Financial Inequality

– in the House of Lords at 11:37 am on 27th March 2008.

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Photo of Lord Harries of Pentregarth Lord Harries of Pentregarth Crossbench 11:37 am, 27th March 2008

rose to call attention to financial inequality in the United Kingdom; and to move for Papers.

My Lords, GK Chesterton once remarked that the English working man was less interested in the equality of human beings than he was in the inequality of racehorses. There is still some truth in that. However, what is very deeply rooted in most English people is a strong sense of fairness. The English may not reveal much outward observance of religion, but there is a deeply felt inner conviction that some things are fair and others are grossly unfair. In proposing this debate, I do not primarily have in mind a discussion of equality as such, fascinating though that would be, but the stark inequalities in our society, which the majority of our fellow citizens now regard as unacceptably unfair.

I say "inequalities" but we are all aware that the situation is one of growing inequalities—widening financial and economic inequalities, which are reflected in every area of life. Recently there have been a number of reports which bear on this subject, which have been helpfully summarised in the briefing note provided by the House of Lords Librarians. Although the situation is complex, what emerges from the reports of the Institute for Fiscal Studies in both 2000 and 2008 is that for the poorest 15 per cent of the population, income growth has been very much lower, with real income falls in the very lowest part, while for the wealthiest 10 per cent of the population, there has been rapid economic growth, with what they term a "spike" at the 99th percentile point.

In recent years, as we know, we have become used to stories of vast City bonuses, which have, in my opinion, totally distorted the housing market, and stories of great pay-offs to directors and executives, some of whom, by any ordinary standards, have failed. There is widespread disquiet in our society about this. Three recent polls reveal that 75 or 76 per cent of the population find this totally unacceptable. We are not talking about the politics of envy, with what WB Yeats called,

"a levelling, rancorous, rational sort of mind".

We are talking about a feature of our financial system, which, if it continues unabated, could undermine both the basis of our economic prosperity itself and the fabric of our society.

In the great debates about the market economy in recent years, its most thoughtful defenders have always stressed that the success of the market depends on factors other than the market itself—in short, on certain moral assumptions that go wider than the legal framework on the basis of which the market in fact operates. One of those is the acceptance of what we might term proportionate reward. Appropriate reward for hard work, skill and enterprise is basic to how the market operates, but implicit in that is some kind of judgment about what is appropriate and fair and what is inappropriate and unfair. If people as a whole feel, as they do now, that the gap has become outlandish, that cannot but undermine the kind of social contract on which the whole operation of the market depends.

What does a person on the minimum wage feel when they work long hours just to survive for year after year when groups of people get a regular windfall that is more than they can earn in several lifetimes? I believe that that undermines any sense that what they are doing is worthwhile.

I am sure that your Lordships will fill out the facts and figures of what is happening in various areas of life, but I just mention a few. There are still 3.8 million children living in poverty—one in three—with even higher rates in urban areas such as Manchester and London. More than half of those children have at least one parent working. If both parents are working with at least one of them full-time, families can survive, but with only one working, the situation has not improved. The situation of children with no parents working has improved somewhat in recent years, but there were 1.4 million children of poor parents living in working households in 1997, and that number is the same today. That has not improved. The Zacchaeus 2000 Trust has drawn our attention to the stressful and inevitable rent and council tax arrears, debts, loan sharks and clashes with bailiffs created by poverty for people both in and out of work.

What the Government have done in introducing the minimum wage has been an essential, very welcome first step towards helping with that problem. That wage is now £5.52 an hour, although often paid without holiday or sick pay. A single earner in a couple with two children would now have to work 80 hours a week at the minimum wage to avoid poverty through their wages alone, without any other benefits or tax credits.

Whatever Government we have in power should commit themselves at least to maintaining the value of the minimum wage in line with average earnings growth over the economic cycle and should extend the adult rate to 21 year-olds. But that is not enough, so I very much welcome the Living Wage for London movement. The living wage for London has been set at £7.20 an hour—a big difference from the national minimum wage—and the unions and London citizens have been remarkably successful in persuading a significant number of employers in London to sign up to it. By December 2007, 5,800 were covered, with a total gain of nearly £20 million in wages. I believe that the figure of £7.20 is in fact the minimum that all London employers should be paying.

Cleaners and hotel workers are especially liable at the moment to be treated unfairly. One hotel worker was paid the equivalent of 26p an hour for the first six days' work, the first three days being regarded as training. That is only one of a number of such stories.

As we know, the Government have committed themselves to halving child poverty by 2010. The recent Budget ensured that another significant step would be taken towards that. We need to ensure that there is no let-up on what will be needed every year until child poverty is eliminated. Again, I believe that whatever Government are in power, they should share that commitment to the total elimination of child poverty.

That is action that needs to be taken at the bottom end of the financial pile: action to raise the poorest people out of poverty and enable them to participate meaningfully in the market economy. What about at the other end? Inequality has two poles to it and is indicated by the distance between them. Some suggest that we can eliminate child poverty while not bothering too much about gross inequality. However, it is no accident that the only countries to abolish child poverty—the Nordic countries—are much more equal than ours. There is a clear link between gross inequalities and the presence of poverty.

The figures on inequality speak for themselves. Some 3 per cent of the country's income is taken by the poorest 10 per cent of the population; 28 per cent of the country's income is taken by the richest 10 per cent—and that is only what is declared. According to the recent Budget, the official Revenue and Customs' estimate is that tax avoidance has now reached £41 billion a year.

As far as wealth is concerned, it is estimated that the share of wealth owned by the top 1 per cent rose from 17 per cent in 1991 to 24 per cent in 2002, while the wealth of the bottom 50 per cent fell from 8 per cent to 6 per cent over the same period. No less startling is the fact that, over two decades, the average earning of the chief executives of the top 100 companies has gone up from 17 times the average employee's wage to 75.5 times the average employee's wage. That is an extraordinary jump in just 20 years. Is that jump really deserved? It may be argued that in a market economy—particularly one that is operating internationally—there must be huge salaries and bonuses available to attract the few who allegedly make all the difference in a highly competitive world. However, as Will Hutton put it:

"The practice of giving vast annual bonuses embeds greed and recklessness".

It is interesting that the Institute of International Finance—the association of global banks—met recently, in Rio de Janeiro, to discuss for the first time a voluntary code of conduct on pay. According to Polly Toynbee, it was,

"revolutionary and penitential, acknowledging that a cause of the credit crunch was wild risk-taking with other people's money to secure higher bonuses for themselves".

Suggestions include a deferral of bonuses until the impact of the strategy is clear, or even clawing back bonuses in light of later, worse performances.

The Motion before us is about financial inequality. It is not surprising that this inequality is reflected in every aspect of life—housing, education, health, opportunities for advancement and so on—and I take just a very few examples. One strong theme from the recent reports is how segregated the United Kingdom now is, between rich communities getting richer and pockets of deprivation. This is, of course, because economic inequalities are reflected in what economies call "positional goods"—housing, whose costs have risen so disproportionately, access to good schooling and so on. Then there are the prisons. Martin Nary, who visited one prison a week for years, says quite simply:

"The proportion of prisoners who are not from impoverished backgrounds is incredibly small and investment in poverty eradication would have a direct economic benefit to the UK".

Less familiar are the figures about low birth weight, a core signal of poverty. From 1953 to 1973 the percentage of babies born in the UK with a low birth weight was in the area of 6.6 per cent. The data for 2007 show that the figure has now risen to 10 per cent. This is compared to 4 per cent for countries as varied as Sweden, South Korea and Samoa, and 9 per cent for countries such as Romania and Namibia. Causes have been identified by experts as being due to poor maternal nutrition owing to poverty and a lack of education about a healthy diet. There is something very shocking about those figures.

Then there are the figures on life expectancy. About two decades ago, there was a difference in life expectancy of about five years for males, depending on whether they lived in Glasgow or the south-east of England. More recently, that difference has widened out to more than nine years. Poverty brings ill health and earlier death; increasing inequality brings about even starker contrasts.

John Rawls, one of the most influential philosophers of the late 20th century, argued that a degree of financial inequality was acceptable provided that the poor benefited from it. A society is just only if its worst are better off than they would be under any alternative arrangement. He justified this view on the basis that if we all had to choose a society from scratch, with no idea whether we would be badly off or well off in it—in other words, leaving aside our present interests—we would all be bound to choose his idea of a just society, for this would be the only one in which everyone could benefit wherever they were born in it. The acid test, however, is whether the worst off are benefiting or benefiting enough. According to Rawls' view, which seems to be pretty compelling, our present arrangements, which rightly allow for some inequality, are justified only if they are benefiting.

I come back to my starting point: the widely perceived unfairness of growing inequalities, the results of which can be seen in every aspect of our national life. Above all, this not only undermines the basic moral assumption underpinning the market economy of proportionate rewards but demoralises those at the bottom end of the market by devaluing their contribution. It sets the rich apart and spreads discontent. As Professor Wilkinson has put it, it is likely to mean that the rich have less sense of responsibility to the poor and that the poor may be beset with a sense of fatalism and disengagement. It needs to be tackled on many fronts, both to advance the prospect of the worst off and to create consensus about rewards at the top end of the market that is acceptable to all who participate in it. It needs to be addressed by Governments and employers. Our present financial instability should not distract us from this task. On the contrary; the present shake-up should act as a salutary shock in recommitting us to the creation of a flourishing society, in which all have a proportionate share and in which there is a shared sense of well-being. I beg to move for Papers.

J

They still treat one half of the overseas pensioner population unequally. There is no justification for this. They can well afford to remedy this, but just don't want to.

Submitted by James nelson Read 1 more annotation

Photo of Lord Desai Lord Desai Labour 11:51 am, 27th March 2008

My Lords, I am sure that we are all grateful to the noble and right reverend Lord, Lord Harries, for his brilliant introduction to this important topic. At the outset, let me state my areas of agreement and disagreement with him. I agree very much with him about the problem of poverty and that we must urgently address it, but I part company with him on the question of whether inequality breeds poverty. I shall certainly say something about what the financial markets have done to inequality. Indeed, I shall take it up first because it will be more controversial.

