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Stewart Lansley

June 24th, 2024

How Labour can tackle inequality

0 comments | 8 shares

Estimated reading time: 5 minutes

Stewart Lansley

June 24th, 2024

How Labour can tackle inequality

0 comments | 8 shares

Estimated reading time: 5 minutes

Labour calls it a “change election”. But how much difference might a Labour government make? In this five part series, Gwyn Bevan, Patrick Diamond, Kate Bayliss, Stewart Lansley, and Abby Innes, set out an agenda that could take the country in a fundamentally different direction. 

In this first instalment, Stewart Lansley exposes the paradox of a wealthy country that has lost its ability to take care of people’s basic needs, argues that tackling inequality has to be one of Labour’s priorities. Despite the lowering of expectations by Keir Starmer and Rachel Reeves, targeted regulation and the taxation of capital can help resolve the UK’s paradox of inequality. 


In the last forty years, Britain has been transformed from one of the most equal to one of the most unequal of rich nations. The primary force behind this shift has been a sustained counter-revolution against post-war egalitarianism. As Sir Keith Joseph, one of Mrs Thatcher’s closest advisers, maintained in the 1970s, Conservatives need to make the “case against egalitarianism”. The New Right’s doctrine that faster economic progress depended on higher rewards at the top became an agenda for government, with the state turned into an agent of inequality. Yet the pro-rich strategy, embraced by all post-1979 governments, has failed to deliver its promise of a more dynamic economy. Instead, the political licence to accumulate wealth has unleashed a near-unprecedented rate of personal enrichment in which the gains from economic activity have been increasingly captured by the few.

The surge in the income, wealth and opportunity gap has had profound implications for the economy and wider society. While levels of personal wealth have soared, the rate of relative child poverty since the 1970s has more than doubled. Britain, as the Financial Times has put it, is “a poor society with some very rich people”. Yet these trends are not a special case. They have been the norm for centuries. Britain has been a high inequality, high poverty country for most of it history, the one exception being the post-war decades. As the Italian-born radical journalist and future British MP Leo Chiozza Money, wrote in 1905, Britain  contained “a great multitude of poor people, veneered with a thin layer of the comfortable and the rich.”

Today’s inequality gap is at its starkest when it comes to wealth. Despite its dismal economic performance since the millennium, Britain is asset rich. Wealth holdings are worth seven times the size of the economy, up from three times in the 1970s, most of the rise accruing to the already rich. This asset capture has little to do with a leap forward in wealth creation that would have served the common good. Most of it has been unearned, the product of the rolling sale of former public assets, the growing importance of inheritance, the exploitation of corporate power, and state-induced asset inflation. 

Here is the paradox of wealth: a rich society that has lost the capacity to meet the most basic of needs.

The return of the fusion of money and power has not just weakened social resilience. The return to the process of corporate extraction, the key source of today’s chase for personal enrichment has also undermined economic strength. Many large companies have been turned into cash cows for executives and shareholders through anti-competitive devices, the manipulation of corporate balance sheets, and the rigging of financial markets. Rising corporate profits of recent times have disproportionately gone in payments to shareholders and executives, leaving little for private investment and improving wages. Excessive house price inflation, fuelled by bad government policy and the rising level of inheritance, is one of the primary causes of the near halving of rates of home ownership among young people.

While the nation is awash with multi-banks providing food to household necessities, the limits to the lifestyle choices of the super-rich are constantly being raised. In 2021, the use of high-emission private jets in the UK (with one taking off every six minutes) rose by 75 per cent. Here is the paradox of wealth: a rich society that has lost the capacity to meet the most basic of needs. While spending on extreme luxuries – from private jets to super-yachts and luxury-housing – continues to mount, vital social needs – from children’s services to social care – are starved of funds.

The question of resources seems to cast a deep shadow over Labour’s ambitions. Starmer and Reeves have been lowering expectations, aimed at reinforcing the party’s economic prudency.

Ending this paradox should be one of Labour’s primary goals. Harnessing national resources to launch a programme of social reconstruction requires a significant shift in governing philosophy, one that reasserts the importance of the “distribution question”. How the cake is shared is an issue of social justice but also plays a big role in economic progress. One of the reasons for the success of the post-war economy was the fusion of Keynesian macro-management and social egalitarianism. This boosted demand while prioritising social needs and the everyday economy over the pre-war demands of the super-rich.

The question of resources seems to cast a deep shadow over Labour’s ambitions. Starmer and Reeves have been lowering expectations, aimed at reinforcing the party’s economic prudency. Britain does not lack productive resources, but they are poorly managed. Too many decisions over how they are used have been passed from social control to markets.

Despite the dubious sources of today’s rising wealth pool, taxes on capital (on dividends, capital gains and inheritance) raise less than four per cent of all state revenue. In contrast, taxes on labour income raise 60 per cent of revenue.

Correcting this needs a mix of more targeted regulation and a higher level of socialisation of the economy, back towards the higher figure of the post-war era. The UK is a heavily privatised economy and there is a strong case for more common and social ownership (not necessarily by the state) as Labour seems to accept. Steering resources into key social priorities would mean an end to the embedded philosophy of “private good, public bad” and the excessive marketisation of everyday life and a better balance between social and private ownership. Wealth enjoys massive and unmerited tax breaks, and too high a proportion of wealth is passed on through inheritance. “A power to dispose of estates forever is manifestly absurd” declared the patron saint of classical economics, Adam Smith, 250 years ago. “The earth and the fulness of it belongs to every generation, and the preceding one can have no right to bind it up from posterity.”

Despite the dubious sources of today’s rising wealth pool, taxes on capital (on dividends, capital gains and inheritance) raise less than four per cent of all state revenue. In contrast, taxes on labour income raise 60 per cent of revenue. Given the often malign role played by wealth and how it is accumulated, taxing capital so lightly compared with income makes no social or economic sense. Yet Labour has largely ruled out such a shift to capital taxation.

It’s time for a shift from the overwhelming dominance of individualised to greater collective property rights through new forms of regulation, socialisation and appropriate taxation. Such a strategy is far from utopian, but would require the kind of transformative politics at work in 1945. “We can have democracy in this country”, declared Justice of the American Supreme Court Louis Brandeis, a century ago, “or we can have great wealth concentrated in the hands of a few, but we can’t have both.”  It’s surely time Britain sought to pass Brandeis’s test.


All articles posted on this blog give the views of the author(s), and not the position of LSE British Politics and Policy, nor of the London School of Economics and Political Science.

Image credit: Yau Ming Low on Shutterstock

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About the author

Lansleysm

Stewart Lansley

Stewart Lansley is the author of The Richer, The Poorer, How Britain Enriched the Few and failed the Poor, a 200-year History. He is a visiting fellow at the University of Bristol, a Council member of the Progressive Economy Forum and a Fellow of the Academy of Social Sciences.

Posted In: Economy and Society | General Election 2024 | Labour's change election
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