Ralph Miliband Lectures on Inequalities: Dimensions and Challenges
Inequality and the State
Professor John Hills
LSE
Professor David Held
LSE, Chair
Conference and Events Office
www.lse.ac.uk/events
The Ralph Miliband
Lectures on Inequalities
John Hills
London School of Economics
21 October 2004
The
Onion
Spire
Society
Income distribution 2001-02
Source: HBAI
Where in the income distribution?
(Net income, £/week, 2001-02, adjusted for family size)
Median:
£311 / (couple)
Bottom 10%:
Below £159 (couple)
Below £97 (single)
e.g. pensioner on £72.50.
Top 10%:
Above £636 (couple)
e.g. One earner couple with
earnings of £44,000 or two
earner couple each on £22,000.
Top 5%:
Above £805 (couple)
e.g. with joint earnings of £57,000
Inequality index 1949 to 2002-03
Sources: RCDIW; IFS; ONS.
Shares of income
Net income
(HBAI
definition)
1979
2002
Bottom 10%
Bottom 50%
Top 10%
10
8
33
27
21
28
Shares of income
Net income
(HBAI
definition)
1979
2002
After income tax
(Tax units) 1937
Bottom 10%
Bottom 50%
Top 10%
10
8
33
27
21
28
Top 10%
Top 1%
35.6
12.6
Top 0.5% Top 0.05%
9.0
2.4
Shares of income
Net income
(HBAI
definition)
1979
2002
After income tax
Bottom 10%
Bottom 50%
Top 10%
10
8
33
27
21
28
Top 10%
Top 1%
Top 0.5% Top 0.05%
(Tax units) 1937
35.6
12.6
9.0
2.4
1949
28.8
6.8
4.2
0.7
Shares of income
Net income
(HBAI
definition)
1979
2002
After income tax
Bottom 10%
Bottom 50%
Top 10%
10
8
33
27
21
28
Top 10%
Top 1%
Top 0.5% Top 0.05%
(Tax units) 1937
35.6
12.6
9.0
2.4
1949
28.8
6.8
4.2
0.7
1979
26.2
4.7
2.8
0.5
Shares of income
Net income
(HBAI
definition)
1979
2002
After income tax
Bottom 10%
Bottom 50%
Top 10%
10
8
33
27
21
28
Top 10%
Top 1%
Top 0.5% Top 0.05%
(Tax units) 1937
35.6
12.6
9.0
2.4
1949
28.8
6.8
4.2
0.7
1979
26.2
4.7
2.8
0.5
1989
31.3
7.1
4.7
(1.1)
Shares of income
Net income
(HBAI
definition)
1979
2002
After income tax
Bottom 10%
Bottom 50%
Top 10%
10
8
33
27
21
28
Top 10%
Top 1%
Top 0.5% Top 0.05%
(Tax units) 1937
35.6
12.6
9.0
2.4
1949
28.8
6.8
4.2
0.7
1979
26.2
4.7
2.8
0.5
1989
31.3
7.1
4.7
(1.1)
1999
36.3
10.2
7.2
(2.4)
Shares of increase in real income since 1979
For every £100 increase in total income:
- £40 went to top 10%
- £17 went to top 1%
- £13 went to top 0.5%
- £5 went to top one thousandth
Earnings as % of median
% of median
600
550
500
450
Top 0.5%
400
Top 1%
350
300
250
Top 5%
200
Top 10%
150
Source: Atkinson / NES.
00
20
98
19
96
19
94
19
92
19
90
19
88
19
86
19
84
19
82
19
80
19
78
19
76
19
74
19
72
19
70
19
19
68
100
Relative and absolute poverty 1979 to 2002-03
Source: HBAI
Relative and absolute child poverty 1979 to 2002-03
Source: HBAI
Parents’ incomes and daughters’ earnings,
1958 and 1970 cohorts
Daughter’s earnings group (early 30s)
Parents’ net income group
Bottom quarter
Top quarter
Bottom quarter
26
18
Bottom quarter
18
35
(a) Daughters born 1958
Source: Blanden et al.
Parents’ incomes and daughters’ earnings,
1958 and 1970 cohorts
Daughter’s earnings group (early 30s)
Parents’ net income group
Bottom quarter
Top quarter
Bottom quarter
26
18
Bottom quarter
18
35
Bottom quarter
33
15
Top quarter
13
40
(a) Daughters born 1958
(b) Daughters born 1970
Source: Blanden et al.
