By Duncan Brack
This article was originally published in Reinventing the State: Social Liberalism for the 21st Century. We are grateful to Duncan for allowing us to reproduce this article. Visit the Methuen website to purchase the latest edition of this book for the discount price of £10.
The Liberal Democrats exist to build and safeguard a fair, free and open society, in which we seek to balance the fundamental values of liberty, equality and community, and in which no one shall be enslaved by poverty, ignorance or conformity … We reject all prejudice and discrimination based upon race, colour, religion, age, disability, sex or sexual orientation and oppose all forms of entrenched privilege and inequality … We recognise … that the market alone does not distribute wealth or income fairly. We support the widest possible distribution of wealth …
Extracts from the Preamble to the constitution of the Liberal Democrats
Of the three ‘fundamental values’ which the party’s constitution claims we ‘seek to balance’ – liberty, equality and community – equality has traditionally held least appeal for Liberal Democrats. The very title of the 2002 policy paper on Lib Dem philosophy, It’s About Freedom, relegates it explicitly to, at best, second place. As the paper made clear:
We place the principle of freedom above the principle of equality. Equality can be of importance to us in so far as it promotes freedom. We do not believe that it can be pursued as an end in itself, and believe that when equality is pursued as a political goal, it is invariably a failure, and the result is to limit liberty and reduce the potential for diversity.1
I served on the working group that produced that paper, so I share the responsibility for the statement. I now believe, however, that it drastically understates the importance of the pursuit of equality as the essential underpinning of our ultimate aim of individual freedom, Similarly, equality underpins the type of communities in which individuals thrive best. The pursuit of both these other values will be compromised by a lack of attention to equality. Furthermore, I don’t mean just equality of opportunity, the Liberal get-out for most of the past century. I mean equality of outcome – or to be more accurate, a significant reduction in inequality of outcome.
This chapter will argue the case for promoting (or restoring) equality to the place where the party put it in its founding constitution, as a ‘fundamental value’ balanced against – rather than subordinate to – the other two. My case is based on three main arguments. First, that the extent of income and wealth inequality in modern-day Britain is seriously undermining the fabric of society, and needs urgently to be tackled by government – not just for the sake of those at the bottom of the income and wealth pile, but for all of us.2 Second, that a commitment to reduce levels of income and wealth inequality fits naturally into our Liberal philosophy. Third, that it’s smart politics.
Is Britain unequal? Income and wealth inequality
First, we need to examine the extent of income and wealth inequality in modern-day Britain. Is Britain in reality an unequal society? The answer is emphatically yes. After falling in the 1970s, income inequality grew significantly under Thatcher, and has declined only slightly since. By 1979 the percentage of the population living in relative poverty3 had fallen to about 14 per cent, a post-war record. By 1996–97 this had almost doubled, to 25.3 per cent, and by 2006–07 it still stood at 21.6 per cent, representing 12.7 million people.4 As the Institute for Fiscal Studies found:
Inequality rose dramatically over the 1980s … The scale of this rise in inequality has been shown elsewhere to be unparalleled both historically and compared with the changes taking place at the same time in most other developed countries … Over the first two terms of the Labour government, the net effect of these changes was to leave income inequality effectively unchanged and at historically high levels.5
Wealth distribution remains even more unequal than that of income, partly because of the substantial rise in house prices. Between 1990 and 2001 the proportion of wealth held by the wealthiest 10 per cent of the population increased from 47 per cent to 56 per cent.6 A Joseph Rowntree Foundation study published in July 2007 concluded that Britain was becoming an increasingly segregated society in terms of wealth distribution. The last fifteen years have seen an increase in the total number of households living in poverty. At the same time, households in already wealthy localities have tended to become even wealthier, with many rich people now living in areas segregated from the rest of society. This widening gap between rich and poor has led to a fall in the number of ‘average’ households (neither rich nor poor), with those families gradually disappearing from London and the South East. The report concluded that ‘Britain is moving back towards levels of inequality in wealth and poverty last seen more than forty years ago’.7
The filthy rich
That income and wealth inequality grew dramatically under the Thatcher governments is no surprise. It was a predictable side-effect of the reductions in the higher levels of income tax, the shift from direct to indirect taxes, cutbacks in government spending on public services, and government- engineered recessions which saw unemployment soar. It was not countered significantly, however, by the recovery in employment and output experienced from the mid 1990s onwards.
