Although those at the bottom did better than under the previous Tory administration, largely thanks to Labour’s more redistributive measures, the bonanza at the top explains why inequality was still higher when Labour lost power.  This is one reason why high pay matters: it is a major driver of pre-welfare state levels of inequality.  But unequal pay matters in its own right too.  As the report explains, what someones is paid ‘is loaded with perceptions about fairness, value, worth, status and much more.’ (p16)  Fair pay, the report argues, thus matters to companies, the economy and society.  ‘Excessive rewards are undermining relationships with employees and shareholders; they are encouraging harmful risk taking and creating an economic elite which wields enormous power but appears to have lost touch with how the rest of us live.’ (p8).  This in turn damages social cohesion and, I would argue, common citizenship.

The report is worth reading, in particular, for its dissection of the self-serving arguments used by those at the top to justify their rewards.  While attempts to link pay to performance have certainly contributed to run-away awards, especially for executives, the report cites research which questions whether pay does indeed reflect performance in many cases.  It likewise challenges the idea that high pay acts as a compensation for unduly high risk in such positions.  It pours the cold water of evidence too over claims that high pay is needed to prevent international poaching of executives.  Moreover, executive pay in the UK is significantly higher than in the rest of Europe.  And although it is lower than in the US the gap is narrowing fast.

Attempts to rein in top earnings hitherto have largely been aimed at strengthening corporate governance mechanisms.  Their weakness is exposed by ‘the fact that boards, remuneration committees and shareholders have failed to tackle the huge growth in pay packages’ (p9).  The report concludes not only that ‘current regulation will not be effective in restraining top pay’ but also that it ‘has even been shown to be a contributory factor pushing it up’ (p9).  As the Chair, Deborah Hargreaves, concludes in her Foreword, ‘existing attempts to rein in top pay have not worked’ (p5).

So what is the answer?  The Commission will be making recommendations in its final report.  It flags up that these will address three main areas: transparency through more publically available information about pay; accountability through strengthened corporate governance; and fairness.

Transparency is, of course, important.  However, isn’t there also a danger here?  The report points to how the ‘growing use of comparator groups has contributed to an “arms race” in pay’ (p14).  And in an article in the Independent on Sunday, Hargreaves observes that ‘many executives use the pay round as a way of keeping score against rivals.  It is often not about the aggregate amount on offer, but about how that compares with others’ rewards’.  Might not more public information about pay simply fuel the ‘arms race’ further?  Certainly, in order to avoid such an outcome corporate governance mechanisms would have to be strengthened significantly and those charged with regulating top pay would need to reflect wider public concern about unfair rewards.

On the question of fairness, the Commission ‘will seek to understand further what is fair pay in a modern corporate environment and consider what reforms could engage greater fairness in relation to pay’.  A key message running through the report is that ‘the exponential increase in pay at the top of the labour market is a form of market failure.’ (p17)  It points to how legislation on, for instance, equal pay and the minimum wage has ‘been brought in to correct or manage the market.’ (p35).  I hope the Commission will now consider parallel legislation to address the market failure of high pay.

One mechanism for doing so would be some form of maximum wage.  This would not necessarily be a single figure to mirror the minimum wage.  But it could establish a maximum pay differential such as David Cameron himself suggested in relation to public sector pay.  In suggesting an appropriate differential the Commission might look to those that pertain in more equal societies.  And, it could usefully instigate research and democratic deliberation to ascertain what the general public would regard as a fair differential.  This would serve both to provide a publically acceptable benchmark and to involve the public in the next stage of the Commission’s important work.

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Ruth Lister is a Labour peer and emeritus professor at Loughborough University.

Paradoxically, it’s possible that the Tories will try to make poverty and inequality an election issue this time. In his autumn party conference speech, David Cameron taunted Labour: ‘Who made the poorest poorer? … Who made inequality greater? No, not the wicked Tories … you, Labour: you’re the ones who did this to our society.’ And one of the Conservatives’ pre-election publications, Labour’s Two Nations, argues that ‘the evidence is stark, and it proves that Britain is once more divided into two nations.’

For those of us who lived and fought through the Thatcher years, the amnesia is breathtaking. In 1997, Labour inherited a society divided once more into two nations as a result of Tory economic, fiscal and social policies. Yet, its own failures leave it vulnerable to these attacks. It has failed to meet its interim targets to reduce child poverty; the number of working-age childless adults living in poverty has increased; and the National Equality Panel suggests that the gap between rich and poor (as measured by the Gini coefficient) is at its highest since soon after the second world war.