The noble Lord is quite right that the system of bonuses and compensation in financial markets encouraged excessive risk-taking, as did the very cheap liquidity that has been available for the past 15 years. This financial crisis has, however, shown us how fragile some of these numbers are. One gentleman lost $1 billion in the Bear Stearns fiasco—he also has the misfortune of owning Tottenham Hotspur, but we will leave that aside. If the stock market were also to collapse by, say, 40 per cent tomorrow, a lot of those people's spikes would come down, and it would not benefit a single person in this economy. This is not a zero-sum game. Moreover, some of these numbers are what Karl Marx called fictitious capital. The people who were compensated two years ago by Bear Stearns—some of the brightest people—were paid in shares but with a three-year delay. They have found that what was worth $1 million is now worth $10,000.

I agree that there is a spike at the very top—the top 1 per cent—but the spike exists in the few mainly Anglo-Saxon economies that have very vibrant financial markets. These financial markets have generated fantastic returns not only by recklessness but, mainly, because some highly educated and intelligent research economists have created some very complex financial instruments that have made it possible for people to take risks. These are rewards for risks.

Now, we have to insist that if the risk-takers fail, we will pay no heed to their problems. If they believe in the market, let us enforce the market on them. Let no bank be saved. If banks are saved, let none of their shareholders receive any compensation for their loss. I think that the Northern Rock policy is correct and the Bear Stearns one is somewhat wrong but that is neither here nor there. We have to be completely ruthless. If people say they believe in the free market, let us say: "You play by the free market. There will be no compensation".

However, as soon as markets begin to collapse, everybody comes on to the scene and all the newspapers tell the Governor of the Bank of England and the Chancellor that something must be done to save the system. Nothing must be done to save it. The system must live or die by itself. We are not interested. The most interesting part of the latest crisis is that the real economy has so far not been affected. We do not know what it has done to the spike, though we will in about three years. I am taking a harder line on this than I necessarily would if I were a Minister, but since there is no prospect of that, thank God, I can do so.

The calculation of income distribution in percentages leads to the idea of a zero-sum game or a fixed pie. We have to part company with this idea. Over the past 20 years, while the financial markets have been perhaps reckless and perhaps quite mad, income growth also has been quite spectacular, and not only in this country. The growth in Asia and the removal of millions from poverty would not have been possible had the financial markets not made it viable to transfer capital to countries such as India, China and lots of others in Asia where it was needed. I am therefore not entirely in agreement with the noble and right reverend Lord about the evils of the financial system. I do not have to declare an interest because I have made no money from the financial markets. I can boldly say that I am not bothered about it.

I would like to say just one more thing, because my time is running out. I think that poverty is the most serious problem in our society. It has happened because changes in the economy have removed the need for manual unskilled and semi-skilled labour. That has been the biggest transformation in our economy. Unless people are highly educated and highly skilled, they will not get a living wage in our economy. As the noble and right reverend Lord said, some of the wages paid for manual and unskilled jobs are absolutely appalling. I agree with him that we ought to do as much as we can to shore up the situation. One thing we must not do, however, is to take seriously the EU's definition of poverty as such and such a percentage of median income. We must concentrate on poverty as a standard of living measured directly in terms of what people need. We must try to eradicate that poverty and problems of ill health, but we must not be bemused by such statistics.

Photo of Lord Marlesford Lord Marlesford Conservative 11:58 am, 27th March 2008

My Lords, we have had a very stimulating start to the debate with those two terrific speeches. I do not think that I shall be able to compete.

The word "inequality" can have two meanings. One implies an unfair situation; the noble and right reverend Lord has given many examples and this is the aspect that we will primarily be discussing today. The other, as Peter Bauer—later Lord Bauer, one of the most brilliant lecturers when I was an undergraduate at Cambridge—used to say, is that inequality merely means "difference". I believe that in discussing financial inequality we should keep both meanings in mind.

I would suggest that there are four important principles when considering public policy on financial inequality. The first is the need to stimulate economic growth, which is the only way in which all can be made better off. The second is to recognise the difference between the tax system and the social security system, because they both have quite different purposes. The third, as the noble Lord, Lord Desai, said, is to focus on absolute poverty rather than relative poverty. The fourth is to avoid giving financial help from state funds to those who do not need it at the expense of those who do. In my book, that is, quite frankly, immoral. I should like to say a brief word on each of these.

A culture of incentives is crucial. The French philosopher Bertrand de Juvenal once said:

"The statesman who believes the world is populated with angels will be sorely disappointed".

The fact is that man is quite a selfish creature who wants the best for himself and his family. Taxes should be used to raise the revenue needed with the minimum dislocation to the functioning of the economy. The concept of the "social wage", which will always exist in any society as justifying high taxes, was at one time used to justify virtually unlimited tax take. But a high social wage can rapidly become unsustainable through the limit it imposes on growth. In Europe, it is still a problem in both France and Germany. It is one of the main challenges that President Sarkozy has today. People of course enjoy public benefits, but when it comes down to it most prefer to make their own spending decisions, and the net utility of private spending is usually higher as well as more efficient.

To use high taxes to impoverish the rich does not enrich the poor. We had a long experiment disproving this. When Mrs Thatcher was elected in 1979, the top marginal rate of income tax in Britain was 98 per cent and the threshold at which it came in, in today's money, was under £100,000 a year. Those were the days of the brain drain when many of the brightest and best people migrated to countries, primarily the United States, where their talents could be rewarded.

Confiscatory taxes really only came to an end some 20 years ago when, in his March 1988 Budget, my noble friend Lord Lawson reduced the top rate of income tax to 40 per cent. Such was the rage from the Labour Benches when he announced it that that was the only occasion ever that the House of Commons has had to be suspended in disorder during a Budget speech. I should take this opportunity to give the present Chancellor, and indeed the whole Government, warm congratulations on keeping to this top rate over the 11 years that they have been in power.

I very much agree with the noble Lord, Lord Desai, that although the state has a real responsibility at the bottom end, at the top end the market must pay the costs and get the benefits. People should suffer for failing and be rewarded for succeeding. I well remember that the American industrialist, J Peter Grace—who ran W R Grace & Co, a big chemical company—once said to someone who asked for a lot of money: "I shall have absolutely no problem in paying you that. You may just have a problem in earning it".

The social security system must be used with imagination, flexibility and as far as possible with simplicity. There is no point in having complicated schemes which people do not understand and do not use. We must focus on those who are truly deprived, whether it be because of ill fortune, ill health or simply their own inadequacies. As we all know, there are those who simply cannot cope with life. They will always need the state to give them the decent standard to which, in a civilised society, they are as entitled as the rest of us. Absolute poverty can and must be eliminated in a prosperous society.

By definition, however, relative poverty will always exist. We are back to inequality meaning "difference". But the state should focus its efforts on what it can achieve. For example, it has a duty to ensure that all families are decently housed. It cannot and should not take responsibility for ensuring home ownership for all; we have seen the disaster that that can lead to, especially in the USA. A real effort should be made to stop giving benefits in kind tax-free to those who do not need them. Two obvious examples are the winter fuel allowance and free bus and tube travel for the over-60s. Both benefits should be taxed. In the former case especially, the tax collected would enable the level of winter fuel payment to be raised, which would really help the poorest.

Many improvements to how we do things can and must be made. But I believe that these four principles can help ensure that Britain remains a compassionate and decent as well as a prosperous society.

Photo of Lord Livsey of Talgarth Lord Livsey of Talgarth Spokesperson in the Lords, Welsh Affairs 12:05 pm, 27th March 2008

My Lords, I thank the noble and right reverend Lord, Lord Harries of Pentregarth, who we all know is a very caring and constructive person. I particularly appreciate the moral philosophy that he introduced into this debate when opening it. It is important to take account of, and indeed act on, the principles involved in addressing inequality.

Financial inequality exists widely in the nations and regions of the United Kingdom. The result is, on the one hand, poverty, poor housing—and unaffordable housing at that—social exclusion and unemployment; on the other, relative prosperity, a better quality of life, quality employment and more life opportunities, with better housing and better health. If we have a social conscience, we must address this and try to put it right.

I am grateful that this debate is about the whole of the United Kingdom. In the other place I represented a part of Wales. Because of the devolution settlement, we do not have much chance these days to make comparisons, but in this case we can make some. I will concentrate to some extent on the situation in Wales and say that it is almost identically replicated in the north-east of England and in Cornwall, which have very similar economic indicators, and in some other parts of the EU. I shall then suggest how we might address these matters and improve on them.

The current performance of the Welsh economy is well below expectations, particularly taking into account the application of EU funding in west Wales and the valleys. The evidence is that the gross domestic product per head remains stubbornly fixed at 80 per cent of the UK average. It was that before devolution and it has not moved much. If one applies the gross value added measurement, which takes on board some services as well, it has declined from 84 per cent in 1995 to 78 per cent in 2004. In west Wales and the valleys, it has gone down to 65 per cent. We do not have a very sound economy. Much of the spending has been in the public sector rather than the private sector. If one compares these figures with those for other parts of Britain and Europe, one finds that the gross domestic product of west Wales and the valleys is 79 per cent of the UK average. It is slightly lower in Cornwall. But in Bucharest, Romania—which has not been in the EU for very long—it is 74 per cent. In Warsaw it is 81 per cent. It is even higher in Prague and Bratislava than it is in west Wales and the valleys. In contrast, the figure for Ireland is 143 per cent, as a result of a revolution in the way that it has been managed in recent times. Noble Lords will not be surprised to learn that inner London is on 303 per cent of the EU average, which is an extraordinary situation.

Average disposable income for a family in Wales stands at £21,182, a figure which may reflect two people working. What interests me is that that family spends 13.3 per cent of its income on food. When I was lecturing 25 years ago, it was 27 per cent, which is a percentage that poorer members of our society are probably still on. On a per head basis in Wales, people are on £11,900 compared with £15,000 in London, a difference of £3,100. I do not see that that is fair at all. We know that the cost of living in London is higher, but it is quite hard to make a living in my part of the world. It is clear that where I come from there has not been enough focus on innovative and entrepreneurial economic activity, both private and social, but that is now being addressed.

