Inequalities that make us all poor

Gordon Brown, Shadow Chancellor, on why we need a modern welfare state that can tackle poverty

BRITAIN is locked in a vicious cycle of poverty, rising inequality and economic failure. The losers are not only the growing number of poor and disadvantaged families. Increased poverty and rising inequality means that everyone is now worse off than 15 years ago because our economy is under performing and our society is increasingly dangerous and divided.

This is the message from the Rowntree inquiry into the distribution of income and wealth, published last week. Few people can fail to be shocked by the scale of poverty and unemployment which the report documents so well.

But the traditional welfare state, as the report makes clear, is not an adequate answer. The old policy of compensating people for unemployment or ill-health or disability does little more than tackle the consequences of poverty and inequality. We need to go further and build a welfare state that is more than an ambulance service to help the poor, that not only mitigates poverty but tries to eradicate it.

A modern war on poverty will tackle the fundamental causes of poverty and inequality: high and persistent unemployment that leaves people without income and the inadequate skills that deprive them of earning power. We need a new welfare-to-work programme and a full-scale modernisation of the welfare state.

Even in its post-Thatcherite clothes, the Conservative Party is ideologically incapable of waging this war on poverty. It presides over the highest level of inequality since the war, but none of the fundamental tenets of Conservative economic and social policies stand up to analysis: that wealth will trickle down from an elite to the rest of Britain; that inequality is essential for economic efficiency; and that laissez faire and deregulation will ensure prosperity and social justice.

Thatcherite dogma held that a rising tide lifts all boats. Certainly, company directors have seen a 551 per cent rise in their pay over 15 years. Indeed, some heads of privatised utilities have seen increases of 1,000 per cent in a year. But making the rich richer has not made the poor richer. A third of British people, men and women and children, have seen no benefit from 16 years of Conservative government. One child in ten was in poverty in 1979. Now it is one in every three.

The report is no less damning in its treatment of the tenet that greater inequality will ensure a better economic performance. Since 1979, Britain has had the worst job creation record of any G7 country and the second lowest growth rates of any European Union country.

It is true that technological change has raised inequality in many developed countries, as wages for skilled workers have risen faster than for unskilled. But Britain has fared much worse than almost every other country on the measures of poverty, slow growth and rising wage inequality, as the chart shows.

This is because this Government has stressed the need for higher wages for privileged elites rather than the need to expand educational and employment opportunities for the majority. A modern economy needs high skills throughout the workforce.

This is the third failure of Conservative ideology - simple-minded free- market policies have wasted talent and potential by creating high unemployment and low skills. The result is that the state faces huge costs in alleviating economic failure. Every British family pays £20 a week in lost taxes and extra benefits because of unemployment, not to mention the huge costs of rising crime and social decay. It is these that cause another vicious cycle of rising social security costs, higher taxes and slower growth.

Now the Conservatives are being forced to backtrack on the view that rising inequality is a sign of success, not a measure of failure. Last year, the Chancellor, in the Mais lecture, acknowledged that Thatcherism had delivered rising inequality and insecurity. He said that labour market deregulation required a welfare state to deal with the casualties. And last week, John Major astonished the Commons by admitting that reducing inequality was, after all, a responsibility of government.

But Kenneth Clarke drew the wrong conclusions from the past 15 years. He endorses the view that deregulation is the panacea for all economic problems. But that is precisely what has gone wrong. Regulation and deregulation are not, in themselves, the issue. The real question is how to achieve higher productivity. The answer is more investment in skills and people, which enables us to tackle economic failure at source.

Without this investment, the casualties overwhelm the welfare state and we continue to lose the war against poverty. That is why we need bold measures to lift the long-term unemployed off benefit and back to work. Labour proposes a £75 a week subsidy to employers who take on the long-term unemployed. Together with proposals to speed job creation and boost training, this policy could get 250,000 people out of long-term unemployment within one year.

We must also give hope and opportunity to the one-in-four young people who are not in education, work or training. Every 16- and 17- year-old not in work should be offered further education - academic or vocational - and employers must provide training to young people. Labour also proposes an environmental taskforce to give young people skills and work experience on socially worthwhile projects.

A flexible welfare state requires removing the barriers that often prevent partners going out to work for fear of benefit loss. But it also demands a national minimum wage to underpin the benefit system and ensure that in-work benefits go to families in poverty, not to unscrupulous employers.

And we must tackle the barriers to work facing many families, especially lone parents, by offering employment advice and training opportunities for mothers who want to return to work, alongside a national programme to give all women who need it access to high quality childcare.

These measures, and others we have outlined, add up to a concentrated attack on the causes of poverty and inequality. This is the only way we can break the vicious cycle of poverty, inequality and economic inefficiency and so make everyone in Britain better off.