Andreas Whittam Smith: Osborne doesn't think much about the have-nots

The reductions in welfare are not over yet. The Chancellor needs further savings - £10bn by 2016


To what extent do the Budget measures widen or narrow the gap between the haves and the have-nots? This test has become more important as income and wealth disparities have grown. Indeed, over the past 30 years, the gap between the highest and lowest paid has expanded more quickly in Britain than almost anywhere in the world. The average income of the UK's top 10 per cent of the working age population is now nearly 12 times that of the bottom 10 per cent.

The vice of rising inequality is not just that at some point the consequence would be social unrest, of which the Occupy movements have given us warning. High levels of inequality also exacerbate social problems. If this seems implausible, consider a piece of evidence we can see with our own eyes – that obesity with its enhanced health risks is most common at lower income levels. Once, the rich were often overweight, now it is the poor.

Thus modern chancellors of the exchequer have to balance three tasks rather than two. As well as encouraging growth and preserving the country's credit rating, they must also do what they can to reduce excessive inequality. And it is in the light of this last objective that I have read the Budget speech.

Take first the measures that impact on the have-nots. At first glance, the have-nots are indeed beneficiaries of Mr Osborne's largesse. With a flurry, it was announced that the personal income tax allowance would be raised to £9,205 from April 2013, making 24 million people £220 a year better off. But one should keep this last figure in mind when examining the notion that the Government has recently floated – and repeated in the Budget statement – that it may move to regional pay structures for civil servants when the current pay freeze ends.

In those many regions of the UK outside the rich South-east where public sector pay exceeds private sector rewards, this could mean, for instance, that a public sector employee would suffer further years of pay freeze until private sector pay caught up. For a public sector employee earning, say, £15,000 a year, this might mean forgoing a net increase of £200 to £300 a year. As against this, the Chancellor of the Exchequer would probably argue that equalising private sector and public sector pay levels might enable the former to create more jobs. That may be so. But there is something more for the have-nots to fear. The reductions in welfare payments are not over yet. The Chancellor indicated that he would probably need to make further savings totalling £10bn by 2016.

In turning to the Budget measures that affect the haves, it is worth first recalling the two main explanations for the sharp rise in inequality in advanced economies during the past 30 years. The first emphasises the movement from industrial to knowledge economies. It observes that advances in digital technology that come with breathtaking speed, and whose nature is pervasive, make it almost impossible for employment patterns to adjust quickly to the loss of jobs as they once did, to the coming, for instance, of the railways, the arrival of electricity and to the sudden appearance of motor cars and buses.

The second part of the explanation is that, during the same period, there have been substantial reductions across the Western world in the tax burden on high incomes and large fortunes. In many countries, this trend is now being reversed.

Mr Osborne's Budget fits into this pattern. For I think it would be wrong to focus simply on the decision to reduce the 50p rate to 45p next year. If it has indeed raised "next to nothing", then there is no point in having it. In fact, the Chancellor is moving in the right direction, if timidly, in taxing the "haves" more highly. He is doing something real about tax avoidance. Tax avoidance used to be tolerated on the suspect grounds that such actions somehow enabled the system to "breathe"; the wealthy weren't to be asphyxiated. But Mr Osborne told MPs that the Government was considering the introduction of a general anti-avoidance tax rule.

This would stop the excessive and blatant use of loopholes in the tax code that often, when combined with loopholes in overseas tax codes, provide a means for escaping large amounts of tax. Moreover, in levying immediately a new 7 per cent stamp duty charge on properties sold for more than £2m, the Chancellor is taxing wealth that cannot be hidden away.

My overall impression is that Mr Osborne spends little time thinking about the gap between the haves and the have-nots and so he simply cannot imagine that it is too wide. The nearest he gets to the subject is a sense of fairness. And he would say that the best answer is to create more jobs.

Unfortunately, that task, so appropriate to the heavy employment pre-computer economies of old, is immeasurably more difficult nowadays.

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