Why is this? One might have expected a Labour government to be more concerned about inequality than their Conservative predecessors. In fact Labour’s tax and benefit reforms have helped the poorest groups, though only since 2000–01, after they dropped their rigid adherence to Tory spending plans. Since then, significant increases in means-tested benefits and the use of tax credits have helped to raise the income of most of the poorest 40 per cent by more than the average, although the poorest 10 per cent have not done nearly so well. The complexity of the tax credit system has led to significant administrative problems, and redistribution has also has been counteracted by substantial increases in Council Tax, which affects those on lower incomes more heavily.
The other main reason why inequality has remained stubbornly high is because the highest rate of growth of incomes, in both absolute and proportional terms, has been experienced by those in the top 10 per cent: the rich have got even richer. This is not really surprising; when Peter Mandelson said, in 1998, that New Labour was ‘intensely relaxed about people getting filthy rich’, he really meant it.
Partly this is the outcome of government policy – the way in which the tax system operates, or can be manipulated, to benefit the super-rich. Overall, the poorest fifth of the population pays a higher percentage of their gross income in tax than the richest fifth. The House of Commons Treasury Select Committee’s recent investigation into private equity firms revealed how the tax relief structure on capital gains tax has helped many in that industry pay less than 10 per cent on their investments,8 even if they paid tax legitimately. More broadly, chief executives’ pay levels have increased enormously. In 1979, FTSE100 chief execs earned on average about ten times as much as the average worker on the shop floor. By 2002, the ratio had increased from 10 to 54, and by 2006 to 76.9 Last year FTSE100 chief execs’ pay rose by 30 per cent on average; the average pay of their staff increased by 2.8 per cent.
Can’t this be justified by improved performance and competitiveness? After all, the British private sector in 2006 has a rather better image than its predecessor in 1979. A University of Manchester study comparing corporate performance from 1983 to 2002, however, showed that the sales of the top 100 quoted companies on the stock exchange rose by an annual 2.7 per cent, as did pre-tax profits, while the pay of their chief executives rose almost ten times faster, by 26.2 per cent.10 The study concluded that ‘giant-firm CEOs might be just another averagely ineffectual officer class’, who have in effect been ‘value-skimming’, quietly enriching themselves for mediocre performance. This picture was reinforced by a Work Foundation study in 2006 showing that higher pay rates could be justified neither by higher levels of personal risk (the turnover rate for their jobs was lower than the national average; only one was made redundant, and he left with £5m compensation) nor by competition in the global market (most CEOs of British companies are British, and promoted from within their companies).11
Does this growth in the super-rich really matter? I return to this question below, in terms of its indirect impact on social cohesion, but there are direct impacts too. As the Rowntree Foundation study highlighted, the concentration of super-rich households in some urban and suburban areas is pushing house prices way out of the reach of even the betteroff. Shops and restaurants follow the trend, helping to create super-rich ghettos – the real impact of ‘trickle-down’. The super-rich increasingly buy their own media and then use it to promote the political parties that come to them for funds, as ordinary party membership dwindles.
No way out: social mobility
None of this need matter so much if people have a reasonable chance of escaping from poverty, of climbing into the ranks of the rich – or even into those of the average. But on top of the UK’s current pattern of income and wealth inequality, the country suffers from low and declining social mobility.
A 2005 study showed that the chances of children born into low income groups of moving into high-income groups as adults were lower in the UK than in the Nordic countries or Germany, and the chances of upward movement were significantly lower for people born in 1970 than for those born in 1958. There is a far stronger relationship between educational attainment and family income in Britain than in other European or North American countries. Young people with parents with higher professional jobs, for example, are four times more likely to go to university than those with parents in routine manual employment.12
The UK performs very poorly in international comparisons of social mobility. A league table of eight developed states found that only the US had lower social mobility than the UK. In contrast, the four Scandinavian countries, along with Canada, are all nearly twice as socially mobile as Britain. Social mobility appears to be related to, or at least strongly correlated with, the degree of income inequality.
And despite the small fall in levels of inequality, social mobility is not improving. A 2006 Rowntree study on persistent poverty suggested that the chance of a poor child growing up to become a poor adult were still growing.13 An Institute of Education report in June 2007 showed that by the age of three, children from disadvantaged families were already lagging a full year behind their middle-class contemporaries in social and educational development.14
The impacts of inequality: health and well-being15
Clearly, then, Britain is a deeply unequal society in terms of income and wealth distribution. It is also relatively socially immobile: your life chances are determined heavily by your parents’ social class and status. Self-evidently, this is bad news for those at the bottom of the pile.
