Independent research backs Social Liberal Forum: Strong recommendations for Lib Dem economic policy

Is the Spirit Level correct? A question that many have argued over with arguments and counter arguments. But the debate is very important to the Lib Dems. The Social Liberal Forum endorse the Spirit Level and propose policies to promote equality, while those more economic liberals have argued that this is not a good strategy to pursue. So the Rowntree Foundation commissioned an independent review and the results are in, with some serious implications for the party as a result.

You can read the report here. While some conclusions are couched in academic language there are some pretty strong statements:

This is a highly complex area both theoretically and methodologically and there is still some disagreement among academics on many related issues, but the main conclusion here is that there is some evidence that income inequality has negative effects. There is hardly any evidence that it has positive effects.

So hardly any evidence that income inequality has positive effects? That in itself is a massive thing considering this is basically what the Tories have based their entire existence on – that people should be allowed to get rich and it doesn’t matter how much richer than those at the bottom. But here we have someone saying that it does matter. So why does it matter? Well one of the main conclusions of the Spirit Level was about health and social problems being related to income inequality to which the report states:

The evidence from a range of studies suggests that there is indeed a correlation between income inequality and health and social problems

And just as importantly the report goes on to say

there is very little evidence that income inequality promotes growth or that individual incomes at the top provide incentives to work

So it is important how much richer people are than those at the bottom, and it doesn’t give an incentive for people to work being able to earn an infinite amount more than those at the bottom and this doesn’t even promote growth. This surely has serious policy implications for any political party but more importantly the Lib Dems as we have the 2 camps so prominently in the party and we are in Government implementing policies which could make this situation worse through benefits cuts, cuts to public services, and an increase in cost of living compared to wages. So what could be done?

The report states that ‘there is relatively little evidence so far on which to oppose higher taxes’ but suggests that higher wealth taxes (or wealth transfer taxes) may be a better option to income tax. The Lib Dems have been discussing these for years so perhaps this thinking needs a more prominent position in our marketing strategy and policy formation.

The public are generally willing to accept that poverty is a problem but there is more of a reluctance to see inequality as a problem because it would involve ‘recognizing the need for structural change, for sacrifices by the majority’. And the greatest sacrifices would need to be made by the most powerful groups in society, who might resist such policies. We are already fighting some of these but perhaps we need to show we are prepared to fight more of them – particularly those in the Tory party who don’t acknowledge poverty and inequality is an issue.

The minimum wage is not currently at a sufficient level to give people enough money to reach a ‘minimum income standard’ and so it could be increased to the level of a ‘living wage’. And developing a policy for compressed wage ratios to keep those at the top from soaring above those at the bottom.

There is another part of this report which has a strong policy indication:

Some research suggests that inequality is particularly harmful after it reaches a certain threshold. Britain was below this threshold in the 1960s, 1970s and early 1980s, but then rose past it in 1986–7 and has settled well above that threshold since 1998–9 … [this] could provide a target for policy

At the end of the day this is about values. For those who believe in inequality and that it is a good thing this report won’t change their mind. But it does give more evidence to a strong argument – perhaps not all of what was claimed in the Spirit Level  – and for a party which has campaigned on this issue in many guises, we should take note. Particularly considering we are currently looking very far away from where were, this should at least give us an anchor to some of our core values. We are more or less invisible to the general public right now, we need to be bold with what we propose.

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5 Responses to Independent research backs Social Liberal Forum: Strong recommendations for Lib Dem economic policy

  1. Pingback: "Economic Liberals" and the Social Liberal Forum's Straw-man | Jock's OXFr33? Blog

  2. I hate this over-heavy reliance on statistical associations; for me the moral arguments are more persuasive. What this evidence tries to demonstrate is that there some fairly direct adverse effects to high levels of inequality. What I don’t think it does is demonstrate that the set of policies that we associate with economic freedom, a prime culprit for inequality, are overall harmful. The counter argument is that the benefits of freedom of choice and economic innovation outweigh these adverse effects of stress and jealousy. There are powerful moral arguments on both sides, which this type of study will do nothing to resolve.

    • Hi Matthew, thank you for the comments and you are right such a report won’t resolve the moral arguments. But given the results of the report we then have a duty to look at them and see what we think is best. And that is an interesting debate.

  3. Peter Chivall says:

    ‘Freedom of choice’ is an interesting concept when applied to real-life situations: when one individual’s choices restrict the freedom of choice of others. So the freedom to choose to drive a 4×4 in a congested city contributes to less available road space for other drivers, even to restricting the choices of would-be cyclists where the width of a 4×4 means they have to encroach on cycle lanes. In the name of ‘parents’ choice’ we have a superstructure of league tables and testing which are in danger of undermining the broad-based education experience that the majority of children need.
    ‘Choice’ may be an appropriate part of liberal aims when the commodity concerned is marketable, including fee-paying schools and private healthcare, but when the commodity is not marketable, that the consumer pays no direct fees and has little choice in whether to consume the commodity or not – again urgent healthcare and compulsory education come to mind – then the provision of an illusory choice is, at best, tinkering and, at worst, an expensive and damaging distraction.
    How that relates to inequality I’m not quite sure – and the dog needs his afternoon walk. (He and I have no choice in the matter!)

    • Hi Peter, thank you for the comments and I hope you and your dog enjoyed your compulsory daily exercise.

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