Income Inequality

Lord O'Neill of Gatley Excerpts

Thursday 21st January 2016 Lords Chamber

[Lord Foulkes of Cumnock]

To ask Her Majesty’s Government whether they intend to commission research into the impact on social cohesion of income inequality.

[The Commercial Secretary to the Treasury (Lord O'Neill of Gatley) (Con)]

My Lords, income inequality is falling and is close to its lowest level since the mid-1980s. The Government have taken action to reduce inequality and poverty by boosting the incomes of those in work through the new national living wage, by taking 3.8 million working-age individuals out of income tax since 2010 and by reducing worklessness, with more people now in work than ever before.

[Lord Foulkes of Cumnock (Lab)]

My Lords, with FTSE 100 chief executives—only four of whom actually founded their companies—earning 183 times the median earnings for a full-time worker, and with the chief executive of HSBC, for example, receiving £7.5 million in the year that its profits went down by 17%, does the Minister agree that it is a miracle that there is not more social unrest in this country? Will the Government consider setting up a commission to make recommendations on ways in which this terrible income inequality can be dealt with?

[Lord O'Neill of Gatley]

My Lords, as I suggested in my opening formal comments—and I am happy to provide plenty of data to back up the substance because it is so wide—true measures of income inequality, whether in terms of disposable income or of what is called original income, have for many years shown a decline in income inequality. How chief executives are remunerated by their companies, particularly in the quoted sector, depends on the decisions of their boards and shareholders.

[Baroness Kramer (LD)]

My Lords, do this Government expect that the planned changes to universal credit will increase or decrease the number of children living in households with below-average incomes? Given the public interest, will the Minister report back to this House on that measure?

[Lord O'Neill of Gatley]

My Lords, I am sure that we will have further debates on this topic in the weeks and months ahead, but, as has been clearly articulated by me and others on a number of occasions in this place and the other place, our prime policy is to ensure that as many people as possible throughout our society achieve employment, supported by an increase in the national living wage. I should add that I make these comments after remarkably strong employment data published yesterday.

[Lord Kinnock (Lab)]

My Lords, this Question, as the Minister will have noticed, is about social cohesion. Is it not clear that there is a relationship between social cohesion and social equity? By not accepting the proposition in my noble friend’s Question, is he really saying to us that the Government, who are supposed to be strongly committed to social cohesion, are not willing to investigate the relationship between social cohesion or lack of it and social equity or lack of it?

[Lord O'Neill of Gatley]

My Lords, the Government are focused primarily on pursuing the appropriate economic policies to promote sustained economic expansion and higher productivity, including better opportunities for those who have been most disadvantaged, whether it be commitment to the northern powerhouse or the Midlands engine, and the devolution of policies that go with that, particularly skills and education. Those are the policies that are attracting more and more of our policy attention.

[Lord Davies of Oldham (Lab)]

My Lords, the Minister says he has data that show inequality reducing. I would very much welcome any submission he intends to make. I can only assume that he is measuring the past few months and that some of the inequality that has been reduced is because assets have dropped in value for the very rich because of the collapse of prices on the FTSE. Let us be absolutely clear: from 2010 onwards, wages were effectively frozen in this country as there were no pay rises at all for workers. I cannot understand how the Minister can suggest that the Government have been pursuing policies of reducing inequality.

[Lord O'Neill of Gatley]

My Lords, it is very dangerous to goad someone with my background about data, but there are considerable and widespread data on these matters published completely independently of the Government. In fact, the data show that the so-called Gini coefficient, which is one of the widely accepted global measures of inequality, has been showing a slow decline in British inequality since the mid-1980s, as I said earlier, both at the disposable income level and before disposable income.

[Lord Lea of Crondall (Lab)]

My Lords, the Minister mentioned the Gini coefficient. I was a member for some time of the Royal Commission on the Distribution of Income and Wealth. Obviously, there are different measures. I assure the Minister that we can swap anecdotes about data. But to be specific, is it not long overdue to remove the charity status of the public schools, given the inbuilt inequality of opportunity which that concrete part of our social structure creates?

[Lord O'Neill of Gatley]

My Lords, one of the widely regarded measures shows that inequality may have widened, which is the one that would include the broadest measures of wealth to account for house prices. That is the only one that shows that; all the others, as I have said, show the exact opposite of the tone of most of these questions. That is why we are also focused, as part of the productivity plan and otherwise, on trying to do something about broadening the supply of houses and to discourage the degree to which landlords have been influencing the housing market. These policies, along with the others I mentioned, will continue to attract the justifiable prime focus of our economic policies.

[Lord Newby (LD)]

My Lords, will the Minister confirm that yesterday’s employment figures showed a further fall in productivity? Why do the Government think that happened and what are they doing about it?

[Lord O'Neill of Gatley]

My Lords, of course one can infer some tentative implications about productivity from yesterday’s data on employment, but it would be very premature to do so. We know from the very latest productivity statistics that, if one uses a magnifying glass, there has been a modest increase in productivity in the last two quarters for which data have been reported. It is an ongoing observation that, in what are generally currently regarded as some of the most successful economies in the world, cyclically, the US included, they have, if anything, an even bigger apparent conundrum on this than we do here in the UK, because of the evidence of the past 12 months.

[Lord McFall of Alcluith (Lab)]

My Lords, the latest figures indicate that the salary of a chief executive in the largest corporations in America is now 333 times the average wage, while in Britain it is now 180 times that. The Minister is right that inequality has been growing in Britain for the last three years. It is now at the level of World War 2; if in 20 years’ time we continue this trend, it will be at the level of Victorian standards. As a distinguished economist, the Minister could do us all a favour by telling the privileged members of the Cabinet that GDP is not the best way to measure the prosperity of a country; it should be a measure of well-being. If we focused on that area, we might start to tackle this horrendous problem.

[Lord O’Neill of Gatley]

My Lords, I take the noble Lord’s suggestions with great interest. I repeat that it is the responsibility of boards and their shareholders to analyse and support the compensation of their chief executives. As we have touched on in parts of the productivity plan, those boards and shareholders should think carefully on an ongoing basis about the justification for those levels of remuneration.

[Lord Clark of Windermere (Lab)]

My Lords, I think that a number of us were surprised by the Minister asserting that inequality has actually been decreasing over recent periods. Does that take into account the zero-hours contracts and the regional variations?

[Lord O’Neill of Gatley]

My Lords, it is a reality of life that, when evidence gets in the way of perception, it surprises people. But on the widely accepted global measures—of which ours is one—measured inequality has been declining slowly since the 1980s, whether they include disposable income or are without it.