Its has been recognised for almost thirty years that standards of health and well-being are closely related to income levels. As far back as 1980, the Black Report, Inequalities in Health, concluded that from birth to old age, those at the bottom of the social scale had much poorer health and quality of life than those at the top. Recent studies show that the gap is still widening – the areas with the highest life expectancy a decade ago are the places that have seen the biggest increase in life expectancy since.16 These disparities in health standards are nothing much to do with the NHS: social and economic factors such as income, wealth, employment, environment, education, housing and transport all affect standards of health more fundamentally, and all favour the better-off.
So inequalities in health are an outcome of inequalities in society. Life expectancy in rich nations correlates precisely with levels of equality – so Greece, with half the GDP per head, has a longer average life expectancy than the US, the richest country in the developed world, but also the most unequal. The people of Harlem live shorter lives than the people of Bangladesh. Average male life expectancy in the Calton area of Glasgow is eight years less than in Iraq, even after more than ten years of sanctions, war and insurgency.17 A study of 528 cities in the US, UK, Sweden, Canada and Australia showed a strong relationship between death rates and inequality levels within each city. The two most egalitarian countries in the developed world, Japan and Sweden, also have the longest life expectancies.
This is not just about differences between extremes of wealth and poverty; there is a continuous gradient in death rates all the way through society. The higher people’s status, the longer they live. A study of government office-workers in London in the 1970s and ’80s found that death rates from heart disease were four times as high among the most junior office workers as among the most senior administrators working in the same offices; intermediate levels had intermediate death rates. Only a third of these differences could be explained by risk factors such as smoking, exercise and diet. Considering all causes of death, not just heart disease, the most junior workers were three times as likely to die prematurely as the most senior. As Polly Toynbee put it, if one office was found to be killing three times more than another next door, it would be evacuated instantly – but the social environment doesn’t matter as much as environmental pollutants like asbestos.18
The impacts of inequality: violence, trust and social cohesion
This link between inequality and health standards is relatively familiar. What is much less appreciated is just how strongly levels of inequality are correlated with other social outcomes – which in turn mean that inequality is bad not just for those at the bottom of the pile but for everyone. Unequal societies function badly.
Violence is more common in societies where income differences are larger. About half the variation in homicide rates between different states or provinces in the US and Canada is accounted for by differences in levels of equality. Most criminologists regard this relationship as the most firmly established link between homicide and any environmental factor. Levels of imprisonment in a country can be shown to be related to income inequality and levels of literacy and mathematical ability – which are themselves closely linked to inequality.
This link between violence and inequality is not just exhibited in murder rates; it reaches all the way along the ‘spectrum of hostility’. Both racial hostility and discrimination against women in US states is greater where inequality is higher. One British survey in the 1990s showed that families living on less than £10,000 a year were more than twice as likely to have daily arguments as those living on more than £20,000.
Perhaps most striking of all for Liberal Democrats, the extent to which communities work as communities is also highly correlated with levels of equality. In the US, levels of trust between individuals – the essential underpinning of any functioning community – can be shown to be higher in the more equal states. In the most equal states, only 10 or 15 per cent of the population feel they cannot trust others, while in the most unequal ones the proportion rises to 35 or 40 per cent.
The US Professor Robert Putnam has worked on people’s involvement in community life, using a range of indicators, including the proportion of people belonging to voluntary groups and associations, propensity to vote in local elections, and readership of local newspapers. In Italy, he showed that involvement was highest where inequality was lowest. Although there was a tendency for local government performance to be better where the region in question was richer, a stronger correlation could be demonstrated with his index of ‘civic community’, which was in
turn linked to equality.
Underlying causes: why inequality is harmful
Why is there such a pervasive relationship between inequality and social outcomes? The underlying reason, it is believed, is the stress caused by living at the bottom of the pecking order, on the lowest rung – the continuous stress of low social status, disrespect and exclusion.
Humans are a social species, and the quality of the social relations we experience matters enormously. Feelings of shame and embarrassment are powerful ones, and in extreme cases can lead to violence. Similarly, in Britain today, small premature babies are not, with a few exceptions, caused by bad diet – even poor nutrition, by British standards, will rarely harm a foetus. It is stress in pregnancy that does the real damage, and the poorer the mother, the more likely she is to be stressed. This is hugely important – maternal stress in pregnancy affects the son or daughter throughout their life, from behavioural patterns to standards of health to life expectancy. And these are further affected, of course, by stress levels in the children themselves. An orphanage in post-war Germany found that children on the same diet were found to have grown most under the kindest matron and least under the unkindest matron.