Policy
matters
Changes in wage differentials, early 80s to late 90s
Sweden (80/98)
Finland (80/99)
Netherlands (80/99)
Japan (80/99)
1980 (or
early 1980s)
Germany (84/98)
2000 (or late
1990s)
France (80/98)
Australia (80/00)
UK (80/00)
New Zealand (84/97)
USA (80/00)
0
1
2
3
4
Ratio between cut-offs for top and bottom ten per cent
5
Income inequality growth, mid 80s to mid 90s
Gini coefficient (%)
US (86/97)
UK (86/95)
Italy (86/95)
Ireland (87/95)
Canada (87/95)
Mid 1980s
France (84/94)
Austria (87/95)
Mid 1990s
Denmark (87/95)
Germany (84/94)
Netherlands (87/94)
Belgium (85/97)
Norway (86/95)
Luxembourg (85/94)
Sweden (87/95)
Finland (87/95)
0
10
20
30
40
Net impact of taxes and social spending, 2001
12000
8000
4000
0
Social
spending
-4000
Allocated
tax
Net gain
-8000
-12000
-16000
-20000
1
2
3
4
5
6
7
8
9
Tenths of households by equivalised disposable income
10
Benefits relative to earnings, 1971-2002
30
25
20
Basic pension
(single)
UB/ JSA (single)
15
IS (single)
IS (single
pensioner)
10
5
0
71 72 73 74 75 76 77 78 79 80 81 82 83 84 85 86 87 88 89 90 91 92 93 94 95 96 97 98 99 00 01 02
Source: DWP
Gains from tax / benefit changes:
2004-05 versus price-linked 97 system
Source: Sutherland (2004)
Gains from tax / benefit changes:
2004-05 versus earnings-linked 97 system
Source: Sutherland (2004)
Lone parents: Material deprivation and financial stress
Without / unable to afford
1999
Cooked main meal every day
7.5
Weatherproof coat for each
child
9.0
Toys / sports gear for children
One week holiday
24.4
74.0
Financial problems
Debt problems all the time
14.5
Worried about money almost
all time
44.7
Never have money left over
47.9
Source: FACS.
Lone parents: Material deprivation and financial stress
Without / unable to afford
1999
2002
Cooked main meal every day
7.5
3.0
Weatherproof coat for each
child
9.0
5.0
24.4
74.0
11.9
58.1
Debt problems all the time
14.5
12.2
Worried about money almost
all time
44.7
29.8
Never have money left over
47.9
17.4
Toys / sports gear for children
One week holiday
Financial problems
Source: FACS.
Reasons (for
progressives)
to be cheerful
Inequality is unpopular
Source: BSA survey / IFS.
…and not just in the UK
% agreeing gap between rich and poor too large
0
USA
Japan
Northern Ireland
Canada
Sweden
West Germany
Great Britain
Austria
France
Spain
East Germany
Portugal
Source: ISSP
20
40
60
80
100
What should people earn? (1992, £000s)
Shop assistant
Unskilled worker
Skilled worker
GP
Solicitor
Cabinet Minister
Appeal court judge
Chairman of large
corporation
What should people earn? (1992, £000s)
Do earn?
Shop assistant
9
Unskilled worker
10
Skilled worker
15
GP
35
Solicitor
50
Cabinet Minister
60
Appeal court judge
80
Chairman of large
corporation
125
What should people earn? (1992, £000s)
Do earn?
Should earn?
Shop assistant
9
12
Unskilled worker
10
12
Skilled worker
15
18
GP
35
40
Solicitor
50
40
Cabinet Minister
60
45
Appeal court judge
80
50
Chairman of large
corporation
125
75
What should people earn? (1992, £000s)
Do earn?
Should earn?
(Actual)
Shop assistant
9
12
(10)
Unskilled worker
10
12
(13)
Skilled worker
15
18
(18)
GP
35
40
(51)
Solicitor
50
40
(38)
Cabinet Minister
60
45
(94)
Appeal court judge
80
50
(140)
Chairman of large
corporation
125
75
(555+ bonuses
etc)
Perceptions of poverty (%)
Very little real poverty
Quite a lot
35
62
1986
51
1994
68
2000
37
Staying same
30
24
38
Decreasing
15
6
20
Poverty increasing
Source: BSA survey.
Why do people live in need?
Laziness
UK
Luck
Inevitable
Injustice
1986
19
11
37
25
1994
15
15
33
30
2000
23
15
34
21
Sources: BSA survey; Eurombarometer.
Why do people live in need?
Laziness
UK
Luck
Inevitable
Injustice
1986
19
11
37
25
1994
15
15
33
30
2000
23
15
34
21
Portugal
29
18
10
34
France
16
16
19
40
Sweden
9
13
27
42
EU
18
18
22
31
Sources: BSA survey; Eurombarometer.
