Inequality: moving from analysis to action

The causes of poverty and inequality are well understood, we now need to have the difficult conversations about taking action.


All this week, BBC Scotland have been running a series of features under the heading Unequal Scotland. They have looked at education, health, life expectancy and income. This fairly describes inequality and the impact it has, not just on those most impacted, but also the economy and everyone in Scotland.


As Douglas Fraser explains, this issue is being given a lot of attention by those in power, including heads of government, central bankers, the International Monetary Fund, even the Davos gathering of the economic elite. Nicola Sturgeon has put the tackling of inequality alongside economic growth as her twin priorities. Even a Tory Prime Minister has targeted her political message at those "struggling to get by".


Describing inequality is something we are very good at doing. Taking real action is more tricky, primarily because it involves some difficult conversations with those of us who are not in poverty.


A good example of this is highlighted by Gideon Calder from Swansea University. His research asks, is it okay for parents to pass wealth down to their children? So the kids gain a house when mum dies, for example. And before that, get everyday benefits just because their parents are relatively well-off? He concludes that we are not willing to have this conversation because the 'family' is sacrosanct.


The First Minister's poverty tsar touched on a similar point with her call for increased taxes, not least by addressing inheritance tax. She also picked on tax increases for the richest and the need for a progressive council tax - something the Scottish Government has ducked yet again. She said: "When people say they want a really wonderful NHS they don't say I want to pay more taxes for it. Well, I'm afraid you cannot have a really wonderful NHS unless you are willing to pay more taxes for it."


However, her most telling comment was that she was not convinced governments would raise taxes to the levels needed. She said: "You [governments] can always go further but you'll always have your eye on the next election and what people can expect". This goes to what I call Scandamerica, the idea that we can have Nordic levels of public services without most of us, not just the very rich, having to pay more taxes. Remembering that we now have the powers to address this in Scotland.


The Scottish Government is currently consulting over what a Scottish social security system should look like. This is important because some 37% of benefits will be devolved to Scotland, when you exclude pensions. However, as Govan Law Centre and others have highlighted, the consultation is almost entirely about process, not about adequacy of benefits, a crucial element of any strategy for tackling income inequality.


This theme is also covered by the tax lawyer Jolyon Maugham QC who points out that this year we’ll collect around £170bn of income tax, but forego through reliefs about £30bn of income tax - almost £500 a year for every man, woman and child in the UK. He says these reliefs go  overwhelmingly to those who need it least, the inevitable consequence of two deliberate policy choices: to distribute that £30bn through the tax system and to fail to monitor what good it does.


Tackling these reliefs would include some difficult conversations on issues like ISA's and tax relief on pension contributions, which are valued by middle income groups. Perhaps his most striking statistic is that the highest earning 15,000 taxpayers, almost 0.05% of all taxpayers, netted 5.5% of total deductions and reliefs. Most will have seen six figure reductions to their income tax bills.


This isn't just a parochial issue for us in Scotland and the U.K. As Thomas Piketty argues in the Guardian this week, Trump’s victory is primarily due to the explosion in economic and geographic inequality in the United States over several decades and the inability of successive governments to deal with this. Fiona Buchanan from Christian Aid makes a similar point in relation to the developing world, also highlighting the issue of gender justice.


There are some serious attempts at developing a consensus around some solutions. The IPPR's Economic Justice Commission is one such initiative. Their background paper makes the point that for all the rhetoric about a strong economy, it isn't an economy that works for all. Half of all UK households have seen no meaningful improvement in their incomes for more than a decade. The JRF's 'Talking about Poverty' project also points the way to a better understanding of the solutions.


So, hats off to the BBC for doing what a good public service broadcaster should do - educating us on probably the most important issue of our time. However, we need to move on to some, often uncomfortable solutions. Tackling inequality is in all our interests, because more equal societies do better on every count. This means we all have to contribute to the solutions, and yes, it will cost us.

Blog Action Day - Inequality

Today is Blog Action Day and the subject for this year is inequality. Very appropriate here in Scotland as this is Challenge Poverty Week and I make no apology for returning to this issue.

Yesterday, the STUC 'Decent Work, Dignified Lives' conference had a real focus on inequality with some excellent contributions that will be available on line.

Professor David Bell and David Eiser from Stirling University gave a very clear analysis of inequality in Scotland. They argued that the trickle down economics of the Thatcher era have been successfully challenged in books like 'The Spirit Level' and the more recent work by the French economist Thomas Picketty.