The success of Ireland over the past 20 years should be an inspiration to many of the regions and nations of Britain which are not so well off. For the first time in the history of Ireland, an indigenous moneyed class has emerged after a long economic boom. The Bank of Ireland estimates that from a few hundred euro millionaires 20 years ago, there are now 300,000, which is hard to believe. Ireland has an educated labour force and a strong demand for labour in well-paid jobs. An in-depth study of the Irish experience and the application of the principles involved is something that many of the poorer nations and regions of Britain could benefit from.

We have a huge mountain to climb. The Joseph Rowntree Foundation has laid bare the scale of the challenge. More than a quarter of Welsh children live in poverty, while average family incomes, to which I have already referred, show huge disparities with other parts of the United Kingdom. I believe that the Barnett formula should be revised so that it is based on need. At the moment in Wales, with its GDP running at 80 per cent of the EU average, the question of need is not being met.

In conclusion, Wales, Cornwall and north-east England are way behind other parts of the United Kingdom, and indeed in many sub-regions of those areas, incomes are only two-thirds of the UK average. The result of that is poverty, child poverty and a lack of opportunity in employment. Essentials such as food and housing are rendered unaffordable because they absorb an ever larger proportion of net income. This creates debt. Of the 10 regions with the highest rates of unemployment benefit for longer than five years, five areas are in Wales.

I finish by saying that the Barnett formula needs to be completely updated on the basis of need and government policy needs to concentrate on upgrading investment and entrepreneurship in our poorer regions so that average incomes are brought up to a level where essentials are affordable. In that way, the populations of these areas will not continue to suffer.

Photo of Lord Sutherland of Houndwood Lord Sutherland of Houndwood Crossbench 12:14 pm, 27th March 2008

My Lords, I congratulate my noble and right reverend friend Lord Harries of Pentregarth, first, on securing this debate on such an important topic and, secondly, on providing us with a stimulating introduction that has already provided a lively debate and no doubt will continue to do so. I wish to address my remarks for the most part to a particular group in the population where there is significant inequality and, as a result of that, poverty; that is, the older members of our society. Earlier discussion at Question Time indicated that if this is a serious issue, which I believe it is, it is one that will grow in both complexity and impact on our community. The noble Baroness, Lady Andrews, gave us a couple of figures: for example, that there will be an additional 2 million people over the age of 65 in our society before long. I can give your Lordships a rather different figure. If I stick to my time in the course of my speech your statistical life expectancy will increase by 1.5 minutes. One cannot claim the deposit individually but that is one of the more interesting statistics of society.

The noble Baroness, Lady Andrews, pointed out that the life expectancy of children being born now is such that one in five will live to the age of 100. Those are significant facts, so if there is inequality and poverty in the older community within our society it will have a huge impact. As the noble and right reverend Lord pointed out in his speech, there are two ends to the equality debate. Over the past couple of weeks we have had warnings from the Foreign Office about so-called SAGA louts. There are those who have money and who are misusing it, but that is not the experience of many older people in the community. They are not all out there having SKI holidays; that is, "spending the kids' inheritance" holidays: many are stuck in their homes as a result of inequality and poverty.

I accept the points made about the definitions of poverty. There is a great danger in simply taking a statistic or a percentage and defining poverty in that way. However, I shall give a version of one of the statistical indicators to which the noble and right reverend Lord, Lord Harries, pointed. If one takes seven stops on the Central Line in London, one's life expectancy goes down by about 10 years. This is not individually; it is statistically, but that is the issue of life expectancy in our community. There are poor communities where life expectancy is low. In the same communities—if we look at the available deprivation indices—not only is life expectancy low; earnings are low, employment prospects are bad, housing is bad, health is clearly measured on low scales, and educational success is low. Those indices kick in in the same parts of the major cities and rural communities of our country, so there are issues of poverty and ways of geographically tackling and looking at them.

I want to make a couple of points about pensions in relation to the older section of the community. Separating the measurement of what should be paid by pension from some form of average earnings has been a mistake and will penalise many people. I hope that the Government will look again at how the pensions available through the state system are calculated. They should be linked to the earning power—50 per cent of average earnings or whatever—of our community. That should be possible because the tax system should be able to reflect the income coming from earnings going up and perhaps the benefits available to the poorer members of the community.

I wish to make a further point about pensions. Only 17 per cent of women qualify for the full state pension. That is bound to have an impact on poverty and it is a blatant form of inequality. The women in question have not been able to work permanently throughout what is regarded as normal working life because they have taken time off to have children, to care for them and to bring them up. They may now be taking time off to care for elderly relatives, thereby providing a service to the community. However, that is not recognised in their pension benefits. For various reasons—partly because of the age in which they were reared and learnt their attitudes to life—that same group in the community are bad at claiming benefits. Help the Aged estimates that £4.5 billion in unclaimed benefits lie within the system. That is the reality. Perhaps some of it should be unclaimed, but it is worth asking the Government to examine why those benefits are unclaimed. It could well be that people who formed their attitudes to life 60, 70 or 80 years ago simply have a style of life that is not rights-focused. That may produce a guffaw in certain parts of the City or incredulity among younger members of the population who have been brought up in a rights-focused society, but the danger is that we are not respecting these attitudes as part of the reality of how we treat people. Rather, I fear we might be exploiting them: if they do not claim benefits, fine, the money remains in the public purse.

Those are some of the difficulties that older members of the community face. What can be done about them? I shall stick to the issue of the possibility of employment beyond current employment age. We have the prospect—I think it is inevitable—of the age at which state pensions can be claimed being raised. That is the stick, but there ought to be carrots in place. If older people want to continue working, and 53 per cent of them estimate that they need to because they have inadequate financial resources, what are the incentives for employers to do something about that? Who is looking at the tax threshold that discourages older people from continuing to work and discourages employers from taking them on? Those are areas where not only the comparative wealth of individuals could be helped but no doubt their health as well. Positive social attitudes would come out of all this. I commend to the Government the need to look at the employment of older people as one of the ways in which we might begin to deal with this issue.

Photo of The Bishop of Liverpool The Bishop of Liverpool Bishop 12:21 pm, 27th March 2008

My Lords, I, too, am grateful to the noble and right reverend Lord, Lord Harries, for initiating this debate. It is good to know that although he has left these Benches, he has not left behind the passions and the concerns that distinguished his service.

I shall take the debate in a regional direction. Having lived in and experienced different parts of the United Kingdom over the past 30 years, I am of the view that there is a divide between the north and the south. That is not to say that there is not wealth in the north or poverty in the south—both are definitely there—but the division is one of scale; it is the scale of wealth in the south and of poverty in the north that mark the contrast. Although the gap in growth is narrowing, there has been a consistent gap in the growth rates between the north and the south. The regional development agencies have had a strategic role in narrowing the gap, but there are forces at work that still militate against financial equality across the United Kingdom.

The north has large swathes of population living in deprived areas. Fifty-three per cent of households in the most deprived areas in England are located in the north, with 26 per cent in the north-west alone. Housing waiting lists in the north-west are growing faster than anywhere else in the country, which has had a knock-on effect on homelessness. Despite all of this, the north-west regional funding for housing is falling—indeed, has fallen more than in any other region—while its housing waiting list and homelessness have grown more than in any other region. This is but one example of the persistent inequalities across the United Kingdom.

For a number of years I was chair of the North West Constitutional Convention. Although the debate about regional government has come and gone, what remains is the need to address the strategic development and governance of our regions. That is happening at a regional level, but most of us feel that it lacks coherence, accountability and transparency. As someone involved in the pastoral care of the region, committed to its welfare and aware of the inequalities, I recognise that too many decisions that are made about the region and its economic development are made nationally and centrally, and that the outcomes are sometimes hard to understand at a regional level. I know the Government are committed to making the regional development agencies more coherent, accountable and transparent, and I welcome the sub-national review and the £6.5 billion that the Government are investing in RDAs in the period 2008-11. But in giving more power to the RDAs, the question is begged of how accountable these bodies will be to their own regions.

Financial inequality impacts upon levels of poverty in our regions, especially in the north-west, which is the only region to have borders with both Scotland and Wales. There is a feeling of injustice. Investment per capita in both Scotland and Wales is of a much higher order than it is in the north-west of England. This was one of the factors that drove the debate on regional government. There is a widespread feeling that there is no one to champion the needs of those living in the north-west in the way that the Government and Assembly in Scotland and Wales do for their own people. It is galling for those in the north-west to discover that just a few miles away hospitals and schools are funded on a formula that discriminates against people this side of the borders. This formula for investment has an impact upon the regeneration of the regions.

For four years, I chaired the New Deal for Communities programme in Liverpool. Regeneration requires the creation of real jobs. There is a limit to the benefit that can be gained from the development of social businesses which has been, I am afraid, the weakness of NDC. There has to be real wealth creation, real jobs and real economic activity. But that economic growth can be justified only if it is sustainable. Unfortunately, to date people have looked for a successful economy and then asked to what extent it can accommodate sustainability. This will not do. We have to promote sustainability and show that this is the only economic way forward. In the regions, especially in the north-west, we are already thinking of new ways of developing the regional economy. We need a new approach so that we can turn water, wind and waste into energy, we can develop the rivers and the railways for more efficient and sustainable transport, and we can create cities where, within walking distance, people can live, labour and spend their leisure together.

Forty-five per cent of the diocese of Liverpool has areas of multiple deprivation. One of the greatest aspects of inequality in my diocese is the number of children born into poverty. This was touched on by the noble and right reverend Lord, Lord Harries. They are born into what I call consolidated poverty. There is much debate about relative poverty but what I am aware of day by day is consolidated poverty. By that I mean where there is generational unemployment, generational deprivation of parenting, vandalised public space, poor health and low educational achievement. It is this accumulated and consolidated poverty which deprives children of equality of opportunity and, ultimately, of financial equality.

