A powerful indictment of the Eighties

Today's Rowntree inquiry shows British society is more unequal now than at any time since the war. Nicholas Timmins examines a report with far-reaching implications

With the coolest of language and the coldest of analysis, the Joseph Rowntree Foundation today produces a picture of Britain that should make the blood run cold. It is not one of a nation at ease with itself.

We all know - it is visible on the streets - that during the past decade and more the rich have grown richer and the poor relatively poorer. We know, too, that Britain is a country of widening inequalities.

But what today's report provides is a devastating account of the extent of that process, some stark warnings about the consequences, and a set of policy prescriptions for beginning to do something about it - which may, just may, provide the start of cross-party action on the issue.

The foundation's inquiry into Income and Wealth shows that income inequality grew rapidly in the UK between 1977 and 1990, reaching a higher level than at any time since the Second World War.

A similar trend has been evident elsewhere. But the pace of change was faster in the UK than in any industrialised country save New Zealand where, ironically, a left-of-centre government went farther and faster than anywhere else in dismantling its welfare state.

Between 1979 and 1992, the poorest 20 to 30 per cent of the population failed to benefit from economic growth - a reversal of the trend from 1945 onwards. The poorest 10 per cent ended up worse off in actual as well as relative terms. And while in the early to mid-Seventies a mere six per cent of the population had incomes below half the national average, by 1990 more than one in five were in that position.

A similar, though not identical, picture emerges for wealth. Until the Eighties, wealth inequalities narrowed rapidly. They then became frozen, with the gap much wider than for income. The richest 10 per cent held nearly 50 per cent of marketable wealth in 1992. But half of all households had financial assets, housing equity aside, of less than £500. Even among pensioners half had assets of less than £1,500.

At one level, widening inequalities may not matter. It was, after all, a deliberate policy of Margaret Thatcher's government from 1979 to increase them, bigger rewards providing larger incentives to be successful. "Let our children grow tall and some grow taller than others if they have it in them," she declared, long before she was Prime Minister. If greater incentives produced stronger growth allowing the living standards of all to rise, a growth in inequality could be justified.

But the foundation's inquiry - the result of nearly £500,000-worth of academic research and analysis - shows this simply has not happened. "There is no evidence that this has occurred in the UK. There is no sign of `trickle down'."

More than that, Britain's economy, despite the boom of the late Eighties, has not grown faster than in periods when the gap between rich and poor was smaller. And many of Britain's most successful competitors have had more equal income distributions thanthe UK experienced at the end of the 1970s, let alone now.

The result, the inquiry concludes, is a lesson for us all, not just a problem for those affected. For millions of people now have no stake in future prosperity. They include the long-term unemployed, pensioners and others dependent solely on state benefits, which have increased only in line with prices since 1981. Most alarmingly of all are to be counted the growing army of young people, who lack the skills to hold a place in a job market where the rewards increasingly go to the better educated.

If these groups are not re-integrated into society, the report warns, "all of society will end up suffering the consequences". The very richest may be able to build walls around their suburbs, but most people cannot. "It is only necessary to look across the Atlantic to the US to see the consequences of an impoverished minority for the quality of life of the majority".

The argument, however, is economic as well as social. Too much public money at present is spent meeting the costs of failure rather investing in success.

The inquiry's answer is action across nine fronts, from education and training to benefits, labour market measures, taxation, housing policy and support for marginalised areas - the last is crucial, given that many of the problems have been piling up in the same places since 1981 producing "vicious cycles of decline in particular areas and on particular estates".

Taken as a whole, the inquiry team's recommendations might loosely be characterised as social democratic, certainly far closer to Tony Blair's view of the world than Michael Portillo's. There should be investment before consumption, it argues. If and when tax cuts come, they should be at the bottom. The Government's housing policy of cutting subsidies to local authorities and housing associations has gone too far and should be reversed - higher rents are not just pushing up the social security bill but making it harder for the low-paid to be better off in work. A benefit in kind - free school meals for those on Family Credit - should be restored.

But the immediate power of its recommendations lies in the extent to which it reflects a new consensus forged on how to adapt the social security system to get people back to work and improve the income of low-paid workers.

With a membership that stretched from Howard Davies of the CBI to John Monks of the TUC, the inquiry divided on whether there should be a minimum wage, improved in-work benefits, or a combination of the two. But all agreed "that doing neither is not a satisfactory option".

The programme it sets out includes allowing those on benefit to earn a little more and to undertake more training, education and voluntary work without being disqualified; providing lump sums when people go back to work; making it easier to return to benefit when work trials fail; improving child care; creating a new Family Credit-style benefit for those without children, and experimenting further with subsidies to employers who take on the long term unemployed.

All of these and more can be found in Labour's Social Justice Commission, in Liberal Democrat proposals and in the baker's dozen of measures - mostly small-scale pilot schemes that have yet to come into effect - that Kenneth Clarke announced in the Budget. Many do not chime with the view of Michael Portillo who repeatedly warns of the risk of subsidised workers displacing unsubsidised jobs. But across the rest of the political spectrum a consensus on how to redesign social security so it promotes work rather than prevents it is starting to emerge.

If it is to happen, an all-round transformation in attitudes is needed. Labour will have to temper its instinctive hostility to in-work benefits that it has traditionally believed will lead employers to cut wages. A revolution will be needed in Conservative rhetoric about "the dependency culture" if many more people are to depend on benefits that help them to work, rather than on benefits that are paid on condition they do not work.

And the programme is not without risk. New poverty traps in work will be created as benefits are withdrawn. The risk of employer exploitation of the system will have to be countered. There may well be understandable envy from those just above the new benefit lines. But the inquiry's report is another landmark on the road to a redefined welfare state, one that invests more in success in order to pay less for failure.

Between 1961 and 1979, under both Labour and Conservatives, the bottom 10 per cent gained ground, most other groups enjoying close to the average rise of 35 per cent in real terms: Between 1979 and 1992 the bottom 10 per cent became worse off in real terms, average incomes rose by 36 per cent, but only the top 30 per cent saw a rise that large or larger. The richest tenth saw their incomes increase by 62 per cent: Income inequality has grown more rapidly in the UK than in any industrialised country saveNew Zealand: From 1949 to 1964 inequality changed little. From then until 1977 incomes gradually became more equal. From 1977 income inequality has grown rapidly, wider now than at any point in the past 50 years: In 1990 only 18 per cent of the "white" population was in the poorest fifth of the population, against more than a third of the "non-white". "We are particularly concerned at what is happening to the non-white population," the inquiry states, and there are "alarming" disparities between ethnicgroups. In 1988-90 only 21 per cent of all those aged 16-24 had no qualifications, but the figure rose to 48 per cent for Pakistanis and 54 per cent for Bangladeshis. Over the same period, 8 per cent of white men were unemployed, but 14 per cent of all ethnic minorities and 22 per cent of Pakistanis. Among women the gaps were even greater: 66 per cent of white women were in work, 48 per cent of all ethnic minority women, but only 16 per cent of Pakistani women Graphics omitted