Are we bothered by inequality?

One of the central electoral campaign themes of the Labour Party is inequality. Economic and social inequality has certainly figured prominently in the public debate over the last couple of years, spurred by discussions about bankers' salaries and bonuses for CEOs. The Miliband camp argue that attitudes of British people have fundamentally shifted from the Blairite cavalier approach ('Not bothered about the filthy rich') to significant levels of concerns about wage inequality. But is this true?

In the journal Political Insight, a team of authors published a summary of the research on British political culture. Their study investigated whether political culture fosters specific social attitudes over the long run. Whilst their results reveal some interesting correlations between longitudinal shifts in attitudes and potential changes in political culture, some findings from the British Social Attitudes Survey can also be read with Miliband's claim about shifting views on economic inequality in mind. The figure below shows the responses stratified by age of respondents and year of survey to the question: 'Thinking of income levels generally in the UK today, would you say the gap between those with high incomes and those with low incomes is (1) too large; (2) about right; or (3) too small?'

Is the gap between the rich and poor too large (high values agree) Britain 1983–2012, by age

From:The British Social Attitudes Survey, 1983–2012.

The diagram clearly shows that there has been widespread concern about income inequality across all age groups in the 1990s, then largely petering out during the Blair years. Interestingly, looking at the years 2010 and later, there is no reversal in the aggregated responses to the high levels of concern under Thatcher and Major. The survey results appear to indicate that, with the exception of the age group between 55 and 70, concern with income inequality remains low. Moreover, the younger generation registers the lowest levels of concern with the issue of income inequality compared to all other age groups, a finding that contrasts sharply with the anecdotal (ostensibly wrong) evidence of young people on barricades (and in occupy camps) in the UK protesting against income inequality.

This has also implications for the campaign of the Miliband camp. If income inequality does not appear to be a major concern of people in Britain, it is unlikely to be a major motivating factor to vote either.

Solidarity in action - why the highest earners pay more than enough

As the debate about spending and tax rises still rages in the US, it may be useful to have a quick look at the specific income tax rates that apply to working people. In Britain, the view is that US citizens pay far less income tax than we do. The US, so the story goes, is a low tax country.

If one looks at the marginal tax rates for individuals that apply to their taxable income, nothing could be further from the truth. The New York Times has helpfully published a graphic detailing the marginal tax rates and how they developed over time.

(you can find the graphic HERE)

The graph is revealing. Despite the incessant news about rich people avoiding tax, the tax rate for top earners in the US ($350k plus) is similar to that in the UK. The rate is 39.5 per cent. That is only 5.5 percentage points lower than the top marginal tax rate in the UK. In fact, it is only 0.5 percentage points more than the tax rate Labour had levied (40%) on the highest earners from 1997 to 2010.

On top of that, people working in the US of course also pay local taxes, which adds to the burden. This picture throws a different light on the argument that 'tax rises can pay down the debt' of the US or the UK. The fact is that the highest earners in either country already contribute about half of all income tax revenue. Their tax burden is already a multiple of what the lowest earners contribute to the treasury. That's solidarity in action.

Does inequality make sick?

Tony Blair was famously 'not bothered' about the super rich. However, more recently, the Labour Party has found its passion for a more equal income structure. There have also been some academics who argued for a while that there is a link between income inequality and health (The Spirit Level: why equality is better for everyone by Richard Wilkinso, Kate Pickett). In other words, they claim that there is evidence that the bigger the gap between top and bottom earners in terms of take home pay, the less healthy a society is. Health is often measured by morbidity, i.e. incidences of ill-health.

While for the Labour Party this new agenda may be prompted by its desperate search for its left-leaning voters, the case of academics is more puzzling. I believe there are some problems with their argument and here is why.

First, the evidence available is not in their favour. The Agency for Statistics in Germany has just released the figures of morbidity for the German states. The stats make interesting reading. Hamburg, Bremen and Bavaria, all states with the highest income gap, have the best population health. Thuringia and Saxony, states with the smallest income gap (half that of Bavaria), have the worst health outcomes for their populations.

So the evidence is at least contradictory. More importantly, however, there is, second, another problem with the supposed link between income inequality and health.

There has always been clear evidence that health is influenced by factors (amongst others) such as poverty and deprivation, access to prevention programmes, and health care quality. Now, the income gap says little about poverty. In fact, states with a large income gap between top and bottom earners might still have earners at the bottom of the scale that earn far more than those at the top of the scale in other states that have a small income gap.

In other words, income gap does not mean poverty. It's a relative measure of how far top and bottom are apart, which leaves the possibility (for example Hamburg), that the bottom earners are still better off than those in other areas.

Also, much has been made of the bad health outcomes figures of the US. However the figures there are skewed. Until recently, a small but sizeable minority of people had not access to health care at all, except for emergency care. It is difficult to see how this could NOT influence health outcomes. Early detection and treatment are a central pillar of good health care.

So, the argument will continue, but so far I am unconvinced that we have incontrovertible evidence that the income gap itself makes people sick.