The Government have rightly invested in education to break this cycle of deprivation. I pay tribute to the work on academies. I chair two academies and have seen their success. Within 18 months I have seen young people, whose record previously was just 27 per cent, achieve 44 per cent and five GCSE passes at grades A-C, and who are on target this year to achieve more than 50 per cent. I have seen how this can have an impact on our communities. I have also noticed the development of children's centres and I pay tribute to this initiative, but we have to recognise that some of the neediest people and parents are not being drawn into the sphere of these excellent centres. We need radically new interventions in order to reach those people who are beyond their reach.

For understandable reasons I have spent a great deal of time recently in Croxteth which has many public and voluntary sector projects and where extraordinary work is being done, as I saw yesterday. But time and again I heard the people involved in the projects say how worried they were about the short-term funding. Three-quarters of the time of the person leading the play scheme that I visited yesterday afternoon was spent in finding funds for next year. It seems such a waste that these extraordinary skills in enabling children and empowering parents should be diverted into trying to find more money to support these projects. When all is said and done, we have to find new ways of cutting the cake and making sure that it is shared, and when it is, that it is fed to our children.

Photo of Lord Sawyer Lord Sawyer Labour 12:30 pm, 27th March 2008

My Lords, I, too, thank the noble and right reverend Lord, Lord Harries, for introducing the debate, which is on an important issue. We live in a worldwide free market economy where the pursuit of wealth is a prime goal. This wealth enables people to live in the way that they choose, pursue their dreams and desires and own the things that they think are important. In our country, that wealth has doubled over the past 25 years and will continue to increase. Politicians, faced with voters' attachment to wealth and all that flows from it, find it difficult to question the desirability of its continuous growth. Given the scarcity of the world's resources and the drive for more nations and people to participate in this growth and increase in wealth, the time is surely here for a serious debate about alternatives. It is not my intention to engage in that debate today, but that is the overriding issue in any debate about wealth in the future; the question of the degree to which the world can sustain wealth creation and the extent to which we can look at other alternatives.

I want to speak briefly about something more manageable; about wealth distribution and our attitude to growing disparities of earned wealth. There is a growing body of evidence and opinion in this country claiming unfairness in the distribution of wealth, particularly at the excessive pay of top business leaders. In 1979, the chief executive officers of the top firms were earning about 10 times the wage of the average worker, which for those top people was about £200,000 in today's money. Today, wages for the average worker have risen slightly ahead of inflation since 1979, but we are told that the leaders of the FTSE top 100 can expect to earn about 75 times the wage of the average worker. Earlier today I read that it was just over 60 times, which is still a huge increase since 1979.

In America, the top business leaders can expect to make about 300 times the wage of an average worker. Is that the direction in which we are heading, and is there an alternative? It is my belief that those huge inequalities of wealth do not necessarily make for good, long-term sustainable companies, nor do they help to create fair and balanced societies. Do the disparities continue? Are we moving closer to the American model? Or is there something else that we can do? I sit on the remuneration committee of a substantial successful business, with 3 million customers and 5,000 employees, so I know something about the need properly and adequately to reward talent and to attract and maintain good business leaders. That does not stop me from feeling uncomfortable about some of the disparities of wealth that I see around me. Remuneration consultants offer continuous comparative data to show where shortfalls occur and, in effect, help to create a spiral of ongoing and increasing reward mechanisms in all the companies that they advise, to ensure that, as they would say, those businesses retain their competitive packages.

Perhaps I am slightly naive, because I think back to the communities in which I grew up, where the chief executive and the workers worked together, lived fairly closely together and shared the same kind of community facilities. They also shared the benefits of the good times and the sacrifices of the bad times. There are many people today in business, some at the highest levels, who share the values of fairness and more equality and who want to live in more balanced communities. They do not subscribe to the pursuit of personal wealth as the main goal in life, and they will say that excessive executive pay is often not justified by business performance. I say to my noble friends the Ministers in my Government and to some of my honourable friends in another place that those people, who have strong and good values that are not just about earning money, need encouragement and support. They need recognition from the Government, because they share what might be called similar values to centre-left, new Labour values.

I hear Ministers say that we should not question the morality of excessive wealth; but I disagree. We should question it, we should talk about it and we should challenge it. We should certainly be in favour of fair rewards. I agree that we should celebrate and encourage success. Millionaires are fine, and 300,000 millionaires in Ireland are even finer. We should promote and argue for balance, and we should say something about other values, not just wealth. There are business leaders who share the wealth of their companies not only with customers and shareholders but with their workforce, and we should talk about them. There are leaders who think that customer satisfaction and employee engagement are just as important as profit levels and personal reward, and we should talk about them, too. There are business schools which develop leaders who appreciate a wider, balanced approach to wealth creation, and we should talk about them, too. There are even pension funds which, while obviously having an obligation to maximise their investment returns, look at many more factors and do not always look kindly on excessive rewards at the top.

I encourage the Government to give more attention to a wider view of wealth, a wider view of how businesses can be led and different kinds of values that can be talked about, supported and championed. That would be good to hear, and it would ensure that the Government were on the side of the people and not of the ever-widening inequality and ever more extremes of wealth.

Photo of The Bishop of Ripon and Leeds The Bishop of Ripon and Leeds Bishop 12:37 pm, 27th March 2008

My Lords, I, too, thank the noble and right reverend Lord, Lord Harries, for his reflective passion in achieving, introducing and setting the tone of this debate.

My wife and I are about to move from Ripon to Leeds, where the majority of the people of our diocese live, so the Church Commissioners are to sell our nine-bedroom 19th-century house. We thought that it might sell as a guesthouse or maybe as sheltered accommodation, but inquiries of estate agents locally produced quite different advice. We were told, "Sell it as a single home, because there are plenty of people who have £2 million to buy the house and then another £3 million to make it habitable". I do not know to how many of your Lordships that applies. If it does, there is an attractive house outside Ripon coming on to the market; we will not benefit a penny from its sale.

This welcome debate takes place against that background of growing inequality in this country, which has been well demonstrated by the noble and right reverend Lord, Lord Harries, and others. Our own city of Leeds seeks to rid itself of the tag of a two-speed city with the strapline "narrowing the gap", but its efforts in that area struggle against the growing inequality in our culture. Some of the narrowing of that gap needs to come from a mixture of tax and tax credit measures. I therefore regret the abolition of the lower rate of income tax. At the same time, I welcome the Government's continued commitment to dealing with child poverty. There is much to be done fiscally to deal with truths such as that 1.5 million children in poverty belong to households that pay full council tax. Fiscal measures need to be brought together to tackle poverty and so to reduce inequality.

We also need to take account of the evidence that fewer people now believe that redistribution of wealth needs to be a priority. There is criticism of massive wealth, but there is also criticism of those who are in poverty. In this respect, I am grateful for the report When Ends Don't Meet, which comes from Church Action on Poverty and Oxfam, based on interviews held in Thornaby-on-Tees. The report uses the concept of the sustainable livelihood approach and chimes with my experience in Leeds and elsewhere.

Those oppressed by inequality often have a resilience that puts most of us to shame: there is a determination to bring up children well, to survive in a hostile world and to keep going. Yet they often feel that no one is interested in them and that finance is given to them grudgingly, which means that self-esteem is hard to maintain. In this respect, I salute the social assets provided by the voluntary sector in some areas. I am particularly grateful for the concession on Gift Aid in the Budget, which has done something to allay the worst fears of churches and other community charities that yet again the support that they provide would be reduced. The presence of community groups in areas where inequality bites cannot possibly take the place of fiscal measures, but they are of immense value to those most affected by inequality.

The Thornaby research speaks of two crucial factors in inequality: debt and access to health services. Debt has become a crucial issue for vast numbers of people in our society. The Church of England recently published some helps—mostly very straightforward ones—on household budgeting and avoiding debt. We were astonished at the positive interest—not least from the press—in the assertion that debt was an emotional and, indeed, a spiritual issue, as well as a financial one. This goes for many who see the inequalities in our country, who fall into debt and experience nightmares as they struggle with fear. For those most affected, there needs to be from government a wider restraint on loan sharks—including maximum interest rates—and more positive support for credit unions as one highly effective way of coping with debt.

Access to health services is a further key issue in coping with inequality. The majority of households in the Thornaby study have mental health problems—that is particularly true of women. Yet mental health provision remains too often a Cinderella service that is not available to many, especially to children. I hope that the Care Quality Commission that we were discussing the other day will see this as a continuing priority for its own work. This is a matter not just of poverty but of major health provision for many who cannot afford to buy themselves out of health inequality. Disability and mental health are a crucial and increasing element in inequality in our culture.

This is a crucial debate. Inequality has many causes and elements and we need a coherent, vigorous and imaginative response if there is to be a real narrowing of the gap in our society.

Photo of Lord Sheikh Lord Sheikh Conservative 12:44 pm, 27th March 2008

My Lords, the issue of financial inequality is an important challenge confronting the country today and I pay tribute to the noble and right reverend Lord, Lord Harries of Pentregarth, for securing today's debate. Indeed, given the dangers that confront our economy, the focus should be shifted strongly towards those who are the most vulnerable.

One of the biggest concerns in this area should be debt, about which I shall talk initially. The problem of debt divides people into those who have and those who have not. It is another dimension in our discussion today. In response to a recent Parliamentary Question in another place, total personal debt was estimated at £1.4 trillion in January 2008. Further, it was revealed that the average personal debt had increased from £16,000 in 2002 to £23,000 in 2006. That is a large increase and for many it is a serious issue. Total household financial liabilities have increased every year since 1997, rising from approximately £586 billion in 1997 to £1,370 billion in 2006. When one allows for loans secured on dwellings as a percentage of households' gross disposable income, the figure has increased from 28 per cent in 1997 to 39 per cent in 2006.

Citizens Advice has seen increasing numbers of mortgage and secured loan arrears problems in the past two years. Home owners in arrears receive little help from benefits, insurance or their lenders. Poor lending and arrears collection practices have made problems much worse for many borrowers. In the past year, Citizens Advice reports having to deal with 57,000 problems of mortgage and secured loan arrears—an 11 per cent increase on the previous year.

Safety nets are failing. The take-up of mortgage payment protection insurance has declined and the Government's own income support for mortgage interest payments scheme is failing to keep people out of serious arrears problems because of the limited help that the scheme provides. Sustainable home ownership is a challenge for many low-income households. Better co-ordination of government policy and proactive regulation of bad businesses are needed to prevent these borrowers from being set up to fail.

