Further Complexity in the Equality Debate
The suggestion that income and wealth might be becoming more equally spread in this country, in my article in The Independent yesterday, provoked two main negative responses: denial and cavilling.
Perhaps I should have made it clearer that, if there is any political credit to be claimed for the more equal distribution of post-tax incomes in 2010-11, then it belongs to Gordon Brown’s Government.
This is not quite the Real Labour of egalitarian socialism that Alex Hern implies, in his attempted rebuttal at the Staggers, however, because part of the fall in the income of the richest 10 per cent occurred not because they paid the new 50p top rate of income tax but because they brought forward some of their income to 2009-10 to avoid it.
Still, my point was not that the Coalition is engaged in Real Labour egalitarianism either; simply that it has a reasonable claim to be trying to restore the public finances without widening the gap between rich and poor.
This is controversial and not yet proven, because we do not yet have data for the period since April 2011.
But let me deal with the most important cavil, that I have not taken cuts in state benefits into account.
I had not, for the sake of simplicity, but I know two organisations that have. Both the IFS and the Treasury have modelled the effects of tax and benefit changes on the rich and poor up to 2015. I reproduce below the IFS chart from a series of slides analysing this month’s Autumn Statement, which presents the effect of tax and benefit changes. It is more recent than the chart used by Alex Hern, and shows (pink line) that the richest 10 per cent of households are hit hardest, although the effects on the other 90 per cent of the population are to make them more unequal:
The Treasury’s own distributional analysis published with the Autumn Statement forecasts the impact of all policy changes over the whole of this Parliament, including not just taxes and benefits but also an estimate for the benefits in kind from public services. Chart 1G shows the total effect of all changes since the Coalition came to power on households in 2014-15. This analyses households in fifths, from the poorest on the left to the richest, and again shows the curious pattern, making incomes more unequal for most of the distribution (the bottom 80 per cent), but hitting the richest 20 per cent hardest of all. My guess is that overall inequality, as measured by the Gini coefficient, would be more or less unchanged.
This is hard to believe, I know, but the Treasury and the independent IFS conclude that the tax system will be more progressive under the Coalition than under Labour, and that this will counterbalance the regressive effects of cuts in benefits. The overall effect of Coalition policy will probably be to leave the gap between rich and poor unchanged.Tagged in: equality, inequality
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