Inequality in Scotland: much needed detail and analysis

A new paper Inequality in Scotland: New Perspectives from David Bell, David Eiser and Michael McGoldrick, adds some much needed detail and policy analysis to an often simplistic debate around poverty and inequality in Scotland (and elsewhere). The paper contains a great deal of data from large scale surveys over the last thirty years attempting to identify the economic and social trends in Scotland.

There is also an analysis of the effect of policies on the distribution of income between rich and poor both those where that is the intended aim (tax and welfare) and others (housing or energy policy) which have other objectives.

Their analysis finds that the extent of distribution hasn’t changed much since the 1980s. The UK tax and benefits system still redistributes income at about the OECD average. As expected the minimum wage has been effective in raising wages at the bottom. This makes life better for lots of people. Sadly, if high earners continue to see massive increases in their wages and don’t pay a reasonable amount of tax on those earnings, income inequality will (and does) remain high. There is a detailed section on the Living Wage. Their research indicates that low pay is widespread across Scottish households with many combining a mix of high, medium and low earners. While the living wage will address individual wage inequality, household income inequality may not reduce. The picture is therefore complex. Within households the presence of a medium (or high earner) does not mean all those in the household have access to that income. Inequality exists within as well as between households. This analysis is therefore important but not really an argument against expanding the living wage to more workers.

There is a lot of debate about income tax and welfare spending in Scotland, much less discussed recently is the role of indirect taxes, which across the world are increasingly favoured by governments as an alternative to direct taxation. These increases inequalities as poorer households contribute more of their income on, for example VAT, than the rich. The same is true of energy policy as although better of people have higher bills the costs of energy takes up a much larger proportion of poorer households’ incomes.

What the report doesn’t look at all is the impact of public services on inequality and their role in reducing inequality through redistributing the cash value of services that would have to be paid for directly if not provided free at the point of use, like sending children to school, getting your refuse collected or visiting the doctor. This would have been a useful addition to the debate. The tax debate isn’t just about levels but about how we use the money that’s raised.