It's official — benefits and high taxes make us all richer, while inequality takes a hammer to a country's growth

One of the most destructive Tory myths has finally been debunked

The sickening theory of laissez-faire capitalism finally died with the recent report from one of the West’s leading think tanks. The Organisation for Economic Co-operation and Development (OECD) has found that income inequality actually hampers economic growth in some of the world’s wealthiest countries, while the redistribution of wealth via taxes and benefits doesn't.

In a nutshell: the reality of what creates and reverses growth is the exact opposite of what the current right-wing, neo-liberal agenda has been espousing ever since its rise to power under Thatcher and Reagan in the eighties. Perhaps worst of all, the report showed evidence that the UK would have been 20 per cent better off if the gap between the rich and poor hadn’t widened since the eighties.

To those of us who have only just survived the credit crunch and recession, this evidence will be welcome, but hardly surprising. The surprising thing is how it took this long. To extend a metaphor, why didn’t we realise the patient had already died more than half a decade ago?

Didn’t anyone who is sane and have any common sense realise this was the case after the crash in 2008? Haven’t there been hundreds of thousands of people demonstrating on the streets about the abuses of bankers and the wealthiest 1 per cent? Haven’t we seen almost seven years of unprecedented economic woes because of this very reason – that the current system is bankrupt, in every sense of the word?

Why then have we spent such a long time ignoring the obvious? The answer is of course because the current economic philosophy benefits the all-powerful financial and business elite. But also, in this country at least, because David Cameron’s Conservative party got into power off the back of the 2008 crisis with the clever trick of rewriting the causes of that very crisis. And what did they blame? Prepare your (now factually justified) facepalm: they blamed it on too much state spending.


Before the 2008 crash the Tory strategy to get back into power had been to match the then-Labour government’s state spending and perhaps even further it. However, when the crash happened a sudden opportunity presented itself to demonise the over-bloated public sector and blame Labour‘s public spending for the economic downturn. Did it matter that evidence of the crash being caused by recklessly unrestricted banking practices was writ large over the whole world economy?  Of course not, this was cheap trick politics, and it worked. The Tories got into power and we all bought into the narrative of austerity.

Now after five years of being forced to tighten our belts, we are finally waking up to what that narrative actually was. Thanks to the OECD report, we find that the very thing that the sacrifices of austerity were made to preserve – the growth of the economy – is the very thing they are destroying. Neo-liberal, laissez-faire capitalism extends inequality, we already knew that. But now we have the evidence that inequality harms, rather than encourages growth.

Like a sick patient being given the wrong drugs, it is the very thing we thought was curing us that is actually killing us. And all the while we are told to Keep Calm and Carry On taking our medicine by the government, to keep on swallowing the same old propaganda.

What new narrative will the Government spin now?