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Justin Welby’s plan for solving inequality wouldn’t work

The commission are more interested in tackling perceived issues around inequality than they are at kick-starting the economy and improving living standards.

7 September 2018

10:45 AM

7 September 2018

10:45 AM

Ronald Reagan famously proclaimed that the nine most terrifying words in the English language are “I’m from the government, and I’m here to help.” With the ‘most terrifying’ words already attributed, the pledge of a commission to transform the economy through increased intervention and higher taxes will simply have to be chalked up to misguidance and bad policy.

The IPPR’s Commission on Economic Justice, released this week, puts forward 73 recommendations for ‘better and more sustainable growth’. Yet a look through the proposals suggests that the commissions members – including the Archbishop of Canterbury and trade union reps – are more interested in tackling perceived issues around inequality than they are at kick-starting the economy and improving living standards. Unsurprisingly, their key proposals to address the former stand in direct opposition to the latter.

Their call to immediately increase the minimum wage to the Real Living Wage, for example, further politicises wage setting policy, which leads to rash decision-making that businesses may not be ready to handle. The government should be moving in the opposite direction, returning full autonomy to the Low Pay Commission, which has an excellent track record of suggesting good policy and recommending rates that mitigate significant job losses. 

Likewise, their call for a new – and higher – pay bracket for people on zero-hours contracts runs the risk of such jobs being regulated out of existence. The UK already has more minimum hourly wage rates than almost any other country; perhaps simplifying the pay structure is what is needed to increase efficiency and boost productivity, not a crackdown on jobs for people who want to work flexibly (and claim higher job satisfaction than those on full-time contracts). Such interferences are only going to make it harder for working Brits to move their way up the ladder – a major hinderance which stifles growth. 

If you believe that raging inequality is a problem in the UK, this trade-off might be worthwhile. IPPR’s report clearly does, noting that “the UK is the fifth most unequal country in Europe in terms of income.” But this is far from the full picture. If you calculate inequality after tax, Britain moves from being ‘highly unequal’ to ‘average’ by European standards. As the Office for National Statistics points out:

“The UK’s tax and benefits system appears to be more redistributive than that of many other countries with relatively high pre-tax and benefits inequality, bringing the UK close to the overall EU average for inequality of disposable income.”

Even countries such as Denmark – which is thought to be more progressive than the UK, and has its tax revenue referenced in the IPPR report – have higher net wealth inequality than Britain. Yet despite all this redistribution, the Commission argues that more must be done to make the economy ‘hard-wired for growth.’ So their major solutions include…more redistribution, and not always to those who need it. 

The report gives (yet another) call for £10,000 to be dished out to all 25 year olds as ‘universal minimum inheritance’ to help come to terms with increasing inter-generational unfairness in Britain. In many cases, this will just be a transfer of cash from the haves to the haves. Why should a 25 year old working in the City of London get a £10k handout from the state, while a 45 year old on the minimum wage gets zilch? Such gimmicks are no substitute for good policy, especially when the gimmick is going to cost billions of pounds to deliver. This short-term bribe is not going to distract millennials from the trillion pound debt they’ll be paying off down the road (which will only be made worse by their expensive birthday present). 

It’s hard to take a report designed to address ‘fairness’ seriously, when its major prescriptions seem to be increasing the tax burden – which is at its highest level in almost 50 years – and increased state intervention – which will stifle working opportunities for those at the lower end of the income spectrum. 

Until a commission leads with, or at least gives serious consideration to bringing living costs down for workers, instead of simply bringing up their tax bill, its proposals should be considered grandstanding proclamations rather than serious policy prescriptions. 

Kate Andrews is associate director at the Institute of Economic Affairs

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