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I ask the Minister to give a clear statement today that we are not going to be denied this information in the future. Sometimes the politically correct seek to hide inconvenient truths. The Government should collect and publish the data on the income disequilibria that may exist between married and unmarried couples, and make it publicly known so that there can be a proper debate in your Lordships’ House and elsewhere.
1.21 pm
Lord Haskel: My Lords, the noble and right reverend Lord, Lord Harries, has been a fighter for equality and fairness for as long as I can remember. The right reverend Prelate the Bishop of Liverpool reminded us that the noble and right reverend Lord debated this issue when he was on the Bishops’ Benches, and he is still fighting on the Cross Benches. As ever, he is right: it is unfair. However you measure it, there has been growing financial inequality. Like the noble and right reverend Lord, I am aware that greater financial inequality leads to more social upheaval. It leads to more crime, embeds greed and, as the noble Lord, Lord Layard, said in his recent book, leads to less happiness.
I say to the noble and right reverend Lord, Lord Harries, that we have to balance this with other considerations, such as the economy. My noble friend Lord Desai reminded us that globalisation and technology have eliminated unskilled jobs and created the need for greater skills. Innovation has changed the face of industry. Our membership of the single market has created more competition. We deal with this through empowerment. We need to empower people and to give them the tools to improve their skills, to be innovative, to be entrepreneurial, to be more competitive and to grow the economy, as the noble Lord, Lord
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If you are going to empower people, you cannot set limits. As my noble friend Lord Desai said, it is not a zero-sum game. As a result, income differentials arise. This empowerment may have created excessive wealth for the few, which the noble and right reverend Lord, Lord Harries, described dramatically, but it has also created jobs and opportunities for the many. To give credit where it is due, 29.5 million people are at work in Britain today and unemployment is the lowest since 1975. My noble friend Lord Giddens explained that our 75 per cent employment rate is among the highest in Europe. In general, the policy seems to have worked. It has been successful for the economy as a whole, in spite of the increasing financial differentials.
However, I agree that there is one area of society where rising income differentials are not acceptable and the damage is too great. Many noble Lords have given the answer: children. What convinced me were those wonderful longitudinal surveys, where the same people are interviewed regularly every few years. Some go back to the 1940s. They make it absolutely crystal clear that if you do not reduce financial differentials among children, disadvantage is passed on from generation to generation. This is the consolidated poverty about which the right reverend Prelate the Bishop of Liverpool spoke. Growing financial inequality at work might be tolerated, but financial inequality between children is not. It has to be deliberate government policy to close this gap.
In the 20 years before this Government came to power, the proportion of children in relative poverty more than doubled and something had to be done. As the right reverend Prelate the Bishop of Ripon and Leeds said, the tax and benefits system had to be reformed. Child tax credits were introduced specifically to increase the income of those households with the poorest children. As a result, the 2008 Budget book tells us that, in real terms, compared with 1997, households with children will this year be on average £1,800 better off. In spite of what my noble friend Lord Giddens said about child tax credits not reaching the lowest levels, the Budget book tells us that households with children in the poorest fifth of the population will be on average £4,000 better off. Tax credits are reducing financial differentiation among children.
Money is not enough. In addition, you have to deal with the consequences of financial inequality on children in order to break the cycle of deprivation. To do this, a whole new sector of public services for the under-fives has been created. Noble Lords who read the House Magazine will have learnt that I took my youngest grandchild to the One O’Clock Club at Brockwell Park, south London, on Friday afternoon. It is one of the 2,460 Sure Start children’s centres established so far. That is where you can see for yourself Sure Start working and financial inequality reducing.
Other things work, too. Every Child Matters was introduced in 2004. We have enhanced maternity, paternity and adoption leave and the children’s element in the working tax credit. The results have
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This is why I am concerned when David Cameron says that he would cut government investment in Sure Start in order to employ more health visitors. He said so on 15 March. I say to those on the Front Bench opposite that surely this would have the effect of increasing the income differential between children, not reducing it, and increasing the funding difficulties that the right reverend Prelate the Bishop of Liverpool described. Perhaps they think that, politically, it does not matter. I agree that reducing the differential is a thankless and expensive task, but it is brave and it is right. Right now it is something that may produce very few political dividends and so may be easy to cut, but eliminating financial differentials between children will be one thing for which this Government will be remembered. Irrespective of which Bench we sit on, we should all be prepared to play our part.
