In the Labour movement, we’ve always known that equality is worth fighting for – equality of worth, status and life chances, regardless of class or geography.
And if we take the long view, there is no doubt that things are improving. People who in an earlier age left school at fourteen – simply because that’s what you did – now have grandchildren at university.
But in recent years some say the divide has worsened – whether it’s those in the north feeling immune from the boom in the south, or people made redundant from manufacturing forced into lower paid service work.
And to a certain extent the facts bear this out. The simplest measure of inequality is the so-called Gini coefficient, where a value of zero means everyone is equally well off and a value of one means one household has all the money. Having been roughly steady in the 1960s and 1970s, this coefficient rose rapidly in the 1980s, reaching a peak of 0.37 in 1992. Under John Major it fell back, but since 1997 it has risen again and is now slightly higher than its 1992 level.
The picture is rather different, however, if we look instead at the change in fortunes of each 20 percent income band in the population. The Institute of Fiscal Studies has examined how each income band has fared under different prime ministers.
Under Thatcher, the 20 percent of the population who were already the richest found their incomes rising by eight times that of the poorest. As boom turned to bust under Major, that picture was reversed. Since 1997, however, the economy has been steadier, and so the richest have done reasonably well, seeing their incomes rise by 2.2 percent a year. But the difference is that the poorest have also seen their incomes rise by a comparable amount.
This shows that Labour’s aggressive intervention at the bottom end of the market has paid off. We’ve made changes to the tax and benefits system specifically designed to eliminate poverty traps and benefit those who make up the bulk of the poorest in society – namely people struggling on low incomes with young children. Combined with the effect of the minimum wage, and the improving position of pensioners, these are dramatic results.
So why does the Gini coefficient show rising inequality when this analysis does not? The answer lies in what is happening right at the top end of the scale: the top one percent has got far richer.
We want an aspirational society where people do well, where ambition is rewarded and where role models exist to encourage young people to succeed.
But that’s a very different thing from giving people cash simply because they have reached the top of the pile, rather than what they do when they get there. There is no logic at all to excessive rewards for spectacular failure. That’s why we’ve given shareholders the power to vote on directors’ pay. We, the British people, own the majority of Britain’s largest plcs through our pension funds. We can make company directors act in our interests.
Across the board the facts show that success and prosperity follow skills and training, whether it is in the manufacturing or the service sector. What determines your position in the pile is whether you have a well-paid job. And the main determinant of that is your skills level in areas relevant to the industries of the future. That’s why the best way to reduce inequality is to focus on education and lifelong learning – particularly amongst low-earners – so that opportunity is not constrained by accidents of birth, class, gender or geography.
That is the progressive economy: where everyone has the tools to further their own potential, to get good jobs and break down the entrenched barriers to success that so hindered previous generations.