The global gap between incomes, wealth and living standards is a long-standing failure of human ingenuity and purpose. But in recent years we’ve alsowoken up to the blight of economic inequality within countries, including in the UK where the problem has been growing for the past 30 years.
Given human tendency to only focus attention on problems when they come close to home, perhaps this newfound awareness – even among presidents and IMF chiefs – gives us the chance to tackle economic inequality decisively at both the national and international level.
The extent and persistence of economic inequality is evidence of deep-seated systemic failures. At NEF we have been working on the policy solutions the UK could and should implement to tackle them. It is about solutions plural rather than a silver bullet - the drivers of inequality are various, persistent and interconnected.
Looking at the UK, NEF has built a model that helps connect these different factors, which affect people at various times throughout their lives. It consists of five parts:
- Initial conditions – the family circumstances you are born into
- Channels of influence in early life – your early years and formal education
- The national economic framework that determines the distribution of income and wealth – your job opportunities, rewards from work and access to material assets
- Political system and redistribution – your engagement in the political system and its impact on your income through taxation and welfare
- External influences - wider influences on the national economic framework, such as globalisation and technology
Our proposition, developed with experts from across Europe, is for a virtuous cycle of policy goals and measures to effectively address the different points. The goals and headline policies we have identified are:
Goal 1: high-quality, affordable universal childcare
Policy priority: commitment of public funding for supply-side support of high-quality childcare provision that allows a cap on family expenditure on childcare at 15% of family income.
Goal 2: realisation of good (not just any) jobs for all
Policy priority: a full-employment guarantee facilitated by: (1) public funding for creating socially productive jobs (we can look back to President Roosevelt’s New Deal for inspiration); and (2) a state-owned investment bank with regional distribution structures and a mandate for supporting good job creation and the conversion of poor quality jobs into good ones.
Goal 3: decent wages across the workforce and a narrower distribution of earnings
Policy priority: implementation of a statutory basis (legal right) for collective voice for workers in all sectors and workplaces. Increased transparency and shared decision-making can be instrumental in better corporate governance to help firms raise wages at the bottom and hold down executive pay to reasonable levels.
Goal 4: career progression pathways with vocational as well as graduate routes to skills development and advancement
Policy priority: Support for sector and industrial investment in workforce planning, career-based training, high-quality management and provision of apprenticeships. Businesses would have the opportunity to establish quality frameworks and share best practice. Pooled arrangements could also help reduce the risk of a firm investing in staff only to lose them to a competitor without recouping the benefit of their investment.
Goal 5: fair, efficient taxation of income and wealth
Policy priority: Action on direct and indirect taxation to achieve a more progressive system including: (1) Greater tiering of direct taxation, starting with an immediate increase in rates at the top of the earnings distribution to 50% on incomes above £50,000. (2) Reform to indirect taxation to reduce the uneven burden on less well-off households.
This list of goals and policy priorities is not exhaustive, but we think they amount to solid building blocks for concerted action to start tackling economic inequality at root in the UK, with applicability to other country contexts too.