There is growing wider acceptance of the damage inequality does from contributors as diverse as the ILO, The Pope, Mark Carney and the World Bank. Even the IMF now accept that redistribution doesn't have a negative impact on growth.

The determinants of inequality are even better understood. Technological change and globalisation have changed trade, corporate power and deregulated labour markets. Taxation and benefits can have intended consequences towards redistribution, but regulation can have negative unintended consequences. For example, the price of utilities has been driven up by privatisation and regulation and that has a bigger impact on the poor because essentials constitute a larger part of their income.

The consequences are that as inequality rises the level of social mobility declines. In particular, there is less mobility between generations because wealth and other advantages are simply passed on to children.

Income inequality in Scotland is similar to the rest of the UK when you take London out of the equation. While still high in the league table of inequality compared to other EU countries, our level of tax redistribution is about average. It's income before tax that pushes the UK up the league.

So what should the policy responses be?

The obvious startIng point is tax and benefits. The problem is that relatively small changes have a limited impact on equality. As highlighted above, it's income before tax that is a feature of inequality in the UK. The main impact of the benefit system is to subsidise poor employers, while tax cuts for the rich has just encouraged fat cat bosses to lobby for higher wages.

The next area is labour regulation. The minimum wage does reduce inequality, primarily by improving wages at the very bottom, although it has not maintained differentials throughout the pay scales. Action on insecure employment would help, particularly access to employment justice and ending zero hours contracts. However, it is only through support for sectoral collective bargaining that we will make big strides forward in tackling inequality. Maximum wage or ratios are are also important as this week's IDS study shows - directors pay has grown from 40 times average earnings to 120 times since 2000.

The third solution gets less attention - public services 'In kind' spending. As the OECD has highlighted, income inequality in the UK is mitigated by public spending. Preventative spending on health and education, particularly for the under three's, could have a major impact - tackling intergenerational Inequality. Government action can, albeit unintentionally, also exacerbate inequality. A good example of this is government driving down the cost of social care through lower wages and insecure working conditions for care workers. Public sector buying power should instead be used to positively address inequality.

We cannot say often enough that a more equal society benefits everyone. A radical change of direction is required using a range of policy interventions. Progressive taxation, labour regulation and stronger public services would be a good start.

 

 

Posted with Blogsy

How to tackle inequality

The New Economics Foundation has published a report on how to tackle inequality. It hits many of the same themes in our recent publication on health inequalities.

There are five key elements in their plan:

1. Make high-quality childcare available to all

The first five years of a person’s life are to social and cognitive development, yet the UK still has an eye-wateringly expensive childcare system that puts high quality care out of reach to those on low incomes. NEF proposes state support to cap the costs of care at 15% family income, and a vast improvement in the pay, working conditions, training and status of childcare workers.

2. Tackle polarised pay

The economy may be growing overall, but the share of wealth going into employee pay packets is shrinking. Average real wages have been falling continuously for decades, while executive pay rockets skyward. In-work poverty has got so bad that the largest group of people claiming benefits are from families with at least one working adult. NEF proposes a department of labour tasked with rebuilding the link between the UKs overall economic prosperity and wages. Actions include raising the minimum wage, capping wage ratios and stronger collective bargaining.

3. Create good jobs around the country

Our jobs market is not only geographically skewed towards London and the South East – it is hollow in the middle, as positions are increasingly divided between low-paid jobs in care, retail and hospitality and highly-paid jobs in sectors such finance, law and IT.

4. Transform jobs into careers with better training

It is often implied that inequality is the result of the unwillingness of those at the bottom to work hard and climb the ladder. But as young people – graduates and non-graduates alike – are increasingly sucked into dead-end jobs with scant opportunity for progression, the reality is that, for many, this ladder does not exist. We need a major investment drive in training and skills development, at all levels of industry from junior to management (which the UK scores famously poorly on). This could involve promoting pooled training investment by sector and channelling state support towards apprenticeships that lead to progression.

5. Fairer taxes

When you take account of direct and indirect taxes, those on low incomes in the UK are being hit too hard, while billions of pounds each year are being lost through tax avoidance and evasion at the top.

While we might not agree with every detailed proposal in this report, it confirms a growing consensus around key actions to tackle inequality.

