The politics of income distribution

Countries make a choice about how national income is shared between different groups and the next election will be about which party offers the ‘squeezed middle’ and bottom 50% most hope that their living standards can improve.

These are the central messages I got from launch of the ResolutionFoundation’s Commission on Living Standards final report of the launched in Whitehall on 31 October. The Commission included top people from business, finance, unions, public services and academia, as well as the founder of netmums, to look at the evidence and find a consensus that could get support across the political spectrum.

The report, Gaining From Growth, shows how earnings of the bottom fifty percent hardly rose since 2003, despite a steady rise in national income and labour productivity. Half the population now get just 12 pence of every £1 earned in Britain (GDP), and by 2020 their incomes will fall by 15% from the 2008 level, down to the level in 1993.

Meanwhile people at the very top took an ever increasing share: incomes of the top 0.1% rose 65% from 2003 to 2007 (p38 fig 2.9), a rate of 13.4% a year compared with a rise of 1.6% a year for 90% of the population. At its peak the top 0.1% took 6p of every pound, while the bottom half shared just 12p.
Low paid workers did not share in the benefits of increased productivity, as in the US since the mid-1970s, and this was a direct result of political decisions by successive governments. The impact on households was reduced by more women going out to work as well as tax credits and other benefits (Chapter 6), but this also has a cost. Tax payers now spend £4bn a year on low pay.
The Commission presents a range of recommendations* which, it argues, would enable low to middle incomes to rise by 7% by 2020, instead of falling 15%. If it is right, and the recommendations are implemented, it could make a dramatic difference to people’s lives and British society.
The report is a dense document with detailed arguments and graphs. Experts will argue about the details and consequences of different measures.  Political activists will argue that the measures lack ambition or interfere in market forces, depending on their ideology. But most people will not even know about the report or the debate about the politics of income distribution. What many people experience is increasing insecurity at work, the squeeze on incomes and rising prices.

The practical political questions are

1. What is the big picture story about productivity, incomes, taxes and benefits over the past 30 years?
2. What is the most credible story about how to improve living standards over the next five to ten years?
3. And what specific measures will actually bring about improvements?

This report provides evidence, arguments and recommendations, but does not tell the kind of story needed for everyday politics (and to be fair, that is not what it set out to do).
Living standards will be a critical issue at the next election. How commentators and politicians tell the story and interpret what is happening will influence how people vote more the technical details, but it matters a lot what the measures are and whether they can deliver. This is where we need the intense, detailed scrutiny of what is proposed, but our political system does not have the forums for this kind of detailed discussion of policy.
But arguments about income inequality are not just technical questions about how society shares the fruits of rising productivity, but what kind of society and economy we want to live in.
Two years ago the IMF published a remarkable paper on Inequality, Leverage and Crises.  This looks at how financial crises can arise as a result of changes in the income distribution. The periods 1920-1929 and 1983-2008 both showed large increases in the income share of the rich and a large rise in debt for the rest, which eventually led to serious financial crises which shrunk the real economy and impoverished many. The paper shows that this was a result of a shift in bargaining powers over incomes, from which the low paid loose out. It argues that increasing bargaining power of the lower income group is a more effective way of preventing financial crisis in future.

From a practical political perspective, this means making the case for increasing the bargaining power of the poorest in society as a means of creating economic stability for everyone.

It was encouraging, therefore, to hear Phil Bentley, Managing Director of British Gas, say that it was a great idea to make firms publish data on low pay “because we need more upward pressure on pay.”  Firms should also say what they are investing in apprenticeships. “The Government, unions and employers need to be better coordinated” to improve skills and raise wage levels at the bottom. “Sectors like retail can pay more, because the jobs can’t be exported.” He also said the EU Agency Workers Directive was a useful tool to stop the downward pressure on pay.

*The recommendations are to

1. improve intermediate skills, particularly among the young, and define outcomes for education at 18
2. make the Low Pay Commission responsible for recommending an “affordable wage” for different sectors,
3. foster innovation in local areas to reduce reliance on low pay
4. require companies to report the proportion of their workforce below the Living Wage to encourage bottom-up pressure
5. extend free childcare from 15 to 25 hours a week for 47 weeks a year
6. introduce a second earner disregard in Universal Credit
7. increase the NIC (National Insurance Contribution) threshold for older workers
8. extend NICs past state pension age
9. reduce the life-time allowance for Pensions Tax Relief from £1.5m to £1m
10. means test Winter Fuel Allowance and TV licence for older people
11. create new Council Tax bands for higher value properties to cut rates for lower value homes

Adut Education should take the lead on learning for local democracy

On Tuesday 16th October Chair: David Hughes, CEO of NIACE, chaired a discussion on learning for local democracy in the Macmillan Room, Portcullis House, Westminster.

The event aimed to share current practice and explore how learning could support local democracy. David Blunkett MP contextualised the debate in the ‘catastrophic’ financial problems facing many local authorities at this time. He called for more community development and community leadership that can redesign public services from the bottom-up. This approach he argued will need active citizens and that can only be provided by adult learning. He mentioned the constructive role played by Ulster People’s College in bringing together divided communities, and Northern College in engaging new communities in Yorkshire as two examples.

Baroness Sharp of Guildford endorsed those comments and spoke particularly about the potential of FE Colleges to take this role forward in their communities. She referred to the recent Independent Commission of Inquiry into Colleges and their Communities which she chaired. The Commission challenged colleges to be a dynamic nucleus and a catalyst for action in their local communities. They should be democratic and involve students in decision-making as well as teaching citizenship.

