A Conservative way of reducing inequality?

Some Conservatives have always worried about high levels of economic inequality, on the grounds of damage to social cohesion; but “one nation” ideas became less fashionable after the rise of Thatcher. However, recent developments – including the evidence that excessive inequality harms economic growth– have made it hard for politicians of all stripes to ignore inequality. There are also good political reasons for Conservatives to worry about the UK’s unusually-high levels of inequality: over 80% of the electorate think income gaps are too large, and many see mainstream politicians as part of an alien elite.

The Modernisers’ Manifesto, published yesterday by Conservative think-tank Bright Blue, had a parliamentary launch that featured Sean Worth berating the previous Labour government’s failure to reduce inequality of outcome or opportunity. The Manifesto itself covers a wide range of issues and has important things to say on inequality.

Peter Hoskin starts by saying that the recovery is “about as balanced as Norman Bates”, disproportionately benefiting London and the services sector. He sets out policies to rebalance that trend that is currently driving inequality between regions and increasing the proportion of the workforce in the low-paid jobs typical of the service sector.

Hoskin proposes regional infrastructure as a solution – an idea also promoted by fellow Conservatives like Guy Opperman. As some investors have made clear, there are private sector interests keen to bankroll such initiatives.

The benefits of some of Hoskin’s proposals depend on the detail: beefing up incentives for firms to set up shop in ‘enterprise zones’ requires measures to ensure those firms provide skilled, secure, decently-paid jobs, rather than just giving companies a cheap place to put warehouses. Similarly, raising National Insurance thresholds to the same level as those for income tax would require means of ensuring that most of the benefit did not accrue to those on higher incomes while much of the gains for the low-paid are wiped out by reduced tax credits (as has happened with the increased tax threshold). One way this could be done would be by raising the upper threshold of National Insurance.

Some of Hoskin’s policies would clearly help deflate the growing bubble of (unearned) wealth inequality: he suggests “increasing property taxes on the wealthiest, including a re-evaluation of council tax bands”, an updating from which successive governments have shied away. Recent JRF research has shown that a more progressive council tax system could reduce bills for below median households by £279 a year.

Ryan Shorthouse, Director of Bright Blue, gives a good Conservative case for reducing poverty; that it stops individuals from partaking in society, is hugely expensive (child poverty alone is reckoned to cost us £29 billion a year) and squanders potential. He says benefits and tax credits have been reduced too far, and “raising minimum wage sensibly does not impact on job supply” (advocating higher sectoral wage floors and a ‘kitemark’ for good practice). Crucially, he also recognises the need to measure relative poverty: inequality between the poorest and the median.

Shorthouse also proposes measures to address supply-side skills gaps that we need to fill if the demand-side measures proposed by others are to succeed, with grants to enable companies to train low-paid staff (paid back if it does not lead to improved skills and pay), self-employment start-up grants for people on low incomes, and incentives to prompt welfare-to-work providers to put people in jobs that enhance their skills and qualifications. As we’ve previously discussed, training and education of people on low pay will play a key role in decreasing inequality.

Inequality looks set to be a bigger issue at the next election than it has ever been in recent history, and it is one that has been assumed to favour Labour, but this launch suggests that – at least some – Conservatives are positioning themselves as the people to solve the problem.

Duncan Exley, Director of the Equality Trust.