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The debate’s title refers to “inequality, credit and indebtedness” and to their impact on the family. Inequality, as the most reverend Primate said, leads to poverty and poverty lends itself to indebtedness. I shall mention the other issues, but I want to concentrate my remarks on inequality and the impact on the family and community.
The noble Baroness, Lady O’Cathain, like me, was brought up in the age of austerity of early post-war Britain. It was a joy when sweet rationing was abandoned and we saved our pennies to go to the local sweet shop to buy humbugs and chocolate. During the 1950s and the 1960s, we saw a steady decline in poverty in Britain and by the 1970s the numbers living in poverty in this country had been reduced to 14 per cent of households—measuring poverty at 60 per cent of median income, which is the standard measurement nowadays.
Since the end of the 1970s we have seen a reversal of those trends. By 1996 to 1997, 25 per cent of households were living in poverty, compared with the 14 per cent in the mid-1970s. The result of some of the measures introduced by this Labour Government has been to reverse that and in 2006-07 we were back down to 21 per cent of households living in poverty. As the most reverend Primate indicated, 21 per cent of households is 14 million people, including almost 4 million children. The reduction in child poverty during the period 1997 to 2006, from 4.4 million to 3.8 million—a reduction of 600,000—was indeed an achievement, but there is still a very long way to go. It is not clear that the measures that have so far been adopted have further to run and can achieve that more readily.
It is also important to look at the other extreme. Incomes of the top 1 per cent in the UK have been rising faster than in any other industrial country. In 1979, chief executive officers of the top FTSE 100 firms earned on average 10 times the earnings of their workers; by 2002, that had risen to 54 times the average earnings of their workers; and by 2006, it was 76 times the earnings of their workers.
During the period from 1997 to 2001, the 0.1 per cent at the very top of the income distribution saw their incomes grow by an average of 8 per cent, whereas the bottom 5 per cent have seen a rather weak growth in incomes, even post tax, after the measures taken by the Government. That combination of the very weak growth for those on the lowest incomes and the very fast growth for those on the top incomes has led to the inequalities.
There has been a whole series of reports about the inequality and poverty in Britain. A recent Rowntree report issued last year concluded that,
- “Britain is moving back towards levels of inequality in wealth and poverty last seen more than 40 years ago”.
Inevitably, poverty leads to indebtedness because the poor are easy prey to the loan sharks. In modern society, the credit card, as the noble Baroness, Lady O’Cathain, indicated, is an all-too-ready means of flexible plastic. I do not know how many other noble
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Like the most reverend Primate, I worry that we are breeding a society in which large debts are seen as normal. I agree with him that it is most unfortunate that by introducing student loans, we are encouraging people to feel that unsecured debts do not matter. Even at present levels of student fees, the average debt with which a student leaves university is over £20,000. We expect them to repay those debts. They take primacy over all other repayments at a rate of 9 per cent on top of income tax and national insurance.
There was an interesting study from the Rainer Foundation last year looking at young people’s attitude to debt. It discovered that there is no stigma attached to debt. If young people want something—be it new clothes, cars or holidays—and they do not have the cash, rather than waiting and saving up, the answer is to buy instantly and worry about paying later. Instant gratification is important and the life of “celebs” is looked up to. This attitude of consume now and worry about paying later has kept the economy going as strongly and as long as it has. Consumption has fuelled growth, and it is stumbling as growth is stumbling.
I entirely endorse the proposal of the most reverend Primate for better financial education and more emphasis on credit unions. As has been mentioned by the noble Lord, Lord Anderson, citizens advice bureaux do a splendid job giving financial advice but do not get enough support from society. Our local bureau knows the limitation of the funds available to it, although the demands on it are growing.
I return to the question of inequalities and ask whether they matter. There are a number of interesting features about the new inequalities that we see in society today. The Rowntree study, for example, showed that there was an increased clustering with the well-to-do tending to migrate to particular areas within and around cities, and the poor going to other areas. I do not know whether other noble Lords dislike as much as I do the new fashion for gated communities. They send out all the wrong messages.
Another finding from the Rowntree study was about social mobility, which indicated that the chances of a poor child growing up into a poor adult were greater now than they had been in the 1960s and 1970s. Above all, there is the awful statistic that by the age of three, children from poor backgrounds lag a full year behind their middle class counterparts. It is difficult for schools to overcome these innate social differences.
We know that these inequalities in income and welfare are echoed in other inequalities—health, education and housing. It is always difficult to resist the demands
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It is less well recognised that crime, violence and hooliganism are also linked not just with income levels—obviously poor communities suffer more from crime—but with income inequalities. Interesting studies in the United States and Canada of city states and provinces have shown a close association with the levels of income inequality between the city or state region and the levels of crime and violence. Linked to this, we also know that high levels of crime create a breakdown of trust within communities. It is much more difficult to build community organisations and a sense of community and belonging that is so important not just for the individual but for the family.