The stress hormone cortisol appears to be responsible. Cortisol is the most important hormone involved in preparing the body for sustained physical activity in meeting a threat. It shifts the body’s functions away from housekeeping activities like digestion, energy storage, fighting infection and growth – a sensible move when fleeing from a predator or an enemy, but of less use in dealing with pervasive shame and disrespect. Long-term elevation of cortisol levels impairs immune system efficiency, raises blood pressure, causes diabetes and arteriosclerosis – and reduces birth weight amongst the children of stressed mothers.
How can stress levels be reduced? Primarily through improving the quality of social relations. We need to build a society which relies less on social status and more on friendship, which tend to vary inversely. Status and friendship have their roots in fundamentally different ways of resolving the problem of competition for scarce resources. Status is based on pecking order, coercion and privileged access to resources, while friendship is based on a more egalitarian basis of social obligations and reciprocity. Lynne Featherstone’s chapter in this book explores this theme in more detail. It is a complicated and difficult area for government to be involved in, but an important one. Here I concentrate on the extent to which the reduction of income and wealth inequality can contribute to this strategy.
Why equality matters to Liberals
So tackling inequality is hugely important for those at the bottom of the income and wealth distribution, those lacking disposable income and assets and, furthermore, trapped by social immobility, where too much of an individual’s future is determined before she is born. It is also important for the rest of us, for those lucky enough to live on a reasonably decent income and to enjoy possession of some level of assets, but who nevertheless exist in the middle of a broken society, riven by distrust, unhappiness and failing communities.
That’s fine in practice; how does it work in theory? Aren’t Liberals more concerned with freedom than with equality? Don’t we fear that too much attention to equality risks creating a society of dull uniformity, where initiative, choice and innovation are frowned upon?
No. The Liberal commitment to equality derives from the Liberal commitment to freedom; it is neither separate from it nor subordinate to it. This belief can be traced right back through the long history of British Liberalism, and can perhaps best be expressed as a commitment to equality of justice.19
The fundamental belief in freedom leads logically to a corresponding belief in a diverse and tolerant society, where individuals are able to exercise freedom of choice, conscience and thought. Since such a society cannot exist where individuals are treated differently by the law or by government institutions because of their nature, ‘equality before the law’ has been one of the great rallying cries of Liberalism, from the earliest days of the Whigs in the seventeenth century.
The French Revolutionary slogan of ‘liberty, equality, fraternity’ (transposed in the Liberal Democrat constitution into ‘liberty, equality, community’) was not simply a list of three separate words; the three concepts interlinked and reinforced each other. ‘Liberty’ did not mean merely the freedom of choice that consumers experience in modern market democracies – it meant not being subordinate to arbitrary power, whether exercised by monarchy, aristocracy or clergy. The concept of freedom was very closely bound up with the extent of differences in social status and social exclusion, and the belief in equality (and in fraternity) in the levelling of those differences.
This Liberal belief in equality was expressed in the nineteenth century primarily through the removal of barriers – to the right to vote, to the right to practise one’s beliefs free of discrimination, to the right to trade freely across national borders. From the end of the century onwards, however, it became obvious that this was no longer enough. Industrialisation, urbanisation and the drastic changes in the structures of society that resulted had led to the spread of poverty, slums, ignorance and disease. Not only were these all serious impediments to freedom, to the ability of people genuinely to exercise control over their own lives and destinies, but they were also impediments that it was difficult, if not impossible, for the affected individual to remove by themselves. Negative liberty, the removal of constraints on the individual, would not necessarily lead to freedom of choice for all, as not everyone enjoyed access to the same opportunities; freedom of choice was therefore heavily constrained.
Equality and social liberalism for the twentieth century
Thus was born the New Liberalism, which came to be the dominant ideology of the early part of the twentieth century. As Michael Freeden put it, this was ‘the crowning achievement of British liberalism … its subtle and intelligent integration of the requirements of social welfare into a continuing respect for individual liberty, a formula that encapsulates its commitment to both individual and social progress’.20
The great reforming Liberal government elected by a landslide in 1906 took up this agenda of social justice. Asquith, Lloyd George and Churchill laid the foundations of the modern welfare state. Labour exchanges were introduced, old-age pensions were paid by the state for the first time, the national insurance system was created, taxation was raised in aggregate and made more redistributive. This was the realisation of the New Liberal programme – removing the shackles of poverty, unemployment and ill-health so as to allow people to be free to exercise choice and realise opportunity. Thus freedom and equality remained interlinked. As the New Liberal thinker L. T. Hobhouse put it:
The struggle for liberty is also, when pushed through, a struggle for equality. Freedom to choose and follow an occupation, if it is to become fully effective, means equality with others in the opportunities for following such occupation. This is, in fact, one among the various considerations which leads Liberalism to support a national system of free education, and will lead it further yet on the same lines.21
Or, as it is more commonly attributed, ‘liberty without equality is a name of noble sound and squalid result’. This belief underpinned the system of redistributive taxation and social services which Labour built on after 1945 and which brought Britain to its lowest level of inequality – until Thatcherite Conservativism came to reverse the achievements of the previous seventy years.