Chris Minter, the new Head of Policy at the Educational Centres Association and originator of ‘Leicester Speaks’ (www.leicesterspeaks.org) shared the variety of voices involved in one of the biggest local celebrations of local democracy in the UK. He used this to argue that adult learning providers, whether colleges, universities or local authority adult learning services should take a lead on promoting local democracy. He considered that the current arrangements were not working and that historically there are strong links between learning and democracy and that adult learning providers had a strong track record on attracting participation from groups that are often not included.

Cllr Robert Light, Deputy Chairman of the LGA and leader of the Conservative Group in Kirklees, challenged David Blunkett’s view that councils in the North were facing meltdown, but said they had to reconfigure services in the face of financial constraints. He agreed that power needed to be decentralised and local communities trusted to make decisions. The LGA did a lot to promote local democracy through its Be a Councillor campaign, by promoting localism and the repatriation of powers from Whitehall.

Jol Miskin, WEA Regional Education Manager for Yorkshire and Humber, spoke about the long tradition of social purpose education, the Take Part programme and the importance of political literacy. Learning in adult education groups helps people feel more connected, share experiences and find a voice. Learning does not have to be classroom based, but can include visits to the town hall, parliament and other places where decisions are made.

Titus Alexander, convenor of Democracy Matters and Director of Policy at People Can, pressed the importance of campaigning as a public good. He underlined the importance of local government but felt that more could be done to make town halls less remote from the public and that successful local government should be a school for democracy. He also stressed the important role of champions for local democracy and that the skills of campaigning should be much more widely available to the public through adult and community education.

The discussion explored the importance of adult education taking a lead in education for citizenship as well as the tensions in localism.

Following the meeting, NIACE and Democracy Matters agreed to take this agenda forward and keep participants informed.

Political education needed for Europe’s role in the world

You should watch The Future of Europe Group carefully. Its nameless Final Report could decide the future of the planet.

How the EU responds to the world economic crisis could decide the state of humanity at the end of this century.  Disastrous decision’s by political elites a hundred years ago led directly to the First and Second World Wars, brutal dictatorship and the slaughter of millions.  More enlightened global leadership after the Second War unleashed decades of growing freedom and prosperity for millions, although much of the Majority World still suffered and the environment took a battering.

Now another economic crisis is again spawning a new political settlement. The question is whether the world collapses into chaos before something better crawls out of the ruins, or whether world leaders can contain the crisis and create a safe and sustainable order without wrecking everything first (I’ve read that Shell’s esteemed Scenario Team are more pessimistic, seeing only two realistic scenarios - "Collapse" or "Collapse and Recovery".)

A lot depends on who ‘we the people’ permit to be our leaders (you can’t really say we choose them). And that depends on people’s understanding of what is at stake.

The eleven Foreign Ministers who wrote the Future of Europe Report know what is at stake. They want to strengthen European institutions to manage national economies and increase Europe’s political clout in world affairs. The President of the EU Commission, Manuel Barroso, wrote : "We will need to move towards a federation of nation states.  ...  In the age of globalisation pooled sovereignty means more power, not less.”

Make no mistake, the EU could set the rules for global finance, trade, climate, energy, human rights and politics - if it wants to. The EU is the world’s largest economic block, with over 20% of global income. It has deeper relationships with most countries of the world than other blocks, through migration, linguistic diversity, trade and institutional arrangements (and it gives out more than half of world aid to poorer countries). It also has the biggest block of representatives in global governance, including two permanent members on the UN Security Council and a majority in the Bank of International Settlements, all with less than 10% of world population.  

If the EU got its act together it could do great things – or cause chaos everywhere, as in Greece.

We the people of Europe need to understand what’s happening and how to use our political skills to create the kind of future we need to thrive, and not the accidental fallout from another crash.

There are many things wrong with the EU, but it does offer three powerful lessons for managing the global economy:

1. democracitc rule of law, binding on rulers, states and the rich as well as ordinaty citizens: it is far from perfect, but it has been crafted over decades to resist the arbitrary power of dictatorship;
2. peaceful mechanisms for problem solving and conflict resolution, at every level from the neighbourhood and workplace to corporate board rooms and country borders: look around the world to see how rare and necessary this is;
3. core values of solidarity, social protection, sustainable development, freedom and democracy which mean that its richest states give billions to help the poorest.   

You may not agree with any of this, but Europe has the political mechanisms for people to openly challenge and influence its rules without fear, unlike most other regions of the world.

The political education we will get is the mighty clash of slogans from politicians squabbling for seats in the parliaments of Scotland, Westminster, Brussels and every nation and region of Europe.  This could create enlightenment and elect wise leaders who steer humanity through its most challenging century. Or it could lead to Britain breaking up, a diminished England bleating outside a Eurozone grinding citizens in austerity while Latin America, Africa and Asia seize the reigns of global governance and prosper (and climate chaos drowns the planet). We are just about smart enough to chose chaos.

But as citizens we can and should be able to see what’s happening and learn how to influence events better. Political education provided a partisan press, polarised parties and vested interests is like health education from drug companies, with no need to provide counter-indications or truth in advertising.

The Future of Europe Group put great emphasis on “full democratic legitimacy and accountability” as well as “strengthening the European Union as a community of values,” but this means little if most people are not listening or feel powerless to take part.

Where are the opportunities for citizens to join the dialogue and set out their visions for the future of Europe? As tax payers, we paid for The Future of Europe Group.  If they want “full democratic legitimacy and accountability” they should also make it easier for all citizens to join the debate and take part in shaping the future of Europe and the world. Our media and adult education should stand back from the political fray and encourage people to question, discuss and probe more deeply into the politics of our place in the world.

If the EU elite get it wrong, its citizens carry the can.