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Inequality: Income and Wealth

Volume 744: debated on Monday 11 March 2013

Question

Asked By

To ask Her Majesty’s Government what plans they have to tackle inequality in income and wealth in the United Kingdom.

My Lords, fairness underpins the Government’s plans to reduce the deficit. Universal credit will allow people to keep more of their income as they move into work, while the personal allowance increases announced by this Government will benefit 25 million individuals. As a result of this Government’s actions, the richest pay more tax on capital gains, more stamp duty on their homes and more tax on their pensions, and they are less able to avoid or evade tax.

Listening to that Answer, one would not be aware that the disparities in wealth and income in this country have reached record levels. Will the Minister confirm that 1% of the top earners earn 10% of income? The Government are being criticised on the grounds of their inequality policies by everybody from the bishops to the anti-poverty lobby—people who know what is going on. Further, does he not agree that when inequalities in a country get beyond a certain level, as they have here, our social cohesion is seriously damaged?

With respect to the 1% of the top taxpayers, the first point I would make is that actually they are responsible for paying 24% of income tax. The top 10% pay just under 50% of income tax—I think it is 44%—so their contribution to our revenues is the greatest in proportion. As for the development of inequality since this Government came into office, the commonly accepted measures of income inequality have in fact decreased.

My Lords, will my noble friend confirm that the substantial increase in the capital gains tax levied, which was forced through the coalition by the Liberals, has led to a dramatic reduction in the revenue from capital gains tax?

I thank my noble friend for that question. I am not aware of the initial revenue yields. I asked the department earlier, and it said that it did not break it down that way. My noble friend clearly alludes to the importance in tax management of understanding the ultimate yield on a tax, rather than simply assuming that when tax rates are changed people will continue to behave the same.

My Lords, is the Minister aware that, apart from me, the leading researchers in this subject all agree that there is far more inequality in our society than is required for the efficient working of the economy? Therefore, it follows that the inequality is totally unjustifiable.

There is clearly a relatively academic debate about the impact of equality and inequality on efficiency. All I can tell noble Lords is that this Government and their policies are focused on ensuring that, at the top end, those in receipt of large incomes and with significant wealth have been by far the major contributors to the consolidation of our deficit.

My Lords, given the view of employers that business competitiveness requires the replacement of British jobs by new technologies at home and by low-paid jobs abroad; given the Government’s view that the rate of income tax paid by the wealthy should be cut, public services for us all should be cut and the incomes of the poor should be cut; and given that, taking these together, the effect is a reduction of demand in our economy and widening inequality in our society, how do the Government foresee growth and the fruits of that growth being shared equitably among all our people?

There are a significant number of issues in that question. At the heart of this Government’s economic policy is that until we are able to balance our public finances, it is extraordinarily difficult for us to grow this economy in a sustainable way. All our policies are devoted to making sure that we can consolidate our fiscal position and that the contribution to making that happen is appropriately distributed, with by far the most significant contribution coming from those who can afford most. At the bottom end of society, we have a welfare system that works on the basis of incentivising people to get back into work. I absolutely agree that jobs transform lives. The 1 million-plus private sector jobs that have been created are a welcome development in the economy.

My Lords, may it not be more sensible for the Government to concentrate their efforts on trying to increase the overall wealth of the country, rather than rabbit on about how they might divide a perhaps declining cake?

My Lords, I absolutely agree—I am sure everybody does—with the sentiment that it is much easier to argue over the slices of an increasing cake than to divide one up that is static or shrinking.

My Lords, on the noble Lord’s major point about increasing personal allowances as a factor, does the greater relief go to somebody on £50,000 a year or somebody on £15,000?

What I can tell the noble Lord about the increase in personal allowances is that it is a highly progressive change in the tax system. It applies to about 24.5 million or 25 million taxpayers, who will enjoy a benefit of about £400 from it in 2013-14, and it takes just over 2 million people out of the tax system.

Has my noble friend studied the evidence published by the Equality Trust, which shows that across all the OECD countries, and similarly across all the states of the United States, there is a strong correlation between income inequality and indices of social malfunction such as crime, alcoholism, and teenage pregnancies? Considering that we are the second most unequal state in the whole comparison, does he not think that the Government’s policies should be strengthened to deal with those inequalities?

I thank my noble friend for pointing out that the causes of some of these social challenges are broader than those that will be tackled by our tax policy. It is much more important to get to the root causes and deal with issues such as education challenges, other public services, alcoholism and the breakdown of family life. That is extremely important.

The noble Lord has made much in his Answer of the proportion of taxation paid by the highest earners. Is not the reason for this that their gross incomes are excessively high compared to those of others in our society?

The noble Lord is correct that it is a simple question of arithmetic. At equal changes, they will make the greater contribution. However, if one looks at the distributional analysis—it is to the Government’s credit that at each fiscal event we lay out the distributional analysis, which is a great step forward—it shows that their increase is proportionally greater than the amounts they have.