1.29 pm
Lord Newby: My Lords, I join other noble Lords in thanking the noble and right reverend Lord, Lord Harries, for bringing forward this important debate today. My starting point is what is happening to inequality. There has been broad agreement that, generally speaking, the period from the First World War until the end of the 1970s saw a steady fall in the share of income that accrued to the top earners. That trend was then reversed and there has been a big increase in the share taken by top income earners during the past 25 years. UK experience in this respect has been pretty similar to the OECD average, although, as the noble Lord, Lord Giddens, said, it is at the top end. At the bottom end, it is not just the Scandinavian countries that have seen a lesser increase; France and Japan are also in that category. Income inequality is now at its highest since the 1940s. As the noble Lord, Lord Giddens, pointed out, if it is not increasing, it is certainly not reducing. As for wealth, during the lifetime of this Administration, Britain’s richest 10 per cent have increased their share from 47 per cent to 54 per cent of the nation’s wealth.
If that is the situation, why does it matter? Obviously, poverty in absolute terms matters a lot, but inequality matters a lot as well, because it exacerbates a whole range of problems, many of which have been referred to today. For example, several noble Lords talked about how inequality affects health at both ends of one’s life, whether birth weight or life expectancy. Through the reduction in self-esteem that it brings, it helps to fuel crime. It undermines democracy, because, broadly speaking, the poor do not vote. It divides cities; it prices people out of housing; it heightens ethnic tensions; it is a barrier to opportunity; and it stifles social mobility. As the right reverend Prelate the Bishop of Ripon and Leeds and the noble Lord, Lord Sheikh, pointed out, it leads to debt.
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Most generally, inequality erodes the spirit of community. By contrast, I think that there has been agreement that a society that is seen by its members to be fair is likely to be a more content, happier society—surely the kind of society in which we would all prefer to live.
If inequality is increasing, concern about it, at least until recently, seems to have been falling. Even a generation ago, there was a real resentment among many people about the incomes of the rich and the plight of the poor. That has not gone altogether, but the real anger that drove many, especially those on the left, into politics has in many cases been replaced by a wearied acceptance that hedge fund managers, top lawyers, footballers and film stars will earn increasingly stratospheric amounts.
Perhaps, however—today’s debate may reflect this—there are the beginnings of a sense that that state of affairs is not desirable and should change. If so, what shall we do about it? Traditionally, if you wanted to reduce inequality, the place to start was tax. In particular, income tax was seen as the most powerful redistributive tool, and high rates of tax for high earners were advocated principally on redistributive grounds. Today, a very high level of personal income tax is no longer seen as politically acceptable or, in a footloose age, economically desirable. It was interesting that in the Rowntree poll that has been referred to three-quarters of people said that they thought that the income gap was too great, but only 32 per cent wanted it tackled by redistribution—that is, by higher tax on higher earners.
There are no doubt a number of reasons for that. A major one is clearly that many in the middle classes fear that any further tax hike will somehow hit them. There is also a fear—if I may say so, the affluent are extremely adept at stoking it, as we are currently seeing—that if the affluent were taxed at a high rate, many would leave the UK to work elsewhere and the overall economy would suffer. Partly as a consequence of that line of argument, some believe that higher taxes would reduce overall tax revenues and that, in line with the Laffer curve theory, we should be reducing tax levels to increase tax take. We are also increasingly hearing arguments that direct taxes should be reduced across the board to make room for new taxes to promote more environmentally friendly patterns of behaviour.