The Tories have seized on Labour’s record to argue that it proves that ‘big government’ is no longer a solution to poverty and is now a cause of it. But this is to ignore the extent to which the situation would have been even worse had it not been for the measures that Labour did take. For instance, analysts at the London School of Economics have calculated that, in 2008-9, overall poverty would have been up to six percentage points higher and child poverty up to 13 percentage points higher than it was without the improvements Labour made to the tax-benefit system. The true lesson to be learned is that the state cannot ease up, if poverty and inequality is to be reduced significantly. That is not to say that other actors, such as civil society and employers, do not have an important role to play, nor to ignore the oppressive role played by the state in the lives of marginalised groups. But if the role of the state in meeting social need becomes an election issue, as it might well do, then the left needs to defend it.

The left should also be supporting the campaign groups who are trying to ensure poverty and inequality are on the electoral agenda. For those of us who do not experience poverty ourselves this is in part an act of solidarity. But it’s also worth noting that many more people are poor at some stage in their lives than at any one point in time; so it’s not a simple question of ‘us’ in solidarity with ‘them’. Moreover, we now have a mass of evidence of the damage that inequality does to the health and wellbeing of society as a whole. Inequality should therefore be of concern to everyone in the forthcoming election.

The more the case for tackling poverty and inequality is made during the election, the more likely the incoming government will be under pressure to take decisive action and the more convincing a mandate it will have to do so. This action will need to address both the original distribution of income and wealth and its redistribution through the tax and benefits system.

A higher minimum wage, a better deal for part-time workers and a high pay commission could be tools to achieve a more equitable wages distribution. A reformed inheritance tax and more progressive income tax system are needed on the redistribution side, together with more effective anti-poverty measures. Welfare to work policies should place greater emphasis on removing the structural barriers faced by disadvantaged jobseekers and on retention and progression once in paid work. They should be complemented by social security policies that reverse the trend to ever greater reliance on means-testing and ensure that benefits for both adults and children provide an income sufficient to maintain human dignity – the essence of a human rights approach to poverty.

Ruth Lister is professor of social policy at Loughborough University

More generally, the government’s unwillingness to acknowledge underlying structural inequalities, such as of class, gender and ethnicity, or how its own economic policy has fuelled inequality, particularly at the very top of the income distribution, means that economic inequality is slightly wider than when Labour came to power more than a decade ago.

In 2006/07, the top fifth of earners enjoyed 44 per cent of the country’s post-tax income; while the bottom fifth made do with just 6 per cent (1 per cent less than in 1997/98). While it is important to contrast this with the massive widening of the wealth gap under the Tories, and to acknowledge that without Labour’s anti-poverty policies the gap would be wider still, we have to say loud and clear that this is just not good enough.

Beyond meritocracy

Equality stands at the heart of the progressive agenda. As a material reality inequality distorts our lives and our social and political relationships with each other. The ideal of equality offers us hope of a better society and way of being. It is rare to hear New Labour politicians talking in such terms. Instead, the talk is of meritocratic opportunity, aspiration and social mobility.

Not everyone can or wants to climb the meritocratic ladder. Why, for instance, should someone who sees their vocation as caring for others – be it children or older people – have to make do with a pitiful fraction of the rewards enjoyed by those in the City or on a football pitch?

The very fabric and construction of the ladder is unfair in terms of the skills and experience it values and, as the reference to care work suggests, the bias in its construction is heavily weighted against women. Moreover, the ability to live a full and flourishing life should not be the preserve of the privileged, but should exist for everyone regardless of their place on the ladder.

Changing the terms of the debate

One reason for New Labour’s timidity is that even those who subscribe to a more egalitarian agenda fear that it will alienate the electorate. It is one of the paradoxes of public attitudes that surveys consistently show a large majority unhappy about the disproportionate rewards at the top and about the gap between rich and poor. Yet a much smaller and diminishing group supports redistributive policies to narrow the gap.

This may be indicative of the limits of a policy of redistribution by stealth without a clear articulation of egalitarian values in mainstream political debate. If even a Labour government is not prepared to make the case for redistribution, then perhaps the public comes to believe the case is a weak one and that government does not have a legitimate role to play in narrowing the gap.

If that is what has happened, then one of our main challenges is how to change the terms of the public debate and make the case for tackling inequality. What follows does not claim to be the answer but simply offers some ideas.

