New evidence shows income inequality is a barrier to economic growth

The gap between the rich and the poor is holding back economic growth, according to the Organisation for Economic Cooperation and Development (OECD). The leading economic think tank has published research that finds a link between inequality and slow growth, claiming that the UK economy would be 20% bigger if the wealth gap had not widened over the last 30 years.

The OECD also recommended greater tax on the wealthy to deal with the problem, as well as a focus from governments on improving the economic standing of those on low incomes. They said the richest 10% of now earn almost ten times the income of the poorest 10% – a bigger gap than the 1980s.

The result of this, however, has been a slower economic growth – which comes as a blow to the Tories’ belief in ‘trickle-down economics’, where the rich act as ‘wealth creators’. The OECD concluded:

“income inequality has a sizeable and statistically negative impact on growth, and that redistributive policies achieving greater equality in disposable income has no adverse growth consequences.”

This is aa major intervention on the subject, and one which Labour will hope to use boost their economic credibility in the coming months. Ed Miliband and Ed Balls can use this evidence to argue that the policies they offer to deal with the “cost of living crisis” are not just desirable for those currently struggling to make ends meet, but are necessary for achieving the growth the needed to regain stability in the UK economy.

This morning, Shadow Work and Pensions minister Rachel Reeves wrote for LabourList on the party’s plans to tackle low pay.