Earlier this month, the final report of the Thoresen Review of Generic Financial Advice was published. It sets out a blueprint for a national money guidance service to help people to make better decisions about money issues. The conclusions include the provision of money guidance focused on giving people information on budgeting, saving and borrowing protection, retirement planning, tax and welfare benefits, and jargon busting. The report recommends a United Kingdom-wide approach to money guidance to be delivered using a multichannel approach—telephone, face-to-face and web-based provision. Those improvements would be paid for by splitting the costs equally between the Government and the financial services industry. I am sure that noble Lords would be most grateful if the Minister would provide some indication of the Government's response to these proposals.

I believe that we need to do more to tackle the problems of financial difficulties and debt issues. There is a role for the Government, civil society, financial institutions and businesses to take responsibility jointly and to work together to find and implement the solutions. I would like the Financial Services Authority to exercise greater scrutiny and control over financial institutions where moral hazard or signs of bad practices are indicated. Financial institutions should follow responsible lending practices.

The Government should take steps to improve the financial education that is delivered in our secondary schools. There should be a clampdown on store cards. Perhaps we should consider a seven-day cooling-off period, so that if a customer signs up for a store card or other revolving credit facilities at the point of sale, this credit cannot be used for seven days. Equally, much clearer information for credit card users should be provided. For example, credit card adverts, application forms and statements should include illustrative scenarios that explain exactly how much credit will cost if only minimum repayments are made every month.

Finally, I should like to add that one of the key causes of financial inequality is that many people are trapped into poverty by the very welfare system that was designed to help them. There is reliance on a welfare culture. It is imperative that we support initiatives and polices that give encouragement and incentives to people to look for work or to go on training schemes. There should be a focused welfare-to-work programme. In addition to earning a wage, people will get satisfaction and self-esteem from working. Unemployment and poverty are contributory factors in the breakdown of families. My party is taking this matter seriously and we have set out our proposals on it. In view of the constraint of time, I am not able to discuss these fully.

Photo of Lord Giddens Lord Giddens Labour 12:50 pm, 27th March 2008

My Lords, I join other noble Lords in congratulating the noble and right reverend Lord, Lord Harries, on initiating this debate. I am pleased to have struggled out of my sick-bed to take part in it. It has been a fun and instructive debate so far. I am happy to say that I disagree with something in what all noble Lords have said and I disagree with everything in what some noble Lords have said.

If one wants to analyse inequality, one has to take an approach to it over time. You have to look at trends and you have to see how much policies have affected those trends. If one looks back at the period just after the Second World War, from about 1955 to 1975, inequality in all industrial countries was in decline. That was the so-called golden age of the welfare state. All countries followed a roughly similar pattern, and that is also true of the period after 1975 from the late 1970s through to the start of the 2000s, Inequalities started to increase in all industrial countries during that period. Those increases were not uniform. You will find very different levels of increase when you compare some countries with others. If you look at the statistics on the UK, economic inequalities increased more steeply during that period than in any other industrial country, including the US, apart from New Zealand—which also followed a similar kind of economic programme at that time. The polarisation of income here was greater than that in any other industrial country.

By 1997, the UK ranked poorly in terms of child poverty; by most measures it was 14th out of 15 among the EU nations. As Anthony Atkinson from Oxford University has shown, there has been an escape of income at the top. There was a steeply rising accrual of income to the top 1 per cent. For the top 0.5 per cent or 0.1 per cent, the rise was steeper than in most other industrial countries and certainly any other EU country.

Labour came to power in 1997 with the ambition of doing something about that. It was new Labour, which had a different orientation from past Labour Governments. It placed an emphasis on job creation and work to root out poverty. That was right and proper. It introduced a minimum wage, which was shown not to damage the proportion of people in work. Some 74 per cent to 75 per cent of the UK labour force is in work—a much higher proportion than in most other industrial countries. In France, for example, the figure is about 64 per cent and in Germany it is about 65 per cent. Having a high proportion of people in work is the condition of doing something about the less privileged, because that means that you can spend money on welfare measures that would otherwise be consumed essentially by paying people to stay out of work.

Labour introduced a raft of policies to help people in poorer areas and neighbourhoods. Many policies were targeted to help the poor and, of course, Labour made the radical pledge to reduce child poverty by a half by 2010 and eradicate it—which to me means reducing it to about 5 per cent—by 2020. I completely disagree with what some noble Lords have said about poverty and child poverty. For me, the aim to substantially reduce child poverty is important precisely because it is a means of reducing overall inequality. Child poverty is measured in terms of inequality. If you help children, you help poorer adults and poorer families. The pledge was the single most important statement that the Labour Government made on their commitment to producing a more egalitarian society.

What has been achieved? Well, Labour has been a redistributive Government. According to the studies of David Piachaud at the LSE, about 2.5 million people have been lifted out of relative poverty since 1997. Most people accept that that figure includes some 600,000 children. A much higher proportion of children have been lifted out of poverty if that is measured against an absolute deadline of 1998, as some noble Lords have suggested.

Contrary to what some noble Lords have said, it is not the case that overall economic inequality is on the increase. Most studies show that the Gini coefficient, which is the main measure of overall inequality, has stabilised since 1997 and has not continued to increase. But that is not easy to measure and it is not necessarily the best measure of overall inequality. In terms of child poverty, the country ranks about ninth or 10th among EU countries. At least that is an improvement. Some people say that social mobility has decreased under Labour; that is completely ridiculous because social mobility takes some 20 or so years to unfold. We will not know the effects of Labour's current policies—for example, the children's programme—until many more years have unfolded, but there is a decent chance that they will be successful.

What has gone wrong? Why has there not been more change? Since I do not have much more time, I shall briefly mention three things. First, Labour has been too timorous at the top. I do not agree at all with my noble friend Lord Desai. Social exclusion at the top is as serious a problem for society as social exclusion at the bottom. Personally, I am in favour of a wealth tax on the top 0.5 per cent of income earners which would be hypothecated and spent on helping poorer children. I do not think that that will ever be accepted by the Government, but something like that should be done. Secondly, the Government have not managed to reach those at the very bottom. The noble and right reverend Lord, Lord Harries, mentioned the 10 per cent to 15 per cent who have not profited much from economic growth. I have figures that show that the bottom 4 per cent to 5 per cent has especially lost out. That is because tax credits do not really reach those groups and the problem of the in-work poor is significant.

Finally and thirdly, in contrast to the views of my noble friend Lord Desai, I do not believe that you can conquer poverty by concentrating on the poor alone. The problem is that more affluent people find strategies to outflank what you do. Labour came too late to thinking about policies such as lottery admission and the policies adopted by the Charity Commission and others to ensure that private schools have more social responsibilities. You have to do something about inequalities in the middle, as well as at the top, to help those at the bottom.

In conclusion, I believe that we can have a more equal society. It is completely compatible with economic competitiveness and, as the noble and right reverend Lord, Lord Harries, said, the Scandinavian countries have shown that this is so.

Photo of Lord Roberts of Llandudno Lord Roberts of Llandudno Spokesperson in the Lords, International Development, Spokesperson in the Lords, Welsh Affairs, Whip 12:58 pm, 27th March 2008

My Lords, I appreciate the opportunity provided by the noble and right reverend Lord, Lord Harries, for me to take part in this debate on inequality. I looked first at the extent of child poverty in various constituencies in the UK. I took as the criterion the percentage of families in receipt of income support, jobseeker's allowance, incapacity benefit, severe disablement benefit or pension credit. Manchester Central was the constituency with the largest percentage, where 52 per cent of children were in poverty. Buckingham had the smallest percentage of children in poverty— 5 per cent. That is a big division. It indicates that children in that part of Manchester are 10 times more likely to suffer poverty and its effects than those in Buckingham. Other areas I looked at, such as Islington, north-east Glasgow and Tottenham, were all on 47 per cent. I was surprised that Islington, for instance, was there, but it was according to this measurement.

In Wales, as my noble friend Lord Livsey indicated, we also have severe problems. These are not new. I originally come from the quarrying areas of north Wales and we know that in the time of the lockout in Penrhyn quarry, say 100 years ago, poverty was far worse than anything we can imagine today, as it also was in the coalfields of south Wales. However, within Cardiff—not between area and area, but within cities—the Cardiff North constituency registers 13 per cent of children in poverty while Cardiff South and Penarth, just a stone's throw away, registers 34 per cent. Therefore, we get this difference within cities themselves.

You can compare that with areas outside. The Rhondda has 38 per cent and Merthyr Tydfil has 37 per cent. This contrasts with Brecon and Radnor at 14 per cent, and both Montgomeryshire and Monmouth at 13 per cent. Therefore, parts of Wales have three times greater a number of people in poverty than others. The older industrial areas are faring the worst. Merthyr Tydfil was once the greatest ironworks in the world, but of course declined over the years. The coalfields have gone so the industrial areas have fared very badly.

We can also see rural poverty, but in a different way. I do not know why but there is a different sort of culture. For instance, a year or two ago, the average income in farming communities was about £7,000 per person. It is better now; I am told it is on the level of the national minimum wage. However, there was poverty there. Why? Rural depopulation—we come again to the closure of quarries, mines and steelworks. I come from a tourist area and, even there, we have seen change as people decide they are going to spend their money to get a little sunshine. In Llandudno we offer them a great deal of sunshine, but sometimes they want a bit more than we can offer, so they go overseas and spend their income there. We see a change—where hotels were, flats are being built. Things are different. Some former seaside resorts are now places of real problems, concern and poverty. So many of our young people—the ones who could really take the lead in their local communities—go elsewhere and build careers, often very successful ones, in different areas.

Therefore, regeneration is of course necessary. However, I suggest—and someone has hinted at this today—that even money from Europe is not put to work in the best possible way. It must not be a one-off solution but a rolling programme of solution. One-offs often do not succeed; we need something continuous. People who can look ahead and plan with vision can tackle some of these problems that we are facing. It needs all-round planning.

