Leading Article:Reuniting the two nations

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We can no longer comfort ourselves with the platitude that as the rich have got richer, the poor have also done well. Yesterday's Rowntree Foundation report on inequality should finally disabuse us of this convenient fiction. Since 1977 the very p oor have in fact become poorer, both relatively and absolutely. The gap between the highest- and lowest-paid male workers is wider than at any time since records began a century ago. The much-vaunted trickledown theory of economic growth stands discredit ed. We are in danger of recreating the society that Disraeli described 150 years ago as: "Two nations; between whom there is no intercourse and no sympathy; who are ignorant of each other's habits, thoughts, and feelings, as if they were dwellers in diff erent zones, or inhabitants of different planets."

These images may seem extreme, but deep divisions are already unmistakeable. The report shows that the Eighties witnessed a dramatic reversal in the post-war trend towards a reduction in inequality. Britain had virtually the worst record: only in New Zealand did the rich/poor divide grow more rapidly.

The picture of Britain revealed by these statistics should be deeply uncomfortable for a modern, democratic society that seeks to include all citizens. Poverty, says the report, is increasingly concentrated in particular localities and among households that cannot gain access to work. If we continue the way we are going, we face instability as the excluded conclude that they have little to gain from the status quo. To maintain inequalities that offer no benefit to so many Britons could require coercion that is foreign to this country's valued liberal traditions.

Awareness of this reality has grown in recent years. During the Eighties, the conventional wisdom was that increasing inequality was both necessary and desirable. Many people ignored the problems of inequality because they felt untouched by its consequences. Yet as job insecurity has hit the middle classes as well as blue-collar workers, renewed belief in "community" has at last challenged the hegemony of uncaring individualism.

But the old solutions to inequality are no longer available. Labour's defeat in the 1992 General Election showed that voters have little stomach for using increased taxes to redistribute income and wealth. Such policies can stifle efficiency, growth and aspiration. No country competing for investment and labour in international markets can afford to pursue an idiosyncratic policy of high taxation.

Likewise, all the main political parties acknowledge that there is only limited scope for smoothing out inequality by using social security benefits. The welfare state is shrinking and has problems meeting even its present commitments. Hand-outs are a liberality that can no longer be afforded for increasing numbers of people.

The challenge for a modern state is to reduce those numbers. It must ensure that every citizen can help him or herself: each needs access to the benefits of work.

The hard-headed Rowntree report rightly focuses on this issue, calling for better education and training, childcare support, in-work benefits and reduced taxation for the low paid. These are sensible proposals, many of which have already crept into the speeches of politicians like Kenneth Clarke and Tony Blair. They could be implemented by investing the fruits of current economic growth instead of merely giving away windfall gains in generalised income tax cuts.

We are beginning to re-examine an unwelcome legacy of the Eighties. Yesterday's report may prove as important as its Victorian predecessors in making Britain acknowledge and tackle the social deprivation that has become endemic to our society.