Queen’s Speech – Will Proposals Reduce Inequality?

Today’s Queen Speech provides a glimpse of the government’s policy priorities over the next parliament. But is the new government’s legislative programme, unencumbered by coalition compromises, likely to reduce or increase the UK’s extreme inequality? 

Let’s start with the good news. The Childcare Bill’s doubling of free childcare to 30 hours a week for parents of three and four year olds is a positive step. Many parents on low incomes struggle to afford childcare, an obvious barrier to employment, so increasing free childcare could disproportionately benefit parents earning less. 

At least one Bill is likely to be spun as benefitting the worst-off, but may be less progressive than it sounds. The wide-ranging National Insurance Contributions and Finance Bill includes a new law linking future increases in the income tax personal allowance with the national minimum wage, and purports to ensure that “no one working 30 hours on the minimum wage pays any income tax at all”. But this statement is potentially misleading. In fact 3 million workers already earn too little to pay income tax anyway, while National Insurance, which many of the poorest will continue to pay, is an income tax in all but name. More worryingly, linking the personal tax allowance with the minimum wage, whilst sounding a decent proposal, is still regressive. Raising the personal allowance effectively provides a tax break for many people earning well above the national average.

We can also confidently predict that the Full Employment and Welfare Benefits Bill is likely to increase inequality. The Bill will freeze most working-age welfare payments, including tax credits and child benefit, impose a £23,000 benefits cap and remove automatic entitlement to housing benefits for 18-21-year-olds. These are clearly measures that will affect those at the bottom end of the income spectrum most.

Other proposals may have subtler effects on inequality. The Trade Unions Bill for example calls for banning strike action from taking place unless 40% of all eligible union members  (in essential public services) vote in favour of industrial action. Our unions are much maligned, but the reality is that they have been one of the more effective forces against rising inequality. In fact evidence suggests that Increased union membership pushes wages upwards, with an increasing effect up to the lowest 35% of the income spectrum, while decreasing the pay of those in the top 1%.  

Some proposals announced today may even reduce inequality in the short-term but increase inequality in the long-term. Housing is an obvious and significant driver of inequality. A chronic lack of supply has inflated house prices for years, and with fewer and fewer able to afford to buy, home ownership is increasingly the preserve of the well-off. Part of the government’s response to this is found in today’s Housing Bill, which will include an extension of the Right-to-Buy to tenants of housing associations. This will provide tenants with large discounts to help them to purchase their house or flat.

In the short-term it’s clearly a transfer of wealth to less well-off households. But aside from the randomness of who will benefit, and the obvious lack of fairness for those on low incomes in private rented accommodation, there are other problems. The incentive for Right-to-Buy beneficiaries to oppose new construction will be higher than for a tenant. Due to political economy forces there is therefore a real concern that new house building would become even harder if Right-to-Buy is extended, accelerating the affordability crisis and further increasing inequality. This seems a legitimate future problem given the UK’s planning system effectively encourages NIMBYism.  

It may be an understatement to say today’s Queen Speech could be improved upon. We know that inequality is on the government’s radar, and that all political parties are keen to talk tough on its effects and the need for its reduction. Now all we need is for their policies to back this up. 

John Hood, Media and Communications Manager