Equality and social liberalism for the twenty-first century
Thatcherism did not, of course, appear out of thin air. The growth in the size of the state throughout the twentieth century, partly consequent on its new welfare role, led to new problems, including the increased power of bureaucracies, and the infringement on civil liberties that may entail, the tendency for elites to capture elements of state power (leading to market distortions such as subsidies), the growth of corporatism, a rising burden of taxation, and so on. The centralised and directive state that Labour built – very different from that which the Liberal Party would have created – helped to create the Thatcherite backlash, and its consequent legacy of inequality.
So, in taking action to reduce inequality, it is important that we do not simply recreate the centralised state. Many chapters in this book stress the need for a more decentralised, responsive and participatory structure and style of government. It is not just the structure and size of the state, however, that is the problem. More fundamentally, the redistribution of resources needed to reduce inequality must, to the greatest extent possible, equalise conditions (or endowments, or birthrights), while respecting choices.
There are two main reasons why inequality may exist. First, because individuals choose different lifestyles. I have worked all my life in the voluntary sector; I have had fulfilling jobs, for the party, for a trade union and for a think-tank, but I have been consistently paid less than my university friends who went into the civil service, or law, or public relations. That was my choice, and I don’t regret it (usually). Given the ability to choose freely, people can and should choose different types of jobs, or different mixes of work and leisure. No system of redistribution should counteract that, or reduce the incentives for effort and enterprise.
What we are concerned with, of course, is the inequality which stems from the unequal distribution of endowments. We have seen already how parents’ income, social class and levels of education affect the lifechances of their children, so markedly that this can be measured even by the age of three. Similarly, people experience different levels of health and ability and access to knowledge, generally through no choice of their own. Liberals have always opposed vigorously discrimination based on gender or race or sexuality or disability; should we not also oppose just as vigorously discrimination based on inherited poverty and ignorance?
The trick, of course, is to create a system that redistributes resources while preserving choice and incentives. This is not easy, either in practice or in theory, though it has occupied the time of many of the liberal thinkers of the later twentieth century.22 John Rawls developed his ‘difference principle’, which stated that inequality could only be justifiable if it proved to be to the greatest benefit of the least advantaged members of society. Perhaps more importantly, Ronald Dworkin’s theory of distributive justice, or equality of resources, claims that how people fare in life should, as far as possible, depend on their ambition, or personality, but not on their endowment, or circumstances. Dworkin defended the postwar structure of progressive taxation, unemployment insurance and universal health provision, while at the same time arguing for the option to buy private health insurance, in order to maximise choice.
A series of further writers, including Bruce Ackerman, Philippe van Parijs and John Roemer, have suggested various means of putting Dworkin’s approach into practice. This includes, most commonly, the idea of allocating some form of basic income or ownership of wealth to every citizen, regardless of their status. Roemer has argued for a programme of ‘compensatory education’, investing more in the education of children from poorer families and communities. What these approaches have in common is their aim of giving everyone a more equal share of society’s resources, and thus a fair start in life. As R. H. Tawney observed, opportunities depend ‘not only upon an open road, but upon an equal start’.23 This is more than just the traditional Liberal approach of aiming to guarantee equality of opportunity (the ‘open road’); we recognise that whatever people choose to do later in their life, it is socially just to start them from a position where they have as equal as possible a prospect for a good life (the ‘equal start’).
Equality and liberty
It should be obvious, then, why Liberals should support a substantial reduction in inequality. First, because it is an important extension of freedom for those suffering from low levels of income, wealth, education, etc., though no fault of their own – the equality of justice argument. In that sense, It’s About Freedom was right to point out that equality is important because it promotes liberty.
