Labour Lacks a Strategy To Cut Poverty and Inequality

Labour’s first four months in office have brought several changes in political and economic direction. The new Labour government has reversed years of under-investment in public services and launched a range of progressive measures, everything from a higher minimum wage to stronger employment rights. But a gaping hole still remains at the heart of the party’s political strategy. In last month’s budget speech by Labour’s chancellor of the exchequer, Rachel Reeves, poverty rated only one mention. Inequality didn’t merit a single reference.

The Labour government’s budget changes themselves will have at best a marginal effect on the course of inequality and poverty. Relative poverty rates — already at near record highs — appear set to rise over the next five years. Labour’s tax package, meanwhile, will have a minimal impact on the heightened shares of wealth and income the UK’s richest have captured over recent decades.

Britain remains a country riddled with rising levels of destitution. Thirty per cent of the nation’s children — 4.3 million — live in relative poverty. Only a handful of countries in Europe have higher rates. But no Labour plan to systematically tackle this destitution yet exists.

The Labour government has, to be sure, set up a Child Poverty Taskforce, an initiative that has a year to report on what has probably become the most researched issue in social science. A plethora of studies have actually already charted British poverty trends, often in microscopic detail. As a result, there’s not much we don’t know about the scale and roots of impoverishment and deprivation or the potential impact of different policy levers.

But this research largely ignores or dismisses the critical links between poverty and wealth. Top fortunes today increasingly reflect predatory business methods and a carefully concealed appropriation of existing wealth that has negatively impacted social resilience and economic strength. This “skimming” or “top slicing” of a significant proportion of the gains from economic activity comes at the expense of wider livelihoods and life chances.

Currently, the level of child poverty stands at more than double the rate of the 1970s. Yet, because of cost, Labour has ruled out removing one of the most punitive rules of the UK benefit system that imposes a cap on the benefit of larger families. Such a move would cost as much as £3 billion, the equivalent of about $3.8 billion, but would cut poverty by 2-3 percentage points.

Ultimately, the extent of relative poverty depends on the level of inequality, on how the overall economic cake gets shared. Britain isn’t doing much sharing. At times like this, we need to remember history’s key lesson: Poverty and inequality have always come umbilically linked. Britain’s low-point for poverty in the1970s came at a time when the UK also reached peak equality.

That decade marked the high-water mark for post-war egalitarianism, a historic achievement that would turn out to be short-lived. Since then, with the dismantling of the pro-equality strategy of the post-war years, Britain has returned to its long-term norm as a high-inequality, high-poverty nation.

The “poverty gap”— how much below the poverty line a particular household falls — is currently running around 30 percent for a couple with two primary-school-aged children, the equivalent to an average shortfall of £6,200 a year, or about $7,800. This gap in the 1990s: only 23 percent. The gap in the UK stands higher than the gap in nearly all other comparable nations.

Britain’s current poverty gap starkly spotlights both the inadequate share of national income and wealth that goes to the UK’s poorest families and the power of those at the top to colonize the gains from economic activity, leaving less for everyone else. The poorest fifth of households now hold 7 percent of the nation’s aggregate income, after taxes and benefits. In contrast, the top fifth hold 41 per cent.

Political and academic debate have for far too long focused on poverty alone. Back in the 1990s, for example, Labour Party’s prime minister Tony Blair downgraded his party’s traditional goal of greater equality and welcomed the higher fortunes then accumulating at the top. Blair’s “New Labour” anti-poverty strategy assumed that deprivation runs unrelated to the choices that those who own and control economic resources choose to make.

An effective strategy for significantly and sustainably cutting poverty, by contrast, requires a range of levers. Their aim: to raise the aggregate income share of the poorest and a fall in the share of the richest. Without such a shift, Britain will remain a high-poverty nation. What sort of levers do we need to be pulling? We need a more robust and less punitive benefit system that aims to raise the income floor. We need a more redistributive tax system. We need a boost to overall worker wages that rebalances how corporations divide output between pay and profits. We need to prioritize precious national resources for social reconstruction. .

Tackling poverty requires building a society that shares the gains from economic activity through restraints on excessive levels of enrichment at the top. The new Labour Child Poverty taskforce, to make a real difference, will need to advance a blueprint on the scale of the 1942 Beveridge Report, a plan that recognizes the links between how wealth accumulates and how people become impoverished.

As the distinguished British social scientist, David Donnison, put it in his 2006 80th birthday lecture, tackling poverty requires a strategy that focuses on “the rich as well as the poor”.

Stewart Lansley, the author of The Richer, The Poorer, How Britain Enriched the Few and Failed the Poor, a 200-year History, is a visiting fellow at the University of Bristol, a Council member of the Progressive Economy Forum, and a fellow of the Academy of Social Sciences. An earlier version of this article originally appeared on the London School of Economics blog.