 

Posted with Blogsy

Taxation: perception and reality

The public debate about tax and its importance in funding public services is often confused. Today’s report from the Equality Trust (authors of the Spirit Level) seeks to determine people’s understanding of tax, but also discover what people believe people should be taxed, and how this compares to the UK’s current tax system.

Public polling conducted in partnership with Ipsos MORI reveals that:

• Public perception of how the UK’s tax system affects households in different income groups contrasts sharply with the reality
• The public believe the UK’s tax system is more progressive than it is, with nearly seven in ten people (68%) believing that households in the highest 10% income group pay more of their income in tax than those in the lowest 10%. In reality, the top 10% pay a smaller proportion of their income in tax than the bottom 10%
• Public support for a more progressive1 tax system is high. Over eight in ten (82%) believe that households in the highest 10% income group should pay a greater proportion of their income in tax than those in the bottom 10%. An even greater majority (96%) would like the tax system to be more progressive than it currently is.

 

In reality the actual proportion of gross household income that households at each decile pay in all taxes shows that:

• The current tax distribution in the UK is regressive.
• A household in the bottom 10% pays 43% of its income in tax, while the average household and a household in the top 10% both pay 35% – 8 percentage points less than the bottom 10%.
• The higher percentage paid by the poor (bottom 10%) is attributable to a number of taxes. While income tax and national insurance are broadly progressive, the bottom 10% of households pay roughly 23% of their gross household income in indirect taxes on consumption and more than four times as much of their income in council tax as the top 10%.

The authors therefore argue that these findings show that the current tax system is not fit for purpose. And they make the following recommendations:

• Parties seeking to form the government from 2015 should commit to the principle that any changes in tax policy are progressive
• Council tax should be transformed into a progressive property tax by re-evaluating properties and creating new bands with higher rates for high value properties
• Government should look to reduce VAT when it has a budget surplus
• The upper limit of National Insurance should be raised to ensure that the tax is progressive across all deciles.

 

Hard to disagree with most of that!

 

 

Posted with Blogsy

Childcare: Time to Deliver

Another report on childcare shows that the high costs and complexities of the current system need to be tackled urgently if we are to give our children the best start in life. The Family and Childcare Trust 2014 Scottish Childcare report found that less than a quarter of local authorities in Scotland have enough childcare for working parents (the equivalent figure for England is 54%). Costs for that care continue to rise: 4.8% last year. The cost for part-time care for two children is now 22% higher than the average mortgage bill. Charges vary considerably across Scotland: in some areas the difference is as much as £3000.

The Family and Childcare Trust highlight how complex the delivery and funding of childcare is for parents and for providers. There are direct funding streams for what is officially early years education: your free hours for three and four year-olds, the childcare elements of Working Tax Credit, voucher based schemes through employers and then various small schemes through Job Centre Plus or other funding streams through anti-poverty initiatives which fund nurseries and crèches and breakfast clubs for example. Local authorities also provided free or subsidised accommodation to social enterprises offering childcare and while not officially childcare there are a range of sports and social clubs in schools which are in effect after school care.

The shortage of spaces for children is pushing up costs. Costs that mean many women just can’t afford to keep or find jobs: and yes it is still women who largely look after children both paid and unpaid. Getting childcare right offers a real opportunity to reduce gender inequality by reducing the financial penalties for motherhood. Ensuring that childcare workers are properly paid and have a career path will also reduce the gender pay gap.

Local authorities are best placed to address the challenges of childcare. Delivery by local authorities will help simplify and reduce the artificial barriers round the many agencies and complex funding streams currently in place. The artificial eradication/childcare split needs to go. Local authority provision is also the most cost effective route as currently nursery provision in the public sector is 11% cheaper than the private and not-for-profit sectors despite the higher wages and more qualified workforce. They need the funding to expand to meet the needs of the communities they serve.

The debate needs to move on from “hours” to organising the delivery of a proper service to support the development of our children and ensure that work pays for all those involved.

Equality duty - much more to do.

Passing the equal marriage legislation doesn’t mean job done as far as changing attitudes is concerned. New polling commissioned by Stonewall Scotland shows that lesbian, gay, bisexual and transgender people continue to face discrimination in almost all walks of life.

The report Your Services Your Say shows that LGB&T people in Scotland still expect to face poor treatment from hospitals, police, schools and other local services.