Clearly, though, if income and wealth are to be redistributed, some people will have their freedom restricted, for example by being subject to higher levels of taxation. The classical utilitarian argument in favour of this is that the marginal utility of income decreases as income increases – i.e. an extra £1,000 a year is worth a lot more to someone living on £10,000 a year than it is to someone on £100,000. In addition, however, as I have tried to show above, there are direct benefits to everyone, no matter what their levels of income and wealth, from living in a more equal society. Lower levels of crime and anti-social behaviour, stronger political institutions, and more thriving communities provide a benefit to set against the cost of redistribution. Thus, once again, equality promotes liberty, in that a well-functioning society provides an easier and better environment in which to live.
And a more equal society is probably a more economically efficient one too. Higher levels of inequality tend to lead to lower educational attainments, on average, wasting the talents of those at the bottom of the pile. A focus on the equality agenda will be essential to deal successfully with the pressures of competition from the developing world (particularly China and India) and economic migration – both clearly of benefit to world development and to the migrants themselves, but both also leading to downward pressures on wages for the low-skilled in developed economies, including the UK. Once again, equality promotes liberty by spreading prosperity.
At this point opponents of reducing inequality will generally come up with the argument that the danger of pursuing equality is that in practice it limits liberty, stifling initiative, destroying the incentive to work, and generating uniformity. This may be true, at least in theory, if equality is pursued as an end in itself, regardless of the consequences. But why should we do that? One could just as well criticise the pursuit of freedom as a dangerous slippery slope. No one (no Liberal, at least) quarrels with the need to force people to drive on the left, be educated to a minimum age or pay taxes – yet we can still regard liberty, or freedom, as one of the party’s fundamental principles. We do not pursue it to its extreme conclusion any more than we need pursue equality – or, indeed, community.
The question then becomes, how much equality is enough? It is hardly necessary for Liberals to give a precise answer, any more than they need answer how much freedom is enough, or how much community. I would settle for the levels of equality seen in most of the Scandinavian states, but in the mean time Britain is so far away from that level that it would take a government dedicated to reducing inequality many, many years to reach it – so let us at least make a start. The reality is that the degrees and forms of freedom, equality and community that best suit a country at any particular point in time will vary, and will themselves depend on circumstances and political compromises.
If you want a theoretical answer, though, I would argue that it is not the difference in outcomes that derives from individual preferences that should worry us; rather, it is the inequality in outcomes that arises from the structures of society which should, as far as possible, be eliminated. Different outcomes should be the result of choice, not inheritance.
Liberty and equality are not a zero-sum game; on the contrary, the ability to enjoy the opportunities provided by a democratic society is increased by the redistribution of wealth and power. Equality is not just another desirable objective in the party’s list of three, but the essential precondition for liberty and community. Too much inequality limits freedom and destroys community.
An equality agenda for Liberal Democrats
What does all this mean in practice? In the same way as the party has tried, with some success, to ensure that a commitment to environmental sustainability underpins all our policy proposals, not just those relating directly to DEFRA, a commitment to reducing inequality should similarly underpin our programme. This is a logical outcome of the ‘Meeting the Challenge’ policy review exercise of 2005–06, which concluded that ‘tackling inequality is one of our top two political priorities’.24 I do not have the space to do more than outline a few headings, but here are some thoughts.
To redress the great injustice of inequalities of income and wealth in Britain today requires a commitment to a thoroughly redistributive taxation system. To a significant extent the party now has this; its two recent policy papers on taxation25 aim to make the system more progressive by removing many of the exemptions and tax reliefs enjoyed by the upper income groups, reducing the basic rate of income tax, and replacing Council Tax with local income tax. Nevertheless, this is a complex and not easily communicated package, and there is a strong case, in due course, for increasing the top rate, both to increase the extent of redistribution and as a clearly visible commitment to a fairer society. It’s worth remembering that Britain has lower top tax rates than almost all other comparable countries – in 2004 it was twenty-third (just ahead of Turkey) in the list of thirty OECD countries ranked by top marginal tax rates. Push it up to 50 per cent and it would rise only to eleventh.26
As has been seen, part of the problem of inequality is caused by excessive pay rates and tax loopholes for the super-rich. The party’s approach of closing tax loopholes should help with the latter, but can we do anything about high rates of pay? Legislation in this area is notoriously difficult, but there may be scope for exposure – along the lines of the Treasury Select Committee’s investigation into the private equity industry. I would suggest converting the Low Pay Commission into a Pay Commission, analysing and commenting on the disparities in pay rates within major companies, and their relation (or lack of one) to performance indicators – if not company by company, at least on a sectoral basis. Shareholders could be encouraged to require companies to justify, at their AGMs, increases in top executives’ salaries greater than the rise in the average company wage.
