This is a crisis for most – but it’s still boom time for those at the top

We’re almost at the mid-point of a national tragedy: a Tory Government during an economic crisis. On its own terms, austerity has proven a disaster, and if there was any justice, Number 10’s current occupants would be staring into the political abyss. Borrowing is surging as the economy shrinks and tax receipts go into free-fall; we’ve had three quarters of negative growth; the Great Depression has been eclipsed as the most protracted economic crisis on record; and the OECD projects the worst economic performance of any G7 country.

And yet though the Government is increasingly unpopular – as 80,000 people reminded George Osborne at the Paralympics – there remains no serious sign of a U-turn from their catastrophic economic programme. Above all, that is down to the lack of a coherent alternative: no matter how bad things get, the Tories mock the absence of any other realistic approach. ‘Deficit-denier’ has lost its sting, but the Tories’ confidence stems from an intellectual vacuum within the opposition.

That’s why the new think-tank Class is so important. Unlike other left-wing think-tanks, it is rooted in the labour movement, receiving the backing of trade unions such as Unite, the GMB and PCS. There has been no lack of alternative ideas to Austerity Britain, but they are fragmented and yet to be stitched together as a coherent narrative. Class hopes to challenge that by bringing together economists, academics and other experts to flesh out what an alternative would actually mean.

To kick the process off, Class has launched a new pamphlet drawing on the work of Professors Richard Wilkinson and Kate Pickett, authors of the seminal The Spirit Level: Why More Equal Societies Almost Always Do Better. ‘Why Inequality Matters’ explodes the ‘We’re All In This Together’ mantra – as offensive as it is ludicrous – by demonstrating how it is crisis for most, but still boom-time for the top. Consider the fact that, last year, boardroom pay soared by 49% even as the average private sector worker received a below-inflation pay rise (and thus real-terms pay cut) of 2.7%.

Or the fact that, in 2010 – as economic crisis was becoming tangible for working people – the Sunday Times Rich List reported that the wealthiest 1,000 people in Britain enjoyed a surge in their personal fortunes of £395 billion – or 30%, the biggest rise ever recorded.

It’s easy, though, to put this process all down to the recession. Yet in his speech yesterday, Ed Miliband conceded that there has been a three decade long economic consensus founded by Thatcher, which New Labour – despite tweaks – was part of. During this neo-liberal era, the share of Britain’s wealth ending up in workers’ pay packets plummeted. While in the mid-1970s, around two-thirds of the economy went to wages, today it is little over half. As the pamphlet reveals, if the share had increased at the same rate as the nation’s incomes, middle incomes would be £3,000 higher.

Indeed, today’s crisis of living standards predates the collapse of Lehman Brothers. From 2004 onwards, the real income of the bottom half stagnated; for the bottom third, they actually declined.

What is so compelling about Pickett and Wilkinson’s critique of inequality is that is not airy-fairy moralising: that is, a simple complaint about the unfairness of how the country’s wealth is distributed. The point is we all suffer, because inequality brings a whole host of problems with it. Britain has the worst record for children’s welfare of any developed country; we similarly fare badly when it comes to a whole host of issues ranging from mental illness and life expectancy, to infant mortality and obesity.

To his credit, Ed Miliband supported The Spirit Level’s approach during his leadership campaign, and made reducing inequality a priority. Unfortunately, policies that would make this reality have yet to be offered. In his Policy Network speech yesterday, he offered ‘predistribution’ as a new approach. It is a somewhat wonky term that originates in an article written by TV-historian-turned-Labour-MP Tristrman Hunt in The Purple Book, a pamphlet published by Blairite faction Progress.

Predistribution is attractive as a concept. It effectively argues that inequality is expensive, because the Government has to spend huge amounts of money dealing with its consequences. For example, tax credits may be a lifeline for millions, but they are effectively a subsidy for low pay because businesses do not pay their workers properly. If the causes of inequality were dealt with first, one benefit would be saving billions of pounds of taxpayers’ money.

However, the main policy suggestion was a supply-side approach: skilling up workers. This misses the point – that middle-income skilled jobs were destroyed from the 1980s onwards and were not replaced, leaving a so-called ‘hourglass economy’ with well-paid professional jobs at the top, and low-paid, insecure, low-prestige service sector jobs at the bottom. There is already a growing problem with underemployed, overqualified workers: by the end of 2011, more than a third of recent graduates were in non-graduate jobs, compared to around a quarter a decade earlier.

To really tackle inequality, radical policies are needed. Firstly, a living wage: Unite leader Len McCluskey has suggested raising the minimum wage by £1 to £7.19, for example. Not only would this reduce the welfare bill, it would act as a economic stimulus, helping growth and job creation: when the poorly-paid receive a boost to their incomes, they rend to spend it, whilst the wealthier tend to save it.

Secondly, trade union rights. One of the reasons workers’ wages have stagnated is because of the inability of organised labour to fight their corner. In the US – where the collapse of union power has been precipitous – this process is even more striking: median male wages are no higher than they were in 1973.

Thirdly, Ed Miliband has spoken about rip-off rail prices. But rather than simply regulating our privately owned, fragmented railway system, we should be calling for a publicly owned, democratically run, affordable service – a model we could apply to utilities such as gas and water. Taxpayers’ subsidies of the railways have increased by around four times since privatisation, even as above-inflation rail fare increases are imposed.

Fourthly, we should be calling for a far more progressive tax system. Shortly after reducing the taxes of Britain’s richest 1%, George Osborne expressed his supposed shock that some of the wealthiest people paid no taxes at all. As well as clamping down on the £25 billion lost through tax avoidance, we should be looking at making sure the booming rich pay more. A YouGov poll for Class showed that the majority of Britons – including more than 4 out of 10 Tory voters – would support a 75% tax rate on those earning £1 million or more, a policy suggested by new French President François Hollande.

With the interminable economic crisis hitting working people even as the wealthiest thrive, the case for equality should be stronger than ever. Over the coming months, Class will be proposing practical policies to make this happen. But ‘Why Inequality Matters’ will help arm Labour activists and trade unionists with arguments – not least to use to pressure the Labour leadership to support popular, bold policies that would transform Britain.

Related posts:

1. Inequality, class and the crisis
2. The post-Obama boom
3. Don’t bet the house on it: no turning back to housing boom and bust
4. Ed Miliband is trying not to let a crisis go to waste
5. The red tape delusion: Why deregulation won’t solve the jobs crisis