Almost half (48%) of the 1,000 LGB&T people surveyed by YouGov expected they would face discrimination from fostering and adoption agencies when applying to become parents.  Sixty-seven per cent of LGB&T people think their child would experience bullying in primary school if it were known that they had LGB&T parents.

These concerns are reflected across other public services, with more than a third (36%) of LGB&T people saying they would not feel confident reporting a hate crime directly to the police and more than one in five (22%) saying they would feel uncomfortable being open about their sexual orientation or gender identity with NHS staff.  More than half of LGB&T people think they would be discriminated against in a construction and engineering apprenticeship and eighty per cent stated that they have never been consulted about their needs by local public service providers.

Director of Stonewall Scotland Colin Macfarlane said: ‘This report, the most comprehensive of its kind to be published in Scotland, starkly demonstrates that changing laws doesn’t change attitudes overnight. LGB&T taxpayers contribute millions to the cost of Scotland’s public services. They should be able to have confidence that they’ll receive the services they need when accessing hospitals, schools and policing and this report should provide Scotland’s public services with an insight into the needs of LGB&T people. It is time that their needs, both as citizens and service-users, were properly met.’

This report is also a clear indication that the implementation of the public sector equality duty still has some way to go. In many areas it remains little more than a tick box exercise.

UK Government's 'Red Tape' review of equality duty

The UK Government has published its review of the Equality Duty under the ‘Red Tape’ challenge programme. As Scotland has its own public sector duty this report mostly focuses on the English duty.

The main conclusion is:

“The Steering Group believes it is too early to make a final judgement about the impact of the PSED, as it was only introduced in April 2011 and evidence, particularly in relation to associated costs and benefits, is inconclusive. While the Steering Group has found broad support for the principles behind the Duty, the review has found the main challenges lie in its implementation, which varies considerably across the public sector.”

When you read the report it churns out much of the predictable ‘Red Tape’ ideology in its high level messages. However, when you dig deeper the most notable feature is that business interests largely ignored it. The annex of those submitting evidence shows that virtually no business interests even bothered to submit evidence. Strange when we were told this review was necessary because of the concerns of business.

As TUC General Secretary Frances O'Grady said:

“This review has exposed the government's Red Tape Challenge as a waste of taxpayers' money. The fact that businesses have failed to engage with it shows they are far too concerned with real issues like access to finance to humour a futile political exercise. The review has however highlighted where the public sector duty has made a difference to people's lives. It was the duty for example that halted the government's disgraceful 'Go Home' vans, which drove through London over the summer. Ministers should use this review to help public bodies share best practice on how to use the duty more effectively.”

The report does make at least one useful point that also applies in Scotland. Far too many Equality Impact Assessments are just ‘tick box’ exercises. However, the solution to that is a more rigorous process and better data collection.

Just pay your taxes

It seems that Mike Russell is exploring ways of encouraging philanthropists to take on a role is Scottish schools. The cabinet secretary was speaking this week at a conference organised by the David Hume institute. Lindsay Paterson presented his report: Outstanding Students and Philanthropic Contributions in Scottish School Education” at the event. Here Professor Paterson lays out ways in which “the imagination of the philanthropic entrepreneur can be brought to bear on providing opportunities for outstanding students to flourish”.

It’s great that people want to give money to support Scottish education but there are also risks. Lindsay Paterson is right to say that we have to retain democratic accountability in policy making. The Herald also rightly raises concerns about whether such a scheme will widen the existing gap between top and bottom. Too many children fail to achieve their potential.

What happens to pupils with outstanding talents isn’t really the issue in Scottish education. The outstanding students in Scotland already match the outcomes of the highest achievers in international comparisons. Last week at another conference on inequality in education I learned that in maths the highest achieving children match those in Hong Kong but at the other end of the scale we rank alongside Turkey. The issues are why the outcomes are so poor for those from deprived backgrounds and how to raise their attainment. As Mike Russell said “promotion of greater social justice and greater equity in educational outcomes for all our children and young people” should be the priority for government initiatives. Fresh ideas and energy are always welcome but schools need adequate secure funding, (not tied to the whims of big money donors) and education professionals, trained to high standards in order to achieve these goals.

Another way forward would be if those who have lots of money who want to support our schools just pay their taxes at a decent rate. That’s how we maintain democratic control over spending. They wouldn’t get a flashy building or fund with their name on it but they would be able to help a lot more children reach their potential.