Although all those arguments are in my view to a greater or lesser extent intellectually flawed, the fact is that they are advanced with such energy that virtually no politician—perhaps the noble Lord, Lord Giddens, is an exception—will now make the argument for higher direct tax rates. There is, however, great scope to rein in inequalities of disposable income of some of the most affluent by taxation measures. Noble Lords will recall that Leona Helmsley, the New York hotel billionaire, famously said:
That has too often been the case in the UK. The Government are belatedly proposing measures in respect of capital gains tax and non-doms that begin to tackle the problem, but in both cases their
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Tax, however, will not greatly affect income inequality if the salaries of those at the top end rise at a much faster rate than those at the bottom. Much as I would like it, I am not a great optimist that voluntary restraint is about to break out. The back-scratching nature of many remuneration committees, for example, has made them an instrument for an upward ratchet in wages rather than a restraining influence. The noble Lord, Lord Sawyer, referred to that; no doubt his remuneration committee is the exception that proves the rule. The bonus culture in the financial services sector, which can see individuals earning bonuses of up to 10 times their salary, is particularly pernicious, for not only does it lead to excessive total income levels but it feeds the kind of reckless decision-making that fed the banking bubble that has now been so dramatically punctured. As the noble and right reverend Lord, Lord Harries, pointed out, the banks are beginning to discuss that. They need to do so for commercial as well as moral reasons.
If reining back the income growth of the rich is necessary to reduce inequality, what about the other end of the spectrum—improving the income levels of those at the bottom end of the income scale? The Government have done a number of things that have undoubtedly made a positive difference. We have heard about those this morning: tax credits, for example, and the minimum wage. However, there is much more that can be done, not least, as the noble Lord, Lord Sutherland, pointed out, in respect of pensions. The level of pension poverty in this country, especially among women, as he pointed out, is a national disgrace and needs to be tackled urgently.
However, just as important as any increase in transfer payments from the state to the poor must be a series of measures that help people to earn their way to a decent standard of living. We have a lamentable track record in providing appropriate education and training opportunities for those who find the traditional academic route unmotivating and which therefore fails them. Here we are talking primarily about the poor and those from poor backgrounds. The report of the noble Lord, Lord Leitch, pointed out that, out of 30 OECD countries, the UK was 17th on low skills and 20th on intermediate skills. Seven million adults lack functional numeracy, 5 million lack functional literacy and tens of thousands of schoolchildren leave school virtually unable to read, write and do arithmetic. Two key initiatives need to be further supported in this area. The first relates to vocational education for those still at school; the second relates to apprenticeships. In
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We will have the opportunity to debate some of those issues again in a month’s time, but the message from today is that inequality matters. For too long, it has remained in the shadows of political debate. The noble and right reverend Lord, Lord Harries, has rightly put it in the spotlight today and we must all hope that it remains there.
1.40 pm
Lord Skelmersdale: My Lords, I, for one, have found this a fascinating and wide-ranging debate, and I congratulate the noble and right reverend Lord, Lord Harries, on being successful in the ballot and choosing the subject of income inequality. Unlike the noble Lord, Lord Newby, I will not have two goes at the subject because I will not be available when the debate in the name of the most reverend Primate is debated in your Lordships’ House.
I agree with the noble and right reverend Lord, Lord Harries, and with other noble Lords who said that it is a matter of both economic and social concern when there is massive inequality of wealth. Many of your Lordships have spoken with great feeling—emotion, even—on this. It is often argued that a lack of connection between the rich and the poor is divisive and damaging to society as a whole. However, I agree with the noble Lord, Lord Desai, that this would be true if we were talking about absolute poverty, which the noble Lord, Lord Newby, spoke about and which, thankfully, we have not seen in this country since the Victorian era—a point that was made in relation to south Wales by the noble Lord, Lord Roberts of Llandudno. Absolute poverty is where people lack the necessary food, clothing or shelter to survive. This debate is about relative poverty, which has been defined as the inability of a citizen to participate fully in economic terms in the country in which they live.
The right reverent Prelate the Bishop of Liverpool introduced the subject of the north-south divide, and told us of his belief that relative poverty is greater in the north than in the south. I rather doubt that some who live in Leicester, Birmingham, London or Bristol would agree with him. We do not so much need policies that narrow the gap as to secure a rising income level for those at the bottom of the wealth scale. Too much preoccupation with differentials tends to obscure this more vital objective. I defy anyone successfully to argue that this is not a wholly positive, desirable and noble aspiration.