The tax papers did not address the issue of a wealth tax, or even the related one of a property tax. Yet this is a hugely important area; as has been seen above, inequalities in the distribution of wealth are more pervasive than inequalities in the distribution of income, and thanks to the housing market are changing the social fabric of many communities. The introduction of land value taxation for domestic properties, sensibly adjusted for the income of the owners, needs exploring.
Along with the taxation papers, the party’s 2007 policy paper Freedom from Poverty, Opportunity for All: Policies for a Fairer Britain goes a long way towards creating a programme based on social justice in the areas of pensions and benefit, education, employment and housing. The idea of the ‘pupil premium’, increasing the funding available to schools for pupils from the most disadvantaged backgrounds, fulfils John Roemer’s aim of ‘compensatory education’, touched on above. Similar principles need to underpin the party’s approach to health and social services.
Studies of health standards in the workplace show that people are healthier, with lower death rates, where they have more control over their work. Industrial democracy – employee participation and share ownership, and support for cooperative enterprises, creating a more equal society at work – used to occupy a prominent place in Liberal manifestos. They have, however, steadily disappeared from Lib Dem programmes: the 1992 commitment to a right to participate in decision-making had become, by 2001, simply a right to consultation, while by 2005 the topic was entirely absent.27
It’s about equality
Undoubtedly there is much more that needs to be added to this programme – but much of this is already party policy, or has been at various points in the recent past. Perhaps my main conclusion is that the party needs to talk about it all more. As I observed above, Liberal Democrats tend to talk about ‘freedom’ and ‘community’ much more than ‘equality’. The party’s new tax package, although it is more redistributive than the old one, does not look like it very obviously. The party runs the risk of failing to engage with the electorate about why redistribution is so necessary, leaving the field open for our opponents to focus only on perceived negatives around such policies. As Steve Webb has written, ‘a comprehensive expression of liberalism must not simply accommodate fairness as some reluctant and unwelcome travelling companion, but must embrace it as an indispensable partner’.28
Furthermore – and this is the final reason for advocating a greater emphasis on reducing inequality – it should be popular with the kind of people who are likely to vote for us, generally highly educated, socially liberal and progressive, concerned about the quality of life, not just personal consumption. Private polling for the party before the 2005 election suggested that the ‘fairness’ component of the ‘freedom, fairness, trust’ slogan used in the run-up to the election resonated well with the electorate. It made a welcome return in the 2006 policy review document Trust in People: Make Britain Free, Fair and Green, and we should keep it. Because the equality agenda is all about fairness. An unequal society is not a fair one. Too many of its members start off hobbled by inherited disadvantages which are enormously difficult, by themselves, to remove. Almost all of its members are affected by the breakdown in neighbourliness and social cohesion which they did nothing to choose themselves. A stress on fairness would resonate with these people – and, possibly, already does. The coverage given to the Treasury Select Committee investigation into the private equity industry is one symptom; Harriet Harman’s condemnation of a £10,000 handbag is another. No minister today would dare repeat Peter Mandelson’s affection for people ‘getting filthy rich’. Opinion polling regularly shows that a substantial percentage – 73 per cent of people in 2004 – considers the gap between those with high and those with low incomes to be too large.29
Can the other parties adopt this agenda? David Cameron has argued that society is ‘broken’. As we have seen, in many ways it is, but it is almost impossible to see even Cameron arguing for the fundamental redistribution of income and wealth than is needed to help heal it. Labour under Gordon Brown could go further – though it was the government in which he was Chancellor that failed to do more than reduce inequality marginally, and has seen social mobility levels decline. Furthermore, part of the fairness agenda is about democratic and civic equality, building on and supporting the redistribution of income and wealth by a redistribution and decentralisation of political power – not a subject Labour is particularly familiar with.
A hundred years ago the New Liberals faced many of the same challenges of deeply ingrained inequality as we see today. They rose to this challenge, recognising that however much one removed constraints upon individual liberty, there were some things that individuals could not accomplish by themselves – and therefore could not be truly free.
Now we face the same challenge, to accept that there is a limit to what we can do to promote health and well-being, reduce violence and disorder and build functioning communities without tackling the underlying problem of a deeply unequal society, where social relations are dysfunctional and the stress of low social status, disrespect and exclusion is widespread. We need to accept the central role that the assault on inequality plays in all our attempts to promote both liberty and community. They can’t be won without it.