I go back to the generation that was brought up in terms of social policy on Peter Townsend’s Kith and Kinship in Bethnal Green. It was that sense of belonging to a community that was so important to the families there. In those days family and community were intertwined, and a sense of belonging to both was there. A child had a plethora of aunties living down the street who could be called upon if mum was out or if help or sympathy were needed. It was that sense of community and belonging that perhaps helps to explain the conundrum raised by the noble Lord, Lord Layard, in his writings about happiness. We are so much richer than we were in the 1950s, so why are we so much unhappier as a society? Is it because we have lost this sense of family within our community?
Unlike John Hutton, I do not think that all that matters about inequality is bringing those at the bottom closer to the middle, and that we should have no hesitation in celebrating the enormous salaries of the City. Inequality matters and erodes the sense of belonging and community within society. In this age of instant gratification how does the 16 year-old in the bottom 5 per cent of the income distribution table find £100 to buy that coveted pair of trainers? If he can lay his hands on a credit card, he will, and buy now, pay later, but it is far more likely that he will see that the only way to a fast buck is to get involved in drugs and crime like so many of his contemporaries.
These problems are not absent in other countries but evidence suggests that they are less pressing in those countries and communities where the inequalities are less. We often say of the Scandinavian countries that things are so much easier for them because they are small and so much more homogenous. If we were somewhat smaller and homogenous perhaps we would find things easier.
11.46 am
Lord Haskel: My Lords, I am most grateful to the most reverend Primate for moving this Motion. We debated a similar one last month and he has given us the opportunity to reflect on what was said and to continue the debate.
The effect of income inequality and debt is there for all to see. As noble Lords have said, it affects health, education, housing, careers, life expectancy,
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Yes, the effects of poverty run long and deep. Longitudinal studies show that deprivation from poverty is handed on from generation to generation. That is why it is so important to break the cycle. Government must take steps to do that, not only because such inequalities lead to crime and social upheaval, but because it is unfair and immoral, as the most reverend Primate said. This unfairness will undermine the very society that we are trying to create for the economic prosperity of the nation. The question is how to do it. There was a time when simple income redistribution was the answer. Financial education has a role and, indeed, the Financial Services Authority has a budget for this. Regulation, too, has a role. About two years ago the Competition Commission investigated doorstep lending and broke up some of the cartels that were maintaining the very high rates of interest.
Life has become more complicated. Globalisation and technology have changed our way of life. I have no doubt that globalisation has played a large part in causing an increasing inequality and debt. The UN human development reports show that the Geni coefficient of income distribution is increasing in all the developed countries, and most of all in the US and UK. Our membership of the single market and its enlargement have created yet more competition for businesses and jobs. Quite rightly we rejected protectionism, so we live an era of economic liberalism and global engagement. As others have put it, we are engaged in a race to the top. In such a competitive society we have to take steps to empower people to improve themselves to cope with its threats and pressures. Education, skills, innovation and investment are all essential public services. Because we cannot set the limits on empowerment the impact on families will vary, so economic inequalities will rise. The noble Baroness, Lady Sharp, gave us the numbers, but that is the explanation.
Here in the UK, we have a strong egalitarian ethos, so what has made the effects of that income inequality politically acceptable? In a word, it is housing. Whether you owned or rented, rising house prices created a sense of increasing wealth regardless of income. We have had a long period of declining interest rates, so remortgaging our homes has been a convenient source of funds and security for the debt. But that source of wealth is disappearing and, as a result, the inequalities are starting to grate. There is the lack of correlation between company performance and high earnings. Taxpayers picking up the bill when banks fail irritates. An overclose relationship with rich businessmen is looked at differently. Some of the more perceptive businessmen agreed that it was unfair for private equity partners to pay tax at a lower rate than their cleaners, but that seemed only to add to the irritation.
What seems clear is that inequality in family income is becoming less tolerated because it is perceived to be unfair. One thing that struck me about the debate last month was the insistence on the concept of fairness. I remember that when I first came into your Lordships'
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After all, taxation works in all parts of society—at the top and at the bottom. Despite recent controversy, Labour has been very generous to those at the bottom—generous to children, generous to pensioners, generous to the low-paid—but much of that generosity was made in the form of tax credits, and tax credits have just not penetrated public perception. People just do not feel that redistribution has taken place. A Tory agenda of tax-cutting would be much more populist, but it would do nothing to cut family inequalities relating to children, pensioners and low-paid working people.
Is all that a sign that there is something wrong with the Government’s economic and social model? Is it a sign that our politics will have to change? I do not think that there is something wrong with the economic model, but we are at a point of correction. It may help family inequalities if we are less inclined to use our houses as a source of income. You never know, it might encourage us to listen to the noble Baroness, Lady O'Cathain, and start saving again. That correction away from domestic spending towards exports must help us face up to globalisation.
In that competitive society, we must raise our game in financial services. The most reverend Primate is too selective in his remarks. The standard of management must be raised throughout the whole sector. The Institute for International Finance recently issued a devastating report on that. It identified deteriorating standards, weakness in understanding products, weakness in understanding exposure to risk, and declining standards in underwriting. All that is supported by Mr Paul Myners in his article in today's Financial Times, in which he points out that bank directors were largely in the dark about the huge risks run by their staff. Add to that the banks’ excessive charges—they are being challenged in the courts, so I do not want to say too much about them—and one is forced to agree with the Governor of the Bank of England, who said this week that the bail-out was not to protect the banks but to protect the public from the banks. That is where there must be an improvement not only in management but in a sense of responsibility.
