, those in the top one per cent took home\naround three per cent of all income; today that share has more doubled\nto around eight per cent.<\/a> Around thirty-five years ago, one in seven\nhouseholds could not afford three or more basic necessities; by 2012 this had\nrisen to one in three<\/a> and is likely to have risen further since. And\ntoday, around 2 million people in the UK are undernourished and one in five\nchildren lives in a household that is either moderately or severely food\ninsecure making the UK perhaps the \u201cworst\nperforming nation in the European Union\u201d<\/a> when it comes to ensuring its citizens have enough to eat.<\/p>\n\n\n\n

But the story of how and why inequality and poverty has changed\nin the UK is not solely, or even primarily, one in which impersonal economic\nforces are the main protagonists beyond the control of whichever government\nhappens to occupy the stage at any point in time. Instead, the story is, at its\nheart, a political one.<\/p>\n\n\n\n

For at\nleast<\/a> thirty years\nprior<\/a> to the Great Recession there was a consistent trend for those\nat the top to earn increasingly more than the rest. But this consistent rise in\nearnings inequality did not translate into consistently rising income\ninequality or poverty because government policy was, and is, the final\ndeterminant of both.<\/p>\n\n\n\n

Both inequality and poverty skyrocketed under the Thatcher\ngovernment as she made clear that \u201copportunity means nothing unless it includes\nthe right to be unequal\u201d<\/a> and then cut the top rate of tax from 83 to\n40 percent. She believed the government should not \u201ctake money in taxes from those\nwho work hard and pay it out to those who don\u2019t\u201d,<\/a>\nand in due course, social security payments, including the state pension, were frozen\n(or cut) in real terms and grew slower than earnings. <\/p>\n\n\n\n

Changing economic circumstances at the time did have an\nimpact on inequality and poverty but it was the government\u2019s policies on\ntaxation and social security that were responsible for around\nhalf<\/a> of the rise in inequality in the 1980s \u2013 an impact that was one\nand a half times greater than the impact of changing employment and three times\ngreater than that of rising earnings inequality.<\/p>\n\n\n\n

The pattern of income growth under the Conservative governments of 1979 \u2013 1997 was straightforward: the richer you were, the faster your income grew (see figure one below).  Those at the top 10 per cent saw their incomes grow by around 75 per cent compared to around 25 per cent for those at the bottom 10 per cent. <\/p>\n\n\n\n

\"\"
Source: IFS, Living standards, poverty and inequality in the UK<\/a><\/em>
  <\/figcaption><\/figure>\n\n\n\n

The story of inequality and poverty then changed markedly\nwith the election of New Labour. Tony Blair was clear before he came to office\nthat \u201cthe next Labour government [would raise] the living standards of the\npoorest\u201d and, once in office, promised that he would \u201cend child poverty\u201d in a\ngeneration. Gordon Brown made a similar promise regarding pensioner poverty. When\nthey came to office, they set out to do\nexactly that<\/a>. <\/p>\n\n\n\n

The introduction of tax credits would raise the incomes of\nlow-income working age families; the introduction of pensioner credit would\nincrease the incomes of low-income pensioners; and poverty rates (measured as\nthe proportion of families with less than 60 per cent of median income before\nhousing costs) for both groups subsequently fell (see figure two). <\/p>\n\n\n\n

But the poverty rate for working age families without children actually rose in this period. Why? Because the ambition was not to end all poverty; it was to end child and pensioner poverty. <\/p>\n\n\n\n

\"\"
Source: IFS, Living standards, poverty and inequality in the UK<\/a><\/em> <\/figcaption><\/figure>\n\n\n\n

Then came the Great Recession and the post-2010 coalition\nand Conservative governments, who set out to move the UK from a \u201chigh\ntax, high welfare economy; to \u2026 [a] lower tax, lower welfare country\u201d<\/a>. They abolished the 50p tax rate on high\nincomes and increased the personal allowance \u2013 measures that disproportionately\nbenefited\nricher households<\/a>. <\/p>\n\n\n\n

They did not believe\nthat reducing poverty could be achieved by \u201cincome\nredistribution\u201d<\/a> and cut social security payments for low-income\nworking age families. But not all of those on low-incomes faced social security\ncuts. In the Treasury, the Conservatives may not have had \u201cmuch time for tax\ncredits\u2026 [or] Housing Benefit\u201d but made it clear, \u201cthat they will not touch\npensioners\u201d.<\/p>\n\n\n\n

Now, as the more eagle-eyed will have noticed, figures one\nand two show that poverty and inequality have barely risen since 2010 despite regressive\ncuts to taxation and social security. This is because in the aftermath of the 2008\ncrash, both earnings growth and earnings inequality fell, counteracting these\nregressive policy changes. Today, as both earnings\ngrowth<\/a> and inequality have begun to return, so too have the first\nsigns of rising\ninequality<\/a> and poverty<\/a>.\n<\/p>\n\n\n\n