Not every rural school can be maintained. Not every rural church or chapel can be safeguarded. We may have to take tough decisions about communities on which we can concentrate our efforts, and look at a holistic approach—schools, libraries, post offices, shops, community facilities and churches. Too often, we see these in gradual decline. They disappear one after the other. Jobs go after the quarry closes. Families with children have to go to earn a living elsewhere. With fewer people to buy at shops, they close. With fewer children to make school viable, the school is down and possibly has to be closed. The post office closes. Pubs and churches go. Houses that once housed local families are now on the open market and that is the end of that community.

Communities are vital these days. If you have community, a feeling of a neighbourhood and of people belonging to and helping each other, you can see that this affects not only social things but crime and so on. Recently the lowest crime area was Ceredigion, perhaps the most rural of our communities. If people are neighbours, then changes can happen.

Just looking at the inequalities, we can see not only that there are ways of tackling poverty, but that by tackling it we can improve neighbourhoods, social cohesion and many of the crime scenes that trouble us so much today. Therefore, we can see financial and social but also moral rewards when we try to tackle the inequalities within our communities.

Photo of Lord Lea of Crondall Lord Lea of Crondall Labour 1:05 pm, 27th March 2008

My Lords, I very much welcome this debate, introduced by the distinguished noble and right reverend Lord, Lord Harries. I also welcome the contribution of the right reverend Prelate the Bishop of Liverpool—whenever I hear him speak, I am reminded of the role played by David Sheppard, with the Cardinal, all those years ago in Liverpool—and of the right reverend Prelate the Bishop of Ripon and Leeds. They all demonstrate the very valuable and ongoing contribution that those on the Bishops' Bench make in this House.

One theme that emerged is that there is no equality of respect between people in the top 1 per cent, who now receive, as my noble friend Lord Sawyer pointed out, 100 times more than those in the bottom 1 per cent. There is just no equality of respect. I certainly part company with those who put what I call a panglossian gloss on the current position.

Before turning to the main theme, I note that the most reverend Primate the Archbishop of Canterbury will follow the Bishops in a month's time, leading a debate on exactly the same subject. I hope that he is not going to have the same problem as I believe he had on the General Synod. It was remarked that he noted a very strong current of disagreement with something that he never said. I hope he will not have that experience here.

The extremity of the ratios we have been hearing about takes us back to pre-war distribution, perhaps not in the general Gini coefficient—I will come back to that—but certainly the top to bottom ratio goes back to before the war. I was on the Royal Commission on the Distribution of Income and Wealth in the 1970s, and one could chart the gradual growth of equality. Some industries, including the Post Office, had data going back 150 years. Between the chief executive and the postman, for example, the ratio went from 75:1 before the First World War, to something like 50:1. By the time the Second World War broke out, it rapidly went from 25:1 down to 15:1. By the 1970s, it was down to about 10:1 and now, of course, it is shooting back up. It has leapt back to how it was in the 1930s and, goodness knows, if it goes on like this, it will be back to how it was in Victorian times. I believe that this phenomenon will have consequences, which we are beginning to see with people pulling away from the political process. If they do not think that they are part of society, it is a case of "to hell with them".

That leads to a political point, with a capital "P", to some extent. For most of my life, when Labour politicians have been out of kilter with a substantial consensus of public opinion, it has been argued that that has been because they have been in some sense too socialist. You can argue about that, but we now have the extraordinary phenomenon that a majority of people, according to the Joseph Rowntree Foundation research, consider the income gap to be too large. This perception is specifically based on those on higher incomes being overpaid rather than those on lower incomes being underpaid. We now have a perception—not mine, of course—that the Labour leadership is to the right of the consensus. I do not expect this phenomenon to last.

I strongly agree with some things in new Labour and strongly disagree with others. One thing I disagree with is the green light that people thought that it was giving to the pay explosion in industry. It is not just in financial services. My noble friend Lord Desai, talking about the future of capitalism—he will forgive me if I misrepresent him—implied something along the lines of a spike in financial services; my noble friend Lord Sawyer, said that there is not. On the differentials in the remuneration committees, when I was on the royal commission I learnt that, if you raise the top of the pyramid, you will increase its step sizes. That has been the experience of the past 150 years. It is changing now, but somehow equality has not been on the new Labour agenda.

Just look at the argument that this is a question of equality of opportunity, a good thing, next to equality being not such a good thing. I shall call a spade a spade; I come from Lancashire, so I might as well. The parents of children who went to public schools are actually paying for and seeking a rise in inequality. That is what the public schools are there for, to an extent. I cannot forgo the opportunity to mention the old chestnut about the master at Eton who told a boy who was a bit reluctant to write an essay on poverty to write down one sentence to get the essay going. The boy wrote that, in a family, the Daddy was poor, the Mummy was poor and the butler was poor. This is a question of people's lifetime experiences. I want the Charity Commission to say that public schools must have 50 per cent of pupils on scholarships to change the culture, not 5 per cent. In Parliament—let us cite facts—60 per cent of the Conservative Party in the House of Commons went to public school; for the Liberal Democrats, the figure is 39 per cent and for the Labour Party it is 18 per cent.

We cannot cover everything, and I am up to my seventh minute. I ask the Minister to take on board the fact that more work must be done to look at the relationship between what I call the vertical inequality agenda, which I have been talking about, and all these horizontal inequality agendas. You cannot solve the problems of the horizontal equality agenda—gender, race, region and so on—without bringing them within the totality of the vertical inequality agenda.

Photo of Lord Patten Lord Patten Conservative 1:13 pm, 27th March 2008

My Lords, it is interesting to follow that paean of praise for the 1970s. "Bring back the 1970s" seemed to be what the noble Lord, Lord Lea of Crondall, was saying.

Photo of Lord Patten Lord Patten Conservative

He agrees, my Lords. It has also been an enjoyable debate for other reasons, not least seeing those two great Labour economists and scholars, the noble Lords, Lord Giddens and Lord Desai, disagreeing so vigorously with each other. We believe in transparency these days; I declare myself as much more a Desai man than a Giddens man. I do not at all seek to harm the noble Lord, Lord Desai, in saying so.

Working as I do now, and declaring my registered interests, both in the City of London and the boardroom, I was particularly interested to hear the references of the noble and right reverend Lord, Lord Harries, to Chesterton and Yeats in his introduction. It made me pause for thought on the fact that the greatest leveller of inequality is mortality itself, and reminded me of some lines in TS Eliot's "East Coker" summing it all up. I have for some reason never heard these lines read out at any of the memorial services for the great and the good that I have attended:

"O dark dark dark. They all go into the dark ...

"The captains, merchant bankers ...

"The generous patrons of art".

Having reflected on that, I was more than comforted in reading the article of the right reverend Prelate the Bishop of Rochester in this Easter's Sunday Times, where he wrote:

"The creation of wealth is certainly part of our stewardship but so is the use of it".

The right reverend Prelate, who is not in his place today, went on to reflect:

"There were a number of wealthy people around Jesus ... What was required of them is also required of us and that is to share our wealth generously".

Just so. I have caught a hint in one or two of the speeches I have heard so far from the Labour Benches, and perhaps also from the Liberal Democrat Benches, of disapproval of wealth creation. It is all too easy to condemn wealth creators whose activities have genuine benefits when they are spread and multiplied through income groups. I see this in the City of London, where I work with people who give up a lot of their own income and time on charitable and voluntary work. As one example, I have no relationship, and never have had, with HSBC—one of the great British banks, a global superpower. Its chairman, Stephen Green, who was the chief executive, doubles up on Sundays, high days and holidays as an Anglican lay preacher. It is important that these things are recognised. It was because I saw some hint of recognition of this in the speech of the noble Lord, Lord Desai, that I lined myself up behind him.

All of that said, I have only two points to make. First, financial inequalities are sometimes relative and a matter of perception. There are lots of people working in the public services, for the public good, who perceive an inequality between what they get and what the private sector gets: the difference between that and their own public-sector wage settlements. Yet these presently rather grumpy public sector workers have great leverage and influence because there are lots of them. They also have excellent conditions, often better than are enjoyed in the private sector, in the matters of holidays, leave, index-linked pensions and all the rest of it. They are in a powerful position, as they were back in the golden age of the 1970s that the noble Lord, Lord Lea of Crondall, was lauding so much.

Public sector workers can make a fuss, but lots of people cannot. I think of those who are perhaps elderly and do not have much of an organisation, like the not very well off who have saved a little bit—a few thousand or tens of thousands over the years—as they are always enjoined to do, so that they do not become a burden on the state. Yet when they reach the age of 75, they must have an annuity. That can tip them over, bizarrely enough, into a situation which is much closer to poverty. Particularly in the present state of the markets, it is bad luck to anyone who has had to buy an annuity in the past six months; they may have seen a 20 per cent drop in the income they will get. This seems to be the result of a slightly unholy collaboration between the Treasury, HM Revenue and Customs and, I have to say, some of my friends in the pension fund industry who earn substantial fees from these annuities. People should not be forced to put their hard-earned, often very small, savings at risk through being forced to have annuities in this way.

Secondly, the position of married couples, unmarried couples and those—often women, sometimes men—who live alone with children is a financial inequality that does not get enough attention. When I went into the matter with your Lordships' ever-helpful Library, I got a letter, expressed with proper restraint, dated 18 March. I had asked what facts there were about income differences between married and unmarried couples and single parents. The kind and excellent Librarian said that Government statistics frequently conflate marriage and cohabitation and, as such, income data, broken down by marital status of couples, appear not to be widely available. I would put it rather more colourfully. I think that there is a conspiracy of statistical silence in government circles to conceal what may exist and what some people assert exist: that some lower-income married couples, who may be in receipt of benefits, are getting less than those who are unmarried. I do not know whether it is true or not. I cannot make a clear judgment because we do not have the facts. We get screaming headlines in the tabloids which say they are the facts. Sometimes those headlines are right; sometimes they are not.

I seek some transparency from the Government on this issue. There seems to be a clear and unusually absolute consensus from scholars of all views—left, right and centre—that family breakdown is bad for children, and is consistently associated with poorer outcomes, increased risk of poverty, crime and health problems, leading to the inequalities raised by the noble and right reverend Lord, Lord Harries, in his introductory speech.

I ask the Minister to give a clear statement today that we are not going to be denied this information in the future. Sometimes the politically correct seek to hide inconvenient truths. The Government should collect and publish the data on the income disequilibria that may exist between married and unmarried couples, and make it publicly known so that there can be a proper debate in your Lordships' House and elsewhere.

Photo of Lord Haskel Lord Haskel Labour 1:21 pm, 27th March 2008

My Lords, the noble and right reverend Lord, Lord Harries, has been a fighter for equality and fairness for as long as I can remember. The right reverend Prelate the Bishop of Liverpool reminded us that the noble and right reverend Lord debated this issue when he was on the Bishops' Benches, and he is still fighting on the Cross Benches. As ever, he is right: it is unfair. However you measure it, there has been growing financial inequality. Like the noble and right reverend Lord, I am aware that greater financial inequality leads to more social upheaval. It leads to more crime, embeds greed and, as the noble Lord, Lord Layard, said in his recent book, leads to less happiness.

I say to the noble and right reverend Lord, Lord Harries, that we have to balance this with other considerations, such as the economy. My noble friend Lord Desai reminded us that globalisation and technology have eliminated unskilled jobs and created the need for greater skills. Innovation has changed the face of industry. Our membership of the single market has created more competition. We deal with this through empowerment. We need to empower people and to give them the tools to improve their skills, to be innovative, to be entrepreneurial, to be more competitive and to grow the economy, as the noble Lord, Lord Marlesford, said. Certainly, there have to be safeguards such as a minimum wage and human rights. To a degree, legislation has provided these.

If you are going to empower people, you cannot set limits. As my noble friend Lord Desai said, it is not a zero-sum game. As a result, income differentials arise. This empowerment may have created excessive wealth for the few, which the noble and right reverend Lord, Lord Harries, described dramatically, but it has also created jobs and opportunities for the many. To give credit where it is due, 29.5 million people are at work in Britain today and unemployment is the lowest since 1975. My noble friend Lord Giddens explained that our 75 per cent employment rate is among the highest in Europe. In general, the policy seems to have worked. It has been successful for the economy as a whole, in spite of the increasing financial differentials.

However, I agree that there is one area of society where rising income differentials are not acceptable and the damage is too great. Many noble Lords have given the answer: children. What convinced me were those wonderful longitudinal surveys, where the same people are interviewed regularly every few years. Some go back to the 1940s. They make it absolutely crystal clear that if you do not reduce financial differentials among children, disadvantage is passed on from generation to generation. This is the consolidated poverty about which the right reverend Prelate the Bishop of Liverpool spoke. Growing financial inequality at work might be tolerated, but financial inequality between children is not. It has to be deliberate government policy to close this gap.

In the 20 years before this Government came to power, the proportion of children in relative poverty more than doubled and something had to be done. As the right reverend Prelate the Bishop of Ripon and Leeds said, the tax and benefits system had to be reformed. Child tax credits were introduced specifically to increase the income of those households with the poorest children. As a result, the 2008 Budget book tells us that, in real terms, compared with 1997, households with children will this year be on average £1,800 better off. In spite of what my noble friend Lord Giddens said about child tax credits not reaching the lowest levels, the Budget book tells us that households with children in the poorest fifth of the population will be on average £4,000 better off. Tax credits are reducing financial differentiation among children.

Money is not enough. In addition, you have to deal with the consequences of financial inequality on children in order to break the cycle of deprivation. To do this, a whole new sector of public services for the under-fives has been created. Noble Lords who read the House Magazine will have learnt that I took my youngest grandchild to the One O'Clock Club at Brockwell Park, south London, on Friday afternoon. It is one of the 2,460 Sure Start children's centres established so far. That is where you can see for yourself Sure Start working and financial inequality reducing.

Other things work, too. Every Child Matters was introduced in 2004. We have enhanced maternity, paternity and adoption leave and the children's element in the working tax credit. The results have been truly remarkable. The independent evaluation report published on 4 March shows what a positive impact all this has had on the lives of children. This is important, because I hope that by now noble Lords will agree with me that income inequality between children is everybody's business.

This is why I am concerned when David Cameron says that he would cut government investment in Sure Start in order to employ more health visitors. He said so on 15 March. I say to those on the Front Bench opposite that surely this would have the effect of increasing the income differential between children, not reducing it, and increasing the funding difficulties that the right reverend Prelate the Bishop of Liverpool described. Perhaps they think that, politically, it does not matter. I agree that reducing the differential is a thankless and expensive task, but it is brave and it is right. Right now it is something that may produce very few political dividends and so may be easy to cut, but eliminating financial differentials between children will be one thing for which this Government will be remembered. Irrespective of which Bench we sit on, we should all be prepared to play our part.

Photo of Lord Newby Lord Newby Spokesperson in the Lords, Treasury 1:29 pm, 27th March 2008

My Lords, I join other noble Lords in thanking the noble and right reverend Lord, Lord Harries, for bringing forward this important debate today. My starting point is what is happening to inequality. There has been broad agreement that, generally speaking, the period from the First World War until the end of the 1970s saw a steady fall in the share of income that accrued to the top earners. That trend was then reversed and there has been a big increase in the share taken by top income earners during the past 25 years. UK experience in this respect has been pretty similar to the OECD average, although, as the noble Lord, Lord Giddens, said, it is at the top end. At the bottom end, it is not just the Scandinavian countries that have seen a lesser increase; France and Japan are also in that category. Income inequality is now at its highest since the 1940s. As the noble Lord, Lord Giddens, pointed out, if it is not increasing, it is certainly not reducing. As for wealth, during the lifetime of this Administration, Britain's richest 10 per cent have increased their share from 47 per cent to 54 per cent of the nation's wealth.

If that is the situation, why does it matter? Obviously, poverty in absolute terms matters a lot, but inequality matters a lot as well, because it exacerbates a whole range of problems, many of which have been referred to today. For example, several noble Lords talked about how inequality affects health at both ends of one's life, whether birth weight or life expectancy. Through the reduction in self-esteem that it brings, it helps to fuel crime. It undermines democracy, because, broadly speaking, the poor do not vote. It divides cities; it prices people out of housing; it heightens ethnic tensions; it is a barrier to opportunity; and it stifles social mobility. As the right reverend Prelate the Bishop of Ripon and Leeds and the noble Lord, Lord Sheikh, pointed out, it leads to debt.

Most generally, inequality erodes the spirit of community. By contrast, I think that there has been agreement that a society that is seen by its members to be fair is likely to be a more content, happier society—surely the kind of society in which we would all prefer to live.

If inequality is increasing, concern about it, at least until recently, seems to have been falling. Even a generation ago, there was a real resentment among many people about the incomes of the rich and the plight of the poor. That has not gone altogether, but the real anger that drove many, especially those on the left, into politics has in many cases been replaced by a wearied acceptance that hedge fund managers, top lawyers, footballers and film stars will earn increasingly stratospheric amounts.

Perhaps, however—today's debate may reflect this—there are the beginnings of a sense that that state of affairs is not desirable and should change. If so, what shall we do about it? Traditionally, if you wanted to reduce inequality, the place to start was tax. In particular, income tax was seen as the most powerful redistributive tool, and high rates of tax for high earners were advocated principally on redistributive grounds. Today, a very high level of personal income tax is no longer seen as politically acceptable or, in a footloose age, economically desirable. It was interesting that in the Rowntree poll that has been referred to three-quarters of people said that they thought that the income gap was too great, but only 32 per cent wanted it tackled by redistribution—that is, by higher tax on higher earners.

There are no doubt a number of reasons for that. A major one is clearly that many in the middle classes fear that any further tax hike will somehow hit them. There is also a fear—if I may say so, the affluent are extremely adept at stoking it, as we are currently seeing—that if the affluent were taxed at a high rate, many would leave the UK to work elsewhere and the overall economy would suffer. Partly as a consequence of that line of argument, some believe that higher taxes would reduce overall tax revenues and that, in line with the Laffer curve theory, we should be reducing tax levels to increase tax take. We are also increasingly hearing arguments that direct taxes should be reduced across the board to make room for new taxes to promote more environmentally friendly patterns of behaviour.

Although all those arguments are in my view to a greater or lesser extent intellectually flawed, the fact is that they are advanced with such energy that virtually no politician—perhaps the noble Lord, Lord Giddens, is an exception—will now make the argument for higher direct tax rates. There is, however, great scope to rein in inequalities of disposable income of some of the most affluent by taxation measures. Noble Lords will recall that Leona Helmsley, the New York hotel billionaire, famously said:

"Only the little people pay taxes".

That has too often been the case in the UK. The Government are belatedly proposing measures in respect of capital gains tax and non-doms that begin to tackle the problem, but in both cases their approach is too timid. In the case of capital gains tax, we support the idea that capital gains should be taxed at the same rate as income, which would mean in practice that many paid a rate of 40 per cent rather than the 18 per cent now proposed by the Government. In the case of non-doms, we propose that those wishing to retain non-dom status for more than seven years should pay taxes on all their overseas income, rather than the proposed non-dom poll tax of £30,000. However, at least the Government are making some progress in those directions.

Tax, however, will not greatly affect income inequality if the salaries of those at the top end rise at a much faster rate than those at the bottom. Much as I would like it, I am not a great optimist that voluntary restraint is about to break out. The back-scratching nature of many remuneration committees, for example, has made them an instrument for an upward ratchet in wages rather than a restraining influence. The noble Lord, Lord Sawyer, referred to that; no doubt his remuneration committee is the exception that proves the rule. The bonus culture in the financial services sector, which can see individuals earning bonuses of up to 10 times their salary, is particularly pernicious, for not only does it lead to excessive total income levels but it feeds the kind of reckless decision-making that fed the banking bubble that has now been so dramatically punctured. As the noble and right reverend Lord, Lord Harries, pointed out, the banks are beginning to discuss that. They need to do so for commercial as well as moral reasons.

If reining back the income growth of the rich is necessary to reduce inequality, what about the other end of the spectrum—improving the income levels of those at the bottom end of the income scale? The Government have done a number of things that have undoubtedly made a positive difference. We have heard about those this morning: tax credits, for example, and the minimum wage. However, there is much more that can be done, not least, as the noble Lord, Lord Sutherland, pointed out, in respect of pensions. The level of pension poverty in this country, especially among women, as he pointed out, is a national disgrace and needs to be tackled urgently.

However, just as important as any increase in transfer payments from the state to the poor must be a series of measures that help people to earn their way to a decent standard of living. We have a lamentable track record in providing appropriate education and training opportunities for those who find the traditional academic route unmotivating and which therefore fails them. Here we are talking primarily about the poor and those from poor backgrounds. The report of the noble Lord, Lord Leitch, pointed out that, out of 30 OECD countries, the UK was 17th on low skills and 20th on intermediate skills. Seven million adults lack functional numeracy, 5 million lack functional literacy and tens of thousands of schoolchildren leave school virtually unable to read, write and do arithmetic. Two key initiatives need to be further supported in this area. The first relates to vocational education for those still at school; the second relates to apprenticeships. In both cases, the Government have set high, demanding targets that many of us feel they have not yet willed the means to achieve.

We will have the opportunity to debate some of those issues again in a month's time, but the message from today is that inequality matters. For too long, it has remained in the shadows of political debate. The noble and right reverend Lord, Lord Harries, has rightly put it in the spotlight today and we must all hope that it remains there.

Photo of Lord Skelmersdale Lord Skelmersdale Shadow Minister, Work & Pensions 1:40 pm, 27th March 2008

My Lords, I, for one, have found this a fascinating and wide-ranging debate, and I congratulate the noble and right reverend Lord, Lord Harries, on being successful in the ballot and choosing the subject of income inequality. Unlike the noble Lord, Lord Newby, I will not have two goes at the subject because I will not be available when the debate in the name of the most reverend Primate is debated in your Lordships' House.

I agree with the noble and right reverend Lord, Lord Harries, and with other noble Lords who said that it is a matter of both economic and social concern when there is massive inequality of wealth. Many of your Lordships have spoken with great feeling—emotion, even—on this. It is often argued that a lack of connection between the rich and the poor is divisive and damaging to society as a whole. However, I agree with the noble Lord, Lord Desai, that this would be true if we were talking about absolute poverty, which the noble Lord, Lord Newby, spoke about and which, thankfully, we have not seen in this country since the Victorian era—a point that was made in relation to south Wales by the noble Lord, Lord Roberts of Llandudno. Absolute poverty is where people lack the necessary food, clothing or shelter to survive. This debate is about relative poverty, which has been defined as the inability of a citizen to participate fully in economic terms in the country in which they live.

The right reverent Prelate the Bishop of Liverpool introduced the subject of the north-south divide, and told us of his belief that relative poverty is greater in the north than in the south. I rather doubt that some who live in Leicester, Birmingham, London or Bristol would agree with him. We do not so much need policies that narrow the gap as to secure a rising income level for those at the bottom of the wealth scale. Too much preoccupation with differentials tends to obscure this more vital objective. I defy anyone successfully to argue that this is not a wholly positive, desirable and noble aspiration.

Neither I nor the Minister can rank ourselves among the professors of economics who grace your Lordships' House. However, even I, who got as far as A-level in the subject, appreciate that wealth can only be created by providing something for someone at a price that they want to pay. Of course, the rewards that result would be greater than they otherwise would be if the levels of both corporation tax on the company, and income tax on the individual were reduced. This would be all very well for the manufacturer, but I note from National Statistics Online—and the noble Lord, Lord Newby, referred to this—that lower taxes have increased rather than decreased the income gap between the best and worst off. This is not to argue for an increase in taxes, which would damage the economy as a whole, but it is to suggest that targeting the lower income deciles is the right approach.

It has been argued that hedge fund managers, footballer players and the like, and even venture capitalists, contribute very little to the wealth of the nation and get gross rewards. Good is good, money is bad, in précis. I cannot condone this approach, which is so often based on jealousy, although I noted that the noble and right reverend Lord, Lord Harries of Pentregarth, denied this in his particular case. Those who argue this way are wrong. What these men, particularly the money men, have introduced is a more efficient method of using capital—capital, I might remind you, which can only be effective if it is used to finance goods and services for which there is a demand. If it is not used in this way, it will diminish or even disappear, and then there will be little or no financial rewards for anyone. If, however, it is used effectively, greater wealth will have been created for everyone, both rich and poor.

It should be the duty of government to organise things so that poorer people can afford what they need. That is exactly why we have a social security system in this country. My noble friend Lord Patten is right—the rich should support those at the bottom end of the wealth scale, not only by paying taxes, but through charitable donations. In answer to the noble Lord, Lord Lea of Crondall, parents who send their children to private schools are subsidising the education of the rest of society—to a small extent, I accept. Unfortunately, over the years the social security system has become hugely expensive—the DWP budget is now £120 billion, which is mostly spent on 3.5 million people on inactive out-of-work benefits. It is also out of kilter, by which I mean that people are still getting benefits which are not appropriate to their circumstances.

I have always believed that the basic reason for any Government's existence is insurance. This has many meanings including, for instance, defence of the realm, or the policing of our towns and cities, which do not concern us in today's debate. What does concern us is the provision of a basic level of income provided, if necessary, by the State, to those who through no fault of their own fall on hard times. That is the right of all our citizens. However, with rights go responsibilities, and it is the responsibility of those on benefit to do all they can to reduce state support for them.

This Government believe, and I agree with them, that there are those receiving benefit who, even if they cannot cope with full-time work, should do such work as they can part time. The trouble is that the benefit system is now so complicated, and the tapers and withdrawal rates so severe, that for some there is no economic advantage in getting a job. This is the major challenge for the Government. If work does not pay, it will not be achieved—I agree with my noble friend Lord Sheikh on this. The Government have made a bad situation worse here, not merely by removing the 10 per cent tax band—referred to by the right reverend Prelate the Bishop of Ripon and Leeds—but by increasing the tax credit withdrawal rate by 2 per cent which, combined with an income tax rate of 20 per cent and a national insurance rate of 11 per cent, brings the marginal rate of people facing tax credits to 70 per cent. Incidentally, this is much higher than the marginal tax rate for very rich people, which is set at 41 per cent.

The Government are target-driven, and the most obvious target, indeed the primary objective of the DWP, is to eliminate child poverty by 2020, and on the way to halve it by April 2011. Child poverty is defined as those children living in households receiving 60 per cent of the median income, which was £14,000 a year in 2007. By definition, this is a moving target. It is hardly surprising then that the Governmnet have given up on the half-way staging post of halving child poverty.

The noble Lords, Lord Giddens and Lord Roberts of Llandudno, spoke about children. I, too, welcome what the Chancellor managed to achieve for families with children, even in these straightened economic times: the increase in child benefit and child tax credit; and the fact that parents' income from child benefit will be disregarded when calculating housing and council tax benefits. However, even these welcome additions will mean that the target of halving the 3.7 million children currently living in poverty will be missed by between 450,000 and 800,000, depending on whose figures you believe—either the TUC or what I understand came out of the various pieces of paper accompanying the Budget. Even so, the sums found in the Budget will certainly help to reduce the income gap of people with children.

However, what help are the Government planning for single people and childless couples? As far as I can see, they are the people who now need help so as to reduce income inequality. To return from the particular to the general subject of this debate, the reason for the Government's encouragement to get more people into work is that it stimulates growth by triggering people's aspirations of gaining wealth so as to climb the social ladder. None the less, a degree of income inequality is not only inevitable, it is essential, to foster those aspirations.

Photo of Lord Davies of Oldham Lord Davies of Oldham Deputy Chief Whip (House of Lords), HM Household, Captain of the Queen's Bodyguard of the Yeomen of the Guard (HM Household) (Deputy Chief Whip, House of Lords) 1:49 pm, 27th March 2008

My Lords, I share with all noble Lords who have spoken in the debate gratitude to the noble and right reverend Lord, Lord Harries, for being successful in the ballot and producing one of the more significant debates that we have to address in our society. We may perhaps have a reprieve in a month or so and I am sure that we all look forward to further intensive scrutiny of the issues that have been raised today. We are also particularly grateful to him for the measured way in which he introduced the debate and for the questions that he posed. Underpinning it all, as we would have expected, was a strong moral stance on the concept of a fair society. Indeed, most noble Lords who have participated in this debate have stressed that dimension.

There is no doubt that there are areas in which it is difficult for the Government to act against excess. We all recognise the great difficulties in any international market in this respect. There does need to be a moral force in society and a requirement that wealth faces up to the responsibilities that it enjoys because of the power that it conveys. When that wealth is reckless and heedless of the greater good of society, excess may be to the severe detriment of the economy and the welfare of society. Indeed, aspects of the present financial situation reflect this. It is therefore important that we ensure that people who hold responsible positions in society act responsibly. In the private sector, that goes for the remuneration committees which deal with bonuses that may reflect contributions to society that are not necessarily for the general good. That does not, however, alter the fact that the Government recognise that we operate in a condition-free market in which a great deal of wealth is generated by the private sector but in which there are also responsibilities. One responsibility is the Government's: their management of resources and the decisions that they take on behalf of society.

I listened carefully to the noble Lord, Lord Marlesford, who stayed true to the philosophy that has underpinned his contributions in this House and in his previous career with regard to the free market. He will have noticed, however, that he was almost the only noble Lord in this debate who mentioned public services—I shall come in a moment to the point made by the noble Lord, Lord Patten, who supported his noble friend on this, if I have time. The noble Lord, Lord Marlesford, indicated that we need to keep taxation low and that little good may come to the wider society through public resources. How can we talk about equality or inequality in our society without mentioning the National Health Service? One of the great distinguishing features between our society and that of the United States of America is reflected these days not so much in the distribution of income between the top and the bottom but in the distribution of a public good in terms of a free health service, which is of great importance to equal rights, equal opportunities and equality in our society.

I stress that the Government's public expenditure on health services and education and in other areas has contributed to a fairer society—a concept that has underpinