In 2008, the UK government set up a National Equality Panel to investigate inequality. “The Panel was asked to investigate the relationships between the distributions of various kinds of economic outcome on the one hand and people’s characteristics and circumstances on the other.” The panel delivered its report, An Anatomy of Economic Inequality in the UK, in January 2010. It “addresses questions such as how far up or down do people from different backgrounds typically come in the distributions of earnings, income or wealth?”
The aspects of inequality examined include: educational outcomes, employment status, wages and other sources of income (such as benefits) both for the individual and the household, and wealth. “In our main report, we present information on the distributions of these outcomes for the population as a whole. Where possible we indicate how they have changed in the last decade or more, and how the UK compares with other industrialised countries. But our main focus is on the position of different social groups within the distributions of each outcome.”
A major influence on people’s income was the income, wealth and class of their parents since these affected education, peer groups and a whole range of other life chances. This made it virtually impossible to achieve equality of opportunity.
The report also looks at policy implications. These include not just the redistribution of incomes, but also the more fundamental issue of how to create equality of opportunity. “The challenge that our report puts down to all political parties is how do you create a level playing field when there are such large differences between the resources that different people have available to them.”
So what has happened to inequality? What explanations can be offered? And what can be done to lessen inequality? The following articles look at the findings of the report and offer their own judgements and analysis.
Rich-poor divide ‘wider than 40 years ago’ BBC News (27/1/10)
The Big Question: Why has the equality gap widened even through the years of plenty? Independent, Sarah Cassidy (28/1/10)
UK is one of world’s most ‘unequal’ societies Irish Times, Mark Hennessy (28/1/10)
Unequal Britain: richest 10% are now 100 times better off than the poorest Guardian, Amelia Gentleman and Hélène Mulholland (27/1/10)
No equality in opportunity Guardian, Phillip Blond and John Milbank (27/1/10)
Has the wealth gap really widened? Guardian, Tom Clark (27/1/10)
Inequality in a meritocracy Financial Times, Christopher Caldwell (29/1/10)
Who wants equality if it means equal poverty? (including video) Times Online, Antonia Senior (29/1/10)
A Major miracle on equality Public Finance, Richard Reeves (29/1/10)
UK one of the worlds most unequal societies; report says The Sikh Times (29/1/10)
Only policies, not posturing, will bring down inequality Independent (28/1/10)
The Report
The full 457-page report can be accessed here.
A 44-page summary of the report can be accessed here.
A 6-page executive summary can be accessed here.
Click here for the charts and tables from the report.
Another good source of information on the distribution of income is the Annual Survey of Hours and Earnings published by the Office for National Statistics.
Questions
- How can we measure inequality?
- Outline the findings of the report.
- Why is inequality so high in the UK and why has it continued to deepen?
- Have tax credits helped to reduce inequality?
- To what extent are greater equality and faster economic growth compatible economic objectives? How are incentives relevant to your answer?
- What specific policies could be adopted to give greater equality of opportunity? Identify the opportunity costs of such policies.
In 2010/11, government funding for UK universities will be 7 per cent less (£518m) than in 2009/10. This has led to calls for substantial increases in student fees in order to stave off a serious funding crisis for many universities. One such call has come from David Blanchflower. As the first article below states:
“A leading economist has called for students from well-off families to be charged the ‘market rate’ of up to £30,000 a year to go to university. David ‘Danny’ Blanchflower, a former member of the Bank of England’s monetary policy committee, said the “poor have been subsidising the rich” for too many years.”
But just what are the arguments for and against a substantial rise in fees and who should pay any rise in fees? Should it be only students of very well-off parents or should it include middle-income parents too? Or if student loans are available to cover higher fees, why should not the same fees apply to all students? Then there is the question of who benefits from a university education? How much should external benefits be taken into account?
Call for universities to charge well-off students £30,000 a year Observer, Anushka Asthana and Ian Tucker (27/12/09)
A rise in fees would make university education fairer Observer (27/12/09)
Who wants a two-year degree? Independent on Sunday, Richard Garner (27/12/09)
Briefing: University funding Sunday Times, Georgia Warren (27/12/09)
Universities face £500m cut in funding Financial Times, Nicholas Timmins (22/12/09)
The nightmare before Christmas: grant letter announces £135m cut Times Higher Education, John Morgan (27/12/09)
Fast-track degrees proposed to cut higher education costs Guardian, Polly Curtis (22/12/09)
Questions
- Why is the government planning to make substantial cuts to university funding?
- What are the arguments for and against the university sector bearing a larger percentage cut than most other areas of government expenditure?
- Should any rise in fees be born by parents or by students from future income?
- Identify the external benefits from higher education? How does the existence of such externalities affect the arguments about the appropriate charges for higher education?
- What are the economic arguments for and against moving towards more two-year degrees.
- Discuss the case for and against increasing the participation rate in higher education to 50 per cent of young people.
- Is higher education a ‘merit good’ and, if so, what are the implications for charging for higher education?
There has been much discussion recently on the use of fiscal policy to combat recession. What measures should be used? How effective will they be? How will the resulting large budget deficit be brought back into balance in the future?
But what are the microeconomic implications of all the tax changes? Are the changes fair? What implications do they have for incentives? Perhaps it’s time for a completely fresh look at the structure of our tax system – a system that has been changed piecemeal over the past years to meet short-term macroeconomic and political goals. Can it be redesigned to meet the two microeconomic goals of efficiency and equity? The following article looks at what form a redesigned tax structure might take.
Our tax system is a mess. But Darling has a chance to fix it. (Peter Wilby) Guardian (11/4/09)
Questions
- In what ways does the present tax system fail to meet the goals of (a) fairness through redistribution and (b) creating appropriate incentives?
- Explain what is meant by “The whole system has been framed by Tory thinking to assist social engineering, Tory style”.
- Provide a justification and critique of the reforms proposed in the article.
An ongoing debate in economics for many years has been the extent to which governments should intervene in the economy. The debate has re-emerged in recent months with the global financial crisis as many commentators have arged that had a tighter regulatory system been in place, it could have helped to prevent some of the poorer lending practices of banks internationally. Even the recent G20 meeting (dubbed Bretton Woods II by some analysts) discussed regulatory reform of the international financial system. The two articles below look at this debate about the extent of government intervention from two very different angles. The first is from the perspective of Victorian England and Little Dorritt, while the second (by Peter Mandelson) looks at how globalisation and the financial crisis have informed the debate about state intervention.
So much for ‘late’ capitalism Guardian (24/11/08)
The future active state Guardian (4/12/08)
Questions
- Examine the advantages and disadvantages of greater state intervention in an economy.
- Discuss the extent to which globalisation has changed the need for the amount of state intervention in an economy.
- “Strong social welfare systems and redistribution can be contributors to economic growth.” Discuss the extent to which this statement will always hold true.
In Gordon Brown’s last budget as Chancellor he scrapped the 10p starting rate of taxation and this change came into effect for the 2008/9 tax year starting April 6th 2008. The move has been criticised by many Labour MPs and by poverty campaign groups as they argue that the scrapping of the rate will make some poor people worse off. They also argue that it will make it more difficult to meet the targets the government has set for reducing child poverty
Chancellor accused of widening poverty trap for poorer workers Times Online (14/03/08)
Benefit move to cut child poverty BBC News Online (12/03/08)
Questions
| 1. |
Explain what is meant by the poverty trap. |
| 2. |
Explain how the abolition of the 10p starting rate of tax is likely to increase inequality. |
| 3. |
Analyse two policies that are likely to reduce poverty. Then assess the extent to which these policies will also help reduce child poverty. |