The main protagonists in the story of inequality and poverty\nare governments. When governments change, so does the story. If, tomorrow, New\nLabour were to return to power and implement their taxation and social security\npolicies, then the story would change once again, with certain subplots seeing\ndramatic twists. <\/p>\n\n\n\n

This is not just idle speculation on my part. Using the\nEUROMOD tax and benefit microsimulation model, I have estimated what the\ndifference in inequality and poverty rates would be if New Labour\u2019s policies on\ntaxation and social security were implemented tomorrow. I constructed this\ncounterfactual by uprating social security payments & tax thresholds in\nline with New Labour policy when they left office and uprating the minimum wage\nin line with actual rises up to 2015 and in line with the 2015 Labour manifesto\nthereafter (figure three below). <\/p>\n\n\n\n

Under New Labour\u2019s policies, inequality would fall slightly while the proportion of the total population living in poverty would be around 2\u00bd percentage points lower. But certain groups would see more dramatic falls \u2013 poverty would fall significantly for children (by around 5\u00bd percentage points) whereas poverty would rise slightly for pensioners.<\/p>\n\n\n\n

\"\"
Source: EUROMOD Tax-Benefit Microsimulation Model<\/a> <\/figcaption><\/figure>\n\n\n\n

Beveridge, the architect of the welfare state, understood the\npolitical nature of the inequality and poverty story. In the closing of his\nblueprint for the post-war welfare state, he declared that \u201cfreedom from want\ncannot be forced on a democracy or given to a democracy. It\nmust be won by them<\/a>\u201d. That remains as true today as it was three-quarters\nof a century ago when he wrote it. The story of inequality and poverty is\nwritten by governments and, in a democratic society, the people who elect them.\n<\/p>\n<\/span>","protected":false},"excerpt":{"rendered":"

Forty years ago, those in the top one per cent took home around three per cent of all income; today that share has more doubled to around eight per cent. Around thirty-five years ago, one in seven households could not afford three or more basic necessities; by 2012 this had risen to one in three […]<\/p>\n","protected":false},"author":141,"featured_media":2611,"comment_status":"open","ping_status":"open","sticky":false,"template":"","format":"standard","meta":{"footnotes":"","_links_to":"","_links_to_target":""},"categories":[1395,1405,1396,1403],"tags":[],"coauthors":[1615],"class_list":["post-2605","post","type-post","status-publish","format-standard","has-post-thumbnail","category-comment","category-government","category-uk","category-inequality"],"amp_enabled":true,"jetpack_featured_media_url":"https:\/\/politicalquarterlyblog.preliveweb.site\/wp-content\/uploads\/2019\/05\/The-story-of-inequality-and-poverty-is-written-by-governments-pete-willis-1379050-unsplash-scaled.jpg","_links":{"self":[{"href":"https:\/\/politicalquarterlyblog.preliveweb.site\/index.php?rest_route=\/wp\/v2\/posts\/2605","targetHints":{"allow":["GET"]}}],"collection":[{"href":"https:\/\/politicalquarterlyblog.preliveweb.site\/index.php?rest_route=\/wp\/v2\/posts"}],"about":[{"href":"https:\/\/politicalquarterlyblog.preliveweb.site\/index.php?rest_route=\/wp\/v2\/types\/post"}],"author":[{"embeddable":true,"href":"https:\/\/politicalquarterlyblog.preliveweb.site\/index.php?rest_route=\/wp\/v2\/users\/141"}],"replies":[{"embeddable":true,"href":"https:\/\/politicalquarterlyblog.preliveweb.site\/index.php?rest_route=%2Fwp%2Fv2%2Fcomments&post=2605"}],"version-history":[{"count":0,"href":"https:\/\/politicalquarterlyblog.preliveweb.site\/index.php?rest_route=\/wp\/v2\/posts\/2605\/revisions"}],"wp:featuredmedia":[{"embeddable":true,"href":"https:\/\/politicalquarterlyblog.preliveweb.site\/index.php?rest_route=\/wp\/v2\/media\/2611"}],"wp:attachment":[{"href":"https:\/\/politicalquarterlyblog.preliveweb.site\/index.php?rest_route=%2Fwp%2Fv2%2Fmedia&parent=2605"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https:\/\/politicalquarterlyblog.preliveweb.site\/index.php?rest_route=%2Fwp%2Fv2%2Fcategories&post=2605"},{"taxonomy":"post_tag","embeddable":true,"href":"https:\/\/politicalquarterlyblog.preliveweb.site\/index.php?rest_route=%2Fwp%2Fv2%2Ftags&post=2605"},{"taxonomy":"author","embeddable":true,"href":"https:\/\/politicalquarterlyblog.preliveweb.site\/index.php?rest_route=%2Fwp%2Fv2%2Fcoauthors&post=2605"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}