Share of tax paid by high incomes
vs low incomes?
Should be?
Much larger
11
Larger
55
Same
29
Smaller
1
Much smaller
-
Source: BSA survey.
Share of tax paid by high incomes
vs low incomes?
Should be?
Share do pay?
Much larger
11
8
Larger
55
56
Same
29
21
Smaller
1
6
Much smaller
-
1
Source: BSA survey.
Share of tax paid by high incomes
vs low incomes?
Should be?
Share do pay?
Much larger
11
8
Larger
55
56
Same
29
21
Smaller
1
6
Much smaller
-
1
Source: BSA survey.
Government should redistribute to less well off?
1987
1991
1996
2002
Agree
45
49
44
39
Neither
20
20
26
25
Disagree
33
29
28
34
Source: BSA Survey
Perceptions of Social Security Spending, 2001
Largest
Pensions
28
Next
Largest
20
Children
11
22
14
Disabled
people
4
9
39
Unemployed
people
44
27
3
Single
parents
13
22
17
Source: Taylor-Gooby and Hastie BSA survey
Least
24
Perceptions of Social Security Spending, 2001
Largest
Pensions
28
Next
Largest
20
Children
11
22
14
8-16
Disabled
people
4
9
39
25
Unemployed
people
44
27
3
5
Single
parents
13
22
17
Under 8
Source: Taylor-Gooby and Hastie BSA survey
Least
24
Actual
(2001-02)
49
The spending
pit or the
tax pendulum?
Treasury long-term spending
forecasts, 2002 (% GDP)
2001-02
Health
6.3
Education
4.6
Pensions
5.0
Long-term care
0.9
Other
21.7
Total
38.6
Treasury long-term spending
forecasts, 2002 (% GDP)
2001-02
2051-52
Health
6.3
9.8
Education
4.6
5.7
Pensions
5.0
4.8
Long-term care
0.9
1.2
Other
21.7
19.3
Total
38.6
40.8
Spending if constant in relation to age
(relative to income)
2001
2051
(Variant)
Health
6.1
8.1
(10.8-11.9)
Education
3.9
Social
security (<65)
5.5
5.2
(1.9)
5.5
9.1
21.8
26.3
Social
Security
(65+)
Total
Strategy (1): Reduce or limit social
spending in relation to
national income
• Current policy for working age social
security (except for children).
• Cost falls in relation to national income.
But:
Strategy (1): Reduce or limit social
spending in relation to
national income
• Current policy for working age social
security (except for children)
• Cost falls in relation to national income
But:
• Unless something else changes,
deepening and widening poverty?
• If health/education quality will fall behind
expectations
Strategy (2): Maintain social spending,
but concentrate on poor
• Current policy for higher education and future
pensions
• Concentrates limited resources on most in need
But:
Strategy (2): Maintain social spending,
but concentrate on poor
• Current policy for higher education and future
pensions
• Concentrates limited resources on most in need
But:
• Some forms of means-testing:
- Unpopular
- Take up problems
- Limits of overlap reached?
• Implies loss for middle – politics?
Strategy (3)
Maintain spending for
most, more for poor
• Current policy for tax credits and benefits
for children –’progressive universalism’
• Falling poverty
Strategy (3)
Maintain spending for
most, more for poor
• Current policy for tax credits and benefits
for children –’progressive universalism’
• Falling poverty
But:
• Still involves some forms of means-test
• Rising costs/taxes, but nothing more for
middle?
Strategy (4): Increase spending to keep up
with demographic and other
pressures
• Recent policy for school spending
But:
Strategy (4): Increase spending to keep up
with demographic and other
pressures
• Recent policy for school spending
But:
• Implies rising costs as share of GDP
• Higher taxes? But only acceptable for
some services?
• Perceived as higher taxes ‘with nothing to
show’
Strategy (5): Increase spending faster
than external pressures
• Current policy for NHS spending
• Quality and quantity of service should
improve relative to need
But:
Strategy (5): Increase spending faster
than external pressures
• Current policy for NHS spending
• Quality and quantity of service should
improve relative to need
But:
• Higher taxes – on whom?
• Can higher spending – e.g. to cut poverty
– be sold?
The rats or the French army?
•
•
•
•
•
•
•
The ‘growth dividend’?
Cuts elsewhere?
Waste?
Reduce market inequalities?
Cut demand – e.g. later retirement?
Tax ‘bads’?
Tax the man behind the tree?
The Ralph Miliband
Lectures on Inequalities
John Hills
London School of Economics
21 October 2004