The first step is to convince the public and the government that urgent action is essential for the health of our society; the second is to make a persuasive case for government action. This means painting a tangible picture of how inequality harms us and of what a more equal society might look like.

The statistics about inequality and poverty do not get us very far. They are important in measuring change and holding governments to account. But they don’t engage people; indeed they can have the opposite effect, as often people simply don’t believe them.

Can we therefore find ways of bringing home the reality of inequality’s corrosive impact on everyday lives? On people’s health – for instance, Michael Marmot’s example of the 11-year life expectancy gap between Hampstead and St Pancras, the same as between the UK and Guatemala? (‘Reducing inequalities in heath: a policy choice’ by Michael Marmot in Live Longer Under Labour!, Fabian Review vol 120, no 1, 2008). On access to housing? On children’s educational experiences and life chances? On the environment in which people live, and the quality of their social relations?

As the work of Marmot and Richard Wilkinson, professor of social epidemiology at the University of Nottingham and author of The Impact of Inequality: how to make sick societies healthier (Routledge, 2005), demonstrates, it is not just those living in poverty who suffer but those on low to middling incomes too; indeed the whole fabric of society is damaged.

The need for such examples points to a missing space in political debate between the details of specific policies and the generality of abstract values. This space needs to be filled in with a more concrete vision of what a more equal society might look like. And we have to show that we believe that such a society is possible.

The irresponsible rich

One of the values upon which New Labour places great emphasis is responsibility. Responsibility is an important element of citizenship but I am tired of constantly hearing about the responsibilities of ‘the poor’ and the need to change their behaviour and nothing about the responsibilities of the privileged. It is time to expose their irresponsible behaviour, which is considerably more damaging to society. Three examples of this irresponsible behaviour relate to the economy, the exchequer and the environment.

Most visible in recent months has been the irresponsible behaviour of those in the City and the boardroom driving high-risk, bonus-crazy, irresponsible capitalism, leading to the credit crunch, which hurts other people much more than themselves.

During the boom the rich distorted the housing market, particularly in London, contributing to unprecedented levels of housing inequality, and now the credit crunch is squeezing those at the lower end of the housing market. The TUC has recently drawn attention to the irresponsibility of tax evasion and avoidance by individuals and companies, who cheat society of resources and act as if it is their right not to pay their dues.

From a global perspective, Christian Aid has argued that the lives of almost 1,000 children could be saved every day if only the super-rich and the world’s largest companies paid their fair shares in taxes. And that figure relates only to illegal, trade-related tax evasion; it would be far higher if it included other forms of tax evasion and legal methods of tax avoidance. The report (Death and Taxes: the true toll of tax-dodging, May 2008) points out how the pursuit of profit trumps social responsibility.

Finally, we should name and shame the ecological irresponsibility involved in the ways in which many of the rich spend their money. Earlier this year I watched in fascinated horror Robert Peston’s BBC programme on the super-rich. The only woman to whom he spoke was part of the industry that has grown up to help the super-rich spend their money; as more than 90 per cent of the richest 0.1 per cent is male this gender bias is not surprising. We’re not just talking gas-guzzling cars here but massive ‘super’ yachts, private jets, submarines and a Valentine’s Day dinner on an Arctic iceberg.

It is those in poverty both domestically and globally who pay a higher price for climate change. Globally, a series of reports has underlined how the costs of global warming are borne disproportionately by the poorest countries, with predictions of growing numbers of environmental refugees as a result. In the UK, to take just one example from a new book on social justice and public policy, half of all carcinogenic emissions occur in the 20 per cent most deprived wards, in contrast to 9 per cent in the 20 per cent least deprived (‘Understanding environmental justice’ by Maria Adebowale in Social Justice and Public Policy eds Gary Craig et al, Policy Press 2008).

We need, therefore, to do more to link the inequality and environmental agendas. The notion of environmental justice has been developed but it is not yet part of mainstream political debate and the extent to which the rich are fuelling environmental injustice is not being exposed.

Policy agenda

The second step in changing the nature of the debate on inequality involves rebuilding public confidence in the state (with all its flaws) as an instrument of fairness, with reference to both distribution and redistribution. There needs to be another look at the remuneration structures that fuel inequality. Giving shareholders the power to vote on directors’ pay has not worked.