Neither I nor the Minister can rank ourselves among the professors of economics who grace your Lordships’ House. However, even I, who got as far as A-level in the subject, appreciate that wealth can only be created by providing something for someone at a price that they want to pay. Of course, the rewards that result would be greater than they otherwise would be if the levels of both corporation tax on the company, and income tax on the individual were reduced. This would be all very well for the manufacturer, but I note from National Statistics
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It has been argued that hedge fund managers, footballer players and the like, and even venture capitalists, contribute very little to the wealth of the nation and get gross rewards. Good is good, money is bad, in précis. I cannot condone this approach, which is so often based on jealousy, although I noted that the noble and right reverend Lord, Lord Harries of Pentregarth, denied this in his particular case. Those who argue this way are wrong. What these men, particularly the money men, have introduced is a more efficient method of using capital—capital, I might remind you, which can only be effective if it is used to finance goods and services for which there is a demand. If it is not used in this way, it will diminish or even disappear, and then there will be little or no financial rewards for anyone. If, however, it is used effectively, greater wealth will have been created for everyone, both rich and poor.
It should be the duty of government to organise things so that poorer people can afford what they need. That is exactly why we have a social security system in this country. My noble friend Lord Patten is right—the rich should support those at the bottom end of the wealth scale, not only by paying taxes, but through charitable donations. In answer to the noble Lord, Lord Lea of Crondall, parents who send their children to private schools are subsidising the education of the rest of society—to a small extent, I accept. Unfortunately, over the years the social security system has become hugely expensive—the DWP budget is now £120 billion, which is mostly spent on 3.5 million people on inactive out-of-work benefits. It is also out of kilter, by which I mean that people are still getting benefits which are not appropriate to their circumstances.
I have always believed that the basic reason for any Government’s existence is insurance. This has many meanings including, for instance, defence of the realm, or the policing of our towns and cities, which do not concern us in today’s debate. What does concern us is the provision of a basic level of income provided, if necessary, by the State, to those who through no fault of their own fall on hard times. That is the right of all our citizens. However, with rights go responsibilities, and it is the responsibility of those on benefit to do all they can to reduce state support for them.
This Government believe, and I agree with them, that there are those receiving benefit who, even if they cannot cope with full-time work, should do such work as they can part time. The trouble is that the benefit system is now so complicated, and the tapers and withdrawal rates so severe, that for some there is no economic advantage in getting a job. This is the major challenge for the Government. If work does not pay, it will not be achieved—I agree with my noble friend Lord Sheikh on this. The Government have made a bad situation worse here, not merely by removing the
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The Government are target-driven, and the most obvious target, indeed the primary objective of the DWP, is to eliminate child poverty by 2020, and on the way to halve it by April 2011. Child poverty is defined as those children living in households receiving 60 per cent of the median income, which was £14,000 a year in 2007. By definition, this is a moving target. It is hardly surprising then that the Governmnet have given up on the half-way staging post of halving child poverty.
The noble Lords, Lord Giddens and Lord Roberts of Llandudno, spoke about children. I, too, welcome what the Chancellor managed to achieve for families with children, even in these straightened economic times: the increase in child benefit and child tax credit; and the fact that parents’ income from child benefit will be disregarded when calculating housing and council tax benefits. However, even these welcome additions will mean that the target of halving the 3.7 million children currently living in poverty will be missed by between 450,000 and 800,000, depending on whose figures you believe—either the TUC or what I understand came out of the various pieces of paper accompanying the Budget. Even so, the sums found in the Budget will certainly help to reduce the income gap of people with children.
However, what help are the Government planning for single people and childless couples? As far as I can see, they are the people who now need help so as to reduce income inequality. To return from the particular to the general subject of this debate, the reason for the Government’s encouragement to get more people into work is that it stimulates growth by triggering people’s aspirations of gaining wealth so as to climb the social ladder. None the less, a degree of income inequality is not only inevitable, it is essential, to foster those aspirations.
1.49 pm
Lord Davies of Oldham: My Lords, I share with all noble Lords who have spoken in the debate gratitude to the noble and right reverend Lord, Lord Harries, for being successful in the ballot and producing one of the more significant debates that we have to address in our society. We may perhaps have a reprieve in a month or so and I am sure that we all look forward to further intensive scrutiny of the issues that have been raised today. We are also particularly grateful to him for the measured way in which he introduced the debate and for the questions that he posed. Underpinning it all, as we would have expected, was a strong moral stance on the concept of a fair society. Indeed, most noble Lords who have participated in this debate have stressed that dimension.
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