Addressing economic inequality at root

5 goals for a fairer UK

10 July 2014

Spiralling economic inequality is undermining our economy, society and democracy. Now seen by many as one of the world’s most pressing challenges – the time has come for action.

Is it any surprise that four out of five British citizens want the government to act on inequality? The richest 1% of the UK population are now wealthier than the poorest 50% put together – a disparity that has been growing steadily since the 1970s, and on current trends is set to get even worse.

But this isn’t about the politics of envy; nor is it purely about what is morally right or wrong. We have convincing evidence that extreme economic inequality is contributing decisively to financial instability, wasted human capital, lower well-being and mental health, domination of politics by an elite few and low voter turn out.

We can no longer afford to ignore our inequality problem. It’s time for action.

The authors of this report call on the government to start with two key steps. The first is to set a tangible target to reduce economic inequality, as they have for child poverty. The second is to establish a high-level commission on economic inequality tasked with devising a broad policy agenda to tackle the drivers of inequality.

We then identify five high-level goals that must be achieved to address some of the root drivers of economic inequality. Each goal is accompanied with a set of policy area priorities:

Universal provision of high-quality childcare that is affordable for all. High-quality childcare can transform life opportunities for children and will help to address unequal starting points. Making it equally available and affordable to all families would give parents more choices about balancing their families’ needs and their working lives.

Policy priorities: Public funding supporting the supply of childcare in order to cap family childcare expenditure at 15% of income; increased standards of training and qualifications to ensure childcare is always high quality; and better working conditions for childcare workers, including a Living Wage, stable contract hours and career and pay progression opportunities.

Narrow the difference between top-to-bottom earnings and rebuild the link between economic prosperity and wages. Over time, the proportion of UK economic prosperity shared out as wages has shrunk in favour of shareholder profits. Within this smaller wage share median wages have fallen while pay at the top has sky-rocketed. Concerted action to restore wages and shrink the income gap would create a healthier economy and address in-work poverty.

Policy priorities: Ensure workers have a collective voice in workplace decision-making by law; establish a Department of Labour tasked with restoring wages in the economy and improving working conditions; establish a stronger wage-floor to eliminate in-work poverty; and enforce pay ratio reporting to address wage differentials.

Access to valued careers for all with opportunities for progression and skills development. Non-graduates are being increasingly funnelled into low-paid, dead-end jobs with little or no prospects of future progression. Addressing the lack of investment in training and development for staff and managers would broaden opportunities for purposeful and rewarding work.

Policy priorities: Promote pooled training investment by sector; invest in incentive structures to improve high-quality management skills at different levels; use state support to ensure apprenticeship schemes lead to progression at work across more industries; and establish better education, training and employment links at the local level.

Creation of good jobs for all that benefit workers, the economy and society. Everyone should have the right to a well-paid, secure and meaningful job. But the current jobs market is hugely unbalanced, both in terms of geography and job quality. We need to invest in good, environmentally sustainable jobs around the country.

Policy priorities: Co-ordinate and co-produce a national industrial strategy; establish a state investment bank with regional focus; funding for better jobs and training to guarantee full employment; and reform business to ensure workers have a collective voice.

A fairer, more progressive tax system. 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. Progressive tax reforms would help to address inequality at root as well as redistributing economic power.

Policy priorities: Strengthen legislation and resources to abolish tax avoidance and evasion; implement and co-ordinate more progressive income and wealth taxes; establish a Land-Value Tax; and shift the tax burden onto environmentally unfriendly activities through green taxes.

There is no silver bullet for tackling economic inequality: the interconnections between different areas mean that a package of bold interventions is required, with each policy step reinforcing the next. While not exhaustive, we believe this report, produced in partnership with Friedrich-Ebert-Stiftung London, covers the most pressing issues and provides a clear starting point for determined, coordinated action.