There is a spectre haunting the Labour Government, the spectre of poverty. Despite signalling a change of economic direction, the issues of poverty and inequality remain largely off the list of priorities of Keir Starmer’s and Rachel Reeves’ agenda. The announcement of a Child Poverty Taskforce might be a sign of policies to come, but Stewart Lansley argues, social science has a pretty good understanding of poverty and its link to wealth inequality. If the Labour Government is serious about tackling poverty, it needs to focus on reducing inequality. 

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Labour’s first 4 months in office have brought several changes in political and economic direction. It has reversed years of under-investment in public services and launched a range of progressive measures – from a rise in the minimum wage to stronger employment rights. But there remains a gaping hole at the heart of the party’s political strategy. Poverty was mentioned just once in Rachel Reeves Budget speech. Inequality didn’t get a single reference. The budgetary changes themselves will have a marginal effect at best on the course of inequality and poverty. Relative poverty rates – already at near record highs – are set to rise over the next five years. Despite the removal of some regressive reliefs, the tax package will have minimal impact on the heightened shares of wealth and income captured by the top in recent decades.

Britain is a country riddled with poverty and rising levels of destitution. Thirty per cent of children – 4.3 million – live in relative poverty. Only a handful of countries in Europe – such as Spain and Bulgaria – have higher rates. Yet there is as yet no plan to tackle these critical issues.

Faced with pressure to axe the punitive two-child limit and maybe as a signal of intention – the government has set up a Child Poverty Taskforce in the Cabinet Office with a year to report. Yet, poverty is probably the most researched issue in social science. With a plethora of studies charting poverty trends and their impact, often with microscopic detail, there’s not much we don’t know about the scale and roots of impoverishment and deprivation, or the potential impact of different policy levers. Yet, the critical links between poverty and wealth are largely ignored or dismissed. Increasingly, top fortunes are the product of predatory business methods and the carefully concealed appropriation of existing wealth which has negative effects on social resilience and economic strength. The “skimming” or “top slicing” of a significant proportion of the gains from economic activity comes at the expense of wider livelihoods and life chances.

Even if Labour eventually removes the cap, child poverty would only fall by 2-3 percentage points to 27-28 per cent. This would leave child poverty at more than double the minimum rate of 13 per cent achieved in the 1970s.

The task force will pull this evidence together. Yet the problem for a government with greatly weakened public finances, broken public services and rightly giving initial priority to raising investment, is that cutting poverty doesn’t come cheap. Axing the two-child limit would cut child poverty by at least 300,000 and more in the medium term, and would help those in deepest poverty. The full cost would be £2-3 billion but has so far been ruled out as unaffordable. Even if Labour eventually removes the cap, child poverty would only fall by 2-3 percentage points to 27-28 per cent. This would leave child poverty at more than double the minimum rate of 13 per cent achieved in the 1970s.

Ultimately, the extent of relative poverty depends on the level of inequality – on how the overall economic cake gets shared. It is Britain’s yawning income and wealth gap that explains Britain’s dismal record on poverty. The lesson of history is clear: poverty and inequality are umbilically linked. Britain achieved a low-point for poverty in the1970s because it also reached peak equality. The decade was the high water mark of post-war egalitarianism and an historic achievement. But it was short-lived. With the state dismantling the pro-equality strategy of the post-war years, Britain has returned to its long-term norm as a high inequality, high poverty nation.

The poorest fifth of households currently hold 7 per cent of the nation’s aggregate income (after taxes and benefits). In contrast, the top fifth hold 41 per cent.

The scale of the task involved is shown by the “poverty gap”. This is the amount by which a  particular household falls below the poverty line. The current gap across all poor households is around 30 per cent. This is equivalent to an average shortfall of £6,200 a year for a couple with two primary-school-aged children, below the official relative poverty line. Moreover this gap has been rising. It stood at around 23 per cent in the 1990s.

The gap is a stark indicator of the inadequate share of national income and wealth enjoyed by those on the lowest incomes and of the power of those at the top to colonise the gains from economic activity, leaving less for everyone else. The poorest fifth of households currently hold 7 per cent of the nation’s aggregate income (after taxes and benefits). In contrast, the top fifth hold 41 per cent.

For too long political and academic debate has been focussed on poverty alone. Tony Blair, for example, downgraded Labour’s traditional goal of greater equality, and welcomed the higher fortunes being accumulated at the top.

An effective strategy for a significant and sustainable cut in poverty requires a range of levers. Their aim: to raise the aggregate income share of the poorest, and therefore a fall in the share of the richest. Without such a shift in this imbalance between top and bottom, Britain will remain a high poverty nation as it has been for most of its history. A reallocation in the way the cake is distributed requires a more robust and less punitive benefit system aimed at raising the income floor and a more redistributive tax system It needs to cut the wealth as well as the income gap and rebalance the way output is divided between pay and profits through a boost to the overall wage share. It would require robust measures to reduce the level of corporate extraction  and shift the tax base towards wealth along with a national strategy that prioritises precious national resources for social reconstruction. .

For too long political and academic debate has been focussed on poverty alone. Tony Blair, for example, downgraded Labour’s traditional goal of greater equality, and welcomed the higher fortunes being accumulated at the top. New Labour’s anti-poverty strategy assumed that deprivation is unrelated to the actions of those who own and control economic resources.

Tackling poverty requires building a society in which the gains from economic activity are more equally shared in part through restraints on excessive levels of enrichment at the top. If the taskforce is to make a difference, it needs a blueprint on the scale of the 1942 Beveridge Report, one which recognises the links between the processes of wealth accumulation and the extent of impoverishment.

A key lesson of a half century of economic and social trends, is that, as the distinguished social scientist, David Donnison, put it in his eightieth birthday lecture in Glasgow in 2006, tackling poverty requires a strategy that focuses on “the rich as well as the poor”.

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.

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