It is depressing to contrast the German Christian Democrat chancellor Angela Merkel’s call for a crackdown on fat cat abuses with John Hutton’s celebration of super-high salaries as an indicator of success. Indeed, the British government intends to lead the opposition when it comes to EU finance ministers’ plans to attack the ‘social scourge’ of excessive executive pay and bonuses. The political mood among EU leaders and the evidence of public disquiet about the distribution of original incomes and about excessive high salaries and bonuses creates potential space for a debate about inequality.

Questions such as what is a fair differential between top and bottom earnings and about the rewards attached to different kinds of work should be part of the debate. A responsibility agenda opens up the space to talk about taxation, not as a burden but as an exercise of citizenship responsibility. There is still a strong case for a higher rate of tax for those earning over £100,000. This could raise nearly £8 billion – more than twice the minimum needed to meet the next child poverty target, even allowing for behavioural changes (primarily tax avoidance) in response to any tax increase. Such changes could be minimised if a higher rate were combined with tougher action on tax abuses, as called for by the TUC.

In addition, other reforms could make the tax and national insurance systems more progressive and wealth inequalities could be reduced through reform of inheritance tax, as proposed recently by the Fabian Society.

At the other end of the income distribution, a focus on the responsibilities of the rich would fit well with the government’s call in its latest child poverty strategy document for a new ‘contract out of poverty’ in which ‘all parts of society will do their bit’. Paying more tax is one way the rich can ‘do their bit’. This would help to pay for the improvements in benefits and tax credits, which have to be one element in achieving the child poverty targets.

Current benefit up-rating policy, which links most benefits to prices but not average household incomes, is criticised for fuelling economic inequality in a recent Joseph Rowntree Foundation-funded report (Keeping up or falling behind? The impact of benefit and tax uprating on incomes and poverty by Holly Sutherland, Ruth Hancock, John Hills and Francesca Zantomio, Institute for Social and Economic Research, 2008).

While the government is to be congratulated for improving financial support for children in real terms, it has ignored their parents’ benefits. Moreover, the differential impact of inflation on those on low incomes, as the prices of necessities such as food and fuel soar, eats into low wages and benefits and means that inflation-proofing is not providing adequate protection.

As the government places more and more emphasis on the responsibilities of benefit recipients, and as benefits become increasingly conditional, it should articulate a clear goal of a right to benefit sufficient to enable people to live decently and with dignity in keeping with human rights principles.

At the Compass conference on equality in June, ministers sympathetic to the equality agenda acknowledged its importance but lacked any sense of urgency with regard to the action needed. If Labour only has two more years in power, it should use the time to turn the tide of inequality decisively; otherwise it would be a tragedy of missed opportunity if, after three full terms, it left Britain more unequal than when it came to power.

Ruth Lister is professor of social policy at Loughborough University. This article is based on her keynote presentation at the Compass Robin Cook Memorial Conference on equality in June 2008

Although the first interim target of a 25 per cent reduction by 2004-05 was missed and the most recent figures recorded a 100,000 increase over the previous year, the number of children living in poverty has been reduced by 600,000.There has also been a steady reduction in the number of older people in poverty to the extent that they no longer face an above average poverty risk.

The reduction in child poverty has been achieved through a combination of welfare to work and largely means-tested ‘making work pay’ measures in line with New Labour philosophy (although these and the minimum wage have not prevented high levels of in-work poverty). But it also reflects real improvements in support for children in families not in paid work (the real value of support for children under 11 has doubled) – just the kind of redistribution Blair dismissed. Surveys suggest a reduction in hardship as a result.

These are real achievements, which we should acknowledge. But there is a long way to go to achieve the child poverty target. Moreover, there has been a 0.3 per cent increase in the number of childless working-age adults in poverty to the highest recorded rate since 1961, according to the Institute for Fiscal Studies. And some asylum seekers have been made destitute.

Gordon Brown’s limited redistribution by stealth has helped to stem the growth of income inequality. Nevertheless, it reached a record high in 2000-01 and is slightly worse today than when Blair took office. This damning fact largely reflects the rise and rise of the super rich, who are enjoying unprecedented levels of wealth. As Peter Mandelson notoriously put it, ‘We are seriously relaxed about people becoming very, very rich.’

Not surprising, then, that Blair apparently vetoed a 50 per cent tax rate for those earning £100,000-plus and that there are no targets to reduce inequality of income and wealth. But for those of us who hold equality as a defining value for the left, Blair’s refusal to use the oncein- a-lifetime opportunity provided by his original landslide victory to promote a more equal society is unforgivable.

Ruth Lister is professor of social policy at Loughborough University.