Reports by the great and the good are ten a penny. All too often they are an excuse for kicking a tricky political issue deep into the long grass. Only rarely do they count for much. Maybe, just perhaps, the review into inequality launched by the Institute for Fiscal Studies and headed by the Nobel prize-winning economist Sir Angus Deaton will be one that makes a difference. It has the potential to be a very big deal indeed, as important in shaping the Britain of the 21st century as the Beveridge report was in the mid-20th century.
Why? Because Deaton is asking the same fundamental questions that William Beveridge posed almost eight decades ago in his November 1942 report. Is inequality killing capitalism – and if so, what can be done about it?
These are awkward questions for those who, little by little, chipped away at Britain’s postwar settlement from the moment Margaret Thatcher arrived in Downing Street 40 years ago this month. The argument by the new right was that allowing the rich to get richer would benefit everyone. Free movement of capital, lower taxes, lower welfare spending, weaker trade unions, the privatisation of state-owned industries: all these things would unleash a wave of entrepreneurship that would lead to faster growth, higher investment and more prosperity for everybody. The gap between rich and poor didn’t really matter because a rising tide would lift all boats.
The results of this experiment – well documented in the IFS introduction to the Deaton review – are not what were promised. Britain went from being one of the most equal societies in the world in the 1970s to one of the most unequal by the end of the 1990s – and it has stayed that way. The share of income going to the top 1% of earners has risen from 3% at the end of the 1970s to 8% currently. In 2017, the chief executive of a FTSE 100 company earned 145 times the salary of the average worker, up from 47 times two decades earlier. Meanwhile, those on the lowest incomes earn little more than they did in the mid-1990s.
The steady increase in life expectancy has stalled and “deaths of despair” – from suicide, drug and alcohol overdose – are on the rise for men and women in their late 40s and early 50s. The likelihood of people on low incomes living on their own is rising, because having precarious, low-paid jobs has led them to forego marriage and a family, while children from poorer backgrounds increasingly grow up in insecure and chaotic families.
It is quite a charge sheet, to which the only plausible defence would be that economic performance has improved. But even a cursory glance at what has happened to growth, productivity, investment and the trade balance shows clearly that it hasn’t. The emasculation of trade unions has allowed capital to increase its share of national income at the expense of labour. Lax corporate governance has allowed executives to pay themselves a small fortune every year. Cuts in the top rate of income tax have allowed them to keep more of their money.
The government likes to trumpet that the unemployment rate is back to levels last seen in 1974-75, when Harold Wilson was prime minister, but what ministers are less keen to admit is that the UK is a low-growth, low-productivity, sweatshop economy in which people work long hours to compensate for nugatory wage increases. The problem is not unemployment: it is that Britain is well on the way to having the US-style levels of inequality that have led to the first three-year fall in American life expectancy in more than 100 years. Deaton says that if the rules of the game are rigged then the rules need to change. There is no “if” about it.
All of which leads back to Beveridge, because we have been here before. Just as today, there was a sense that Britain was struggling. There had been a long period of economic underperformance marked by high unemployment, poverty and insecurity. The words spoken by Deaton at the launch of his report could easily have come out of the mouth of Beveridge 77 years earlier: “There is a real question about whether democratic capitalism is working when it’s only working for part of the population.”
Two decades that included the General Strike, the Great Depression, cuts in means-tested benefits and the Jarrow march meant Britain was more than ready for the Beveridge report, published just as the tide was turning in the second world war. It named five giants – want, disease, idleness, ignorance and squalor – that barred the way to progress. “A revolutionary moment in the world’s history is a time for revolutions, not for patching,” Beveridge said. His report flew off the shelves.
What separated Beveridge from most of the other august studies written by peers of the realm, retired judges and distinguished academics before and since was not his lofty rhetoric but the fact that it was acted upon. The NHS was the answer to disease, the 1944 Butler Education Act was designed to tackle ignorance, want was to be slain by cradle-to-grave welfare provision, idleness by a commitment to full employment, and squalor by slum clearance and housebuilding. Britain was fundamentally changed by the postwar Attlee government, but cross-party consensus meant that there was no rollback by the Conservatives. Indeed, more houses were built under the Churchill government of the early 1950s than under Attlee.
Unfortunately, the reforms that made a difference to health, education, housing and social insurance were not matched by a radical restructuring of the economy. Full employment and strong global demand papered over many cracks in the 1950s and 1960s, and Britain’s gradual loss of competitiveness provided the new right with the opportunity to launch its assault on Beveridge and all his works in the 1970s. The lesson from history is obvious: social justice and economic modernisation have to go hand in hand. The need for an economic settlement that takes account of the need to combat climate change is a complication that Beveridge did not have to consider. Some giants from the 1940s have proved hard to slay, and they have been reinforced by others. Even so, Deaton has things going for him.
As the IFS has noted, at no other time in recent history has inequality dominated the economic and political debate in the way that it does today. Anybody who thinks rising inequality – in terms of voice as well as income – had nothing to do with the Brexit vote hasn’t been paying attention.
The early signs are that the review will be ambitious both in its scope and its willingness to think big. The point about the postwar settlement was that it weakened the political power of the rich, through progressive taxation, full employment, bargaining rights for trade unions, higher public spending, state ownership and capital controls.
Deaton will be looking at whether higher taxes, more generous benefits, stronger unions, investment in education, competition policy and the way companies are owned and regulated would make a difference to inequality. It is hard to conceive of circumstances in which he would come to any other conclusion to the one Beveridge came to. Patching is not the answer.
• Larry Elliott is the Guardian’s economics editor