- Liberal Democrat Policy Paper 50, It’s About Freedom (Liberal Democrats, 2002), p. 8, para 1.10. The paper itself did not have a separate section on equality. [↩]
- This chapter is primarily about income and wealth inequality. I recognise, of course, that other forms of inequality – e.g. those deriving from race or gender – are also serious issues, but I do not deal with them here because I think the party’s position on them is right. [↩]
- Sixty per cent of median income. [↩]
- Mike Brewer, Alissa Goodman, Alistair Muriel and Luke Sibieta, Poverty and Inequality in the UK: 2007 (Institute of Fiscal Studies Briefing Note 73), p. 29. Figures are after taking housing costs into account. [↩]
- Ibid., pp. 19–20. [↩]
- Will Paxton and Mike Dixon, The State of the Nation: An audit of injustice in the UK (IPPR, London, 2004), p. 60. [↩]
- Poverty and Wealth Across Britain 1968 to 2005 (Joseph Rowntree Foundation, July 2007). [↩]
- By the admission of the British Private Equity and Venture Capital Association’s chief executive – he resigned two days later. ‘Private equity boss quits after Commons mauling’, Daily Telegraph 15 June 2007. [↩]
- Larry Elliott, ‘Nice work if you can get it: chief executives quietly enrich themselves for mediocrity’, Guardian 23 January 2006; Polly Toynbee, ‘I was only the hapless decoy duck for David Cameron’, Guardian 28 November 2006. [↩]
- Julie Froud, Sukhdev Johal, Adam Leaver and Karel Williams, Financialisation and Strategy: Narrative and Numbers (Routledge, London, 2006). [↩]
- Nick Isles, The Risk Myth: CEOs and Labour Market Risk (The Work Foundation, London, December 2006). [↩]
- Liberal Democrat Policy Paper 76, Trust in People: Make Britain Free, Fair and Green (Liberal Democrats, 2006), para. 3.1.2. [↩]
- Jo Blanden and Steve Gibbons, The Persistence of Poverty Across Two Generations (Policy Press / Joseph Rowntree Foundation, 2006). [↩]
- Kirstine Hansen and Heather Joshi (eds.), Millennium Cohort Study: Second Survey (Centre for Longitudinal Studies, Institute of Education, University of London, June 2007). [↩]
- Except where noted, all references in this and the next two sections are from Richard Wilkinson, The Impact of Inequality (Routledge, 2005). [↩]
- ‘What’s the prognosis?’, Guardian, 7 September 2005. [↩]
- Audrey Gillan, ‘In Iraq, life expectancy is 67. Minutes from Glasgow city centre, it’s 54’, The Guardian, 21 January 2006. [↩]
- Polly Toynbee, ‘Inequality kills’, Guardian 30 July 2005. [↩]
- See Duncan Brack and Richard Grayson, ‘Equality’, in Duncan Brack and Ed Randall (eds.), Dictionary of Liberal Thought (Politico’s, 2007). [↩]
- Michael Freeden, ‘More than freedom: the ideology of liberalism’, in Julia Margo (ed.), Beyond Liberty: Is the future of liberalism progressive? (IPPR, London, 2007), p. 28. [↩]
- L. T. Hobhouse, Liberalism (Williams & Norgate, London, 1911). [↩]
- For summaries of their thinking, see the relevant entries in Brack and Randall (eds.) Dictionary of Liberal Thought; and Will Kymlicka, Contemporary Political Philosophy (OUP, 2nd ed., 2002), particularly Chapter 2, ‘Liberal Equality’. [↩]
- R. H. Tawney, The Acquisitive Society (G. Bell & Sons, London, 1921). [↩]
- Liberal Democrats, Trust in People: Make Britain Free, Fair and Green, para. 3.2.4. [↩]
- Liberal Democrat Policy Papers 75, Fairer, Simpler, Greener (Liberal Democrats, 2006) and 81, Reducing the Burden: Policies for tax reform (Liberal Democrats, 2007). [↩]
- OECD Tax Database, ‘Taxation of wage income’, table I.4; available at http://www.oecd.org/document/60/0,3343,en_2649_37427_1942460_1_1_1_37427,00.html. Figures include central and local taxation, employee social security contributions and tax credits. [↩]
- See Stuart White, ‘Liberalism’s progressive past: post-war Liberalism and the property question’, in Margo (ed.), Beyond Liberty. [↩]
- Steve Webb, ‘Free to be fair or fair to be free?’, in Margo (ed.), Beyond Liberty, p. 135. [↩]
- Michael Orton and Karen Rowlingson, Public Attitudes to Economic Inequality (Joseph Rowntree Foundation, 2007). [↩]