Inequality and Osborne

 

The reality of politics is that politicians care at least as much about their own political careers as they do about the welfare of the nation. Yet we elect them, pay them with taxpayers money, and call on them to act with a degree of enlightened altruism on behalf of the entire nation.  Perhaps we should not be surprised by the disquieting ambivalence of this situation, but we should certainly take heed of it.

With this in mind it is reasonable to suppose that this government is not actually trying very hard to make the tax and welfare system more progressive, because then the government’s core support groups would be amongst those hardest hit by reforms to tax and welfare.

The distribution of income in Britain has been worsening for many decades. However this outcome was reversed in the years immediately after the financial crisis. This is because wage rates fell for average as well as for below-average earners. Across the economy there was a squeeze on living standards not just at the bottom.

For most working people in Britain living standards have yet to regain their 2003 levels. For people closest to the breadline a decline in income is a more acute hardship than for others.  The less well off  you are the higher is the marginal utility of income. In sum, for those closest to the breadline, and closer to eviction from their homes, the fall in income after the financial crisis, is a real crisis rather than a minor, temporary inconvenience.

It is cold comfort to say, therefore, that at the time of the financial crisis wages of the poor fell relatively less than those of average and above-average earners. In any case this lessening of wage inequality is all too brief. The analysis of the Institute of Fiscal Studies (IFS) shows that income inequality is once again on the increase. In the next five years the higher the income cohort, the higher the improvement in household income is likely to be. (IFS “Are we ‘all in this together’?” 21/03/2016)

Added to this effect is the distributional impact of  the tax and welfare policy of the government. Independent analysis by the IFS shows that Osborne’s budget reforms will exacerbate rather than mitigate the worsening distribution of income over the lifetime of this parliament. Its conclusion is that “those in the middle and upper parts of the income distribution have been remarkably well protected from tax and benefit changes”.  (IFS, “Are we ‘all in this together’?” 21/03/2016) The tax and welfare changes hit the least well off the hardest. They also hit those of working age with children, and working people generally, harder than anyone else.

The overall impact of Osborne’s budget is regressive rather than progressive, at a time when the income distribution is expected to worsen in any case.  Perhaps it is no surprise, therefore, that the treasury has decided to end its publication of income distribution data alongside its budget statements, a practice it introduced in 2010 when inequality was expected to decline. The chancellor no longer wishes to draw attention to the distributional impact of budget reforms, because many would consider the impact to be unfair, unjustified and  unacceptable.

That human hardship is on the increase is readily apparent. People are having to work harder than ever before to pay private rents, while social housing is rapidly disappearing, and buying a house is well out of reach for many.  The Conservative Government’s urge to privatize is squeezing the non-monetised sector of the economy. Free public goods, such as libraries and community centres, are in decline.

Osborne’s failure to meet his targets is a warning that more cutbacks to come. At the very least he has a black hole to plug as a result of the furour over the planned cuts to disability payments he has been forced to abandon.

What the public can anticipate is that changes in wage rates will increase inequality, budget reforms will increase inequality, and the withdrawal of public goods will increase inequality. The real effect of increased poverty and inequality will be increasingly visible. The question is for how long will this direction of change continue to be acceptable to the British public.

 

 

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