I think that the Government are right: British families will cope best with the crisis, but we shall have to deal more carefully and identify more closely with the personal misery that it is causing. It is no compensation to say that the misery is caused by circumstances outside our control. The Government and the industry will have to do more. The changes in politics will be more subtle. Because the cause of economic inequality in families relates to globalisation, our reaction to globalisation will have an impact on
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11.56 am
Lord Northbourne: My Lords, I add my voice to those thanking the most reverend Primate for introducing this very important subject for debate. I agree with every word that he said and with most of what has been said in several brilliant speeches by subsequent speakers. The most reverend Primate is absolutely right to say that there is a strong statistical correlation between family poverty and poor incomes for children. He is absolutely right to say to say that debt can be seriously harmful to children. When I was a trustee of Toynbee Hall in Stepney, I saw at first hand the horrendous problems created by street money lenders.
Others who have spoken and who are going to speak have greater knowledge than I on the subject of debt. I want to take a slightly different slant on child poverty and inequality. Of course the battle to eliminate child poverty must go on and must be won. However, as several noble Lords have already done, I beg to doubt whether it can be won simply by throwing more money at it. The demands put on families with children today are greater than ever before. Without the right input from parents, as well as the state, child poverty will never be defeated.
To reduce child poverty, we need a two-pronged attack. We need to reduce the number of families who need help, and then we need to spend more money on those who really cannot help themselves. Some families will always need state intervention, but healthy relationships within the family and the commitment of both parents to the well-being of their child can also be powerful factors in defeating child poverty. The noble Lord, Lord Anderson, referred to two-parent families as themselves having real problems with debt. I am talking not about whether the family is a one-parent or a two-parent family but whether it has two committed parents.
In too many families today, there is competition for the available adult time and energy. The competition is between the need to earn the money to support the family and the need to provide for the safety, love, shared time and social education that every child needs. With a little help, two parents or two partners working together in harmony can achieve that, but where the second partner is either absent or does not play their part, that job becomes almost impossible. Yet, in our society today, at any one time approximately 25 per cent of the nation’s mothers are attempting to bring up their children alone, with only the help of benefits and tax credits. Some 800,000 children have no meaningful contact with their father. In practice, what the state can provide today for single parents is less than adequate. Statistics show that
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All children are different, but every young child needs to feel safe and loved and to spend quite a lot of time with a parent or other long-term committed adult. They need to develop self-confidence and to learn the simple social skills that will enable them to prosper at nursery school and subsequently through their school career. Security, love and shared time are the language of commitment and the currency of good relationships within the family. From Bowlby and Ainsworth’s original work on secure attachment right through to very recent understandings about the way in which a child’s brain develops, a picture emerges of the fundamental importance for a child’s healthy development of a secure and loving relationship in the family, with at least one but preferably two or more trusted adults. A couple of years ago, Charles Desforges showed that relationships within the family are more important for a child’s success in school and in later life than any other single factor, including poor schooling and family poverty.
Ever since the beginning of recorded history, and I suspect long before, every successful society has had strategies to provide for and to ensure the effective care and education of its children. In this country today, we have lost the plot. We seem to be unsure, or at least to disagree among ourselves, whether it is the responsibility of the mother, the father, both parents, the family, the community or the state to provide the care, nurture and education that this nation’s children need. In particular, we seem to be unsure about the role of fathers. Do fathers in our society have any greater responsibility to their child than simply to pay a limited amount of maintenance to the resident parent? I do not know, but I believe they have.
Good relationships within the family, and the well-being of the children in it, depend on the long-term commitment of the adults involved. I am convinced that we as a society need to pay much more attention to the importance for the child of long-term committed relationships in the family, and particularly to the key role of at least two adults who have made a long-term commitment to the child’s well-being. Commitment is a key factor in the upbringing of a child. Lack of that commitment is a key factor in child poverty.
At present, this Government, for tax and benefit purposes, seem to be working on the principle that there is no difference between two parents who have made a long-term commitment to one another for the good of their child, two parents who have made only a short-term commitment, and two parents who have made no commitment at all. Despite the acknowledged advantages to the child of a stable and committed parental relationship, the Government have done little to encourage such relationships. Nor have they offered any financial encouragement to those who have voluntarily entered into them, despite the huge savings to the Exchequer from stable and self-supporting families. This Government have declared repeatedly at the Dispatch Box that they do not believe that it is the job of government to interfere in any way in how adults chose to live their lives. This
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It is clear that there is a need for change. If we seriously want to reduce child poverty, one ingredient must be that more families can look after themselves. Resources can then be released to help more effectively those who truly cannot help themselves. This is entirely possible, but it will involve acceptance in our society that having a child is a right that carries with it serious obligations and that the choice to have children may involve, for the mother and the father, sacrificing some of their other lifestyle choices. If you want to achieve this kind of change, the first step must be to annunciate clearly what change is needed and the reasons why. The second step is to ask for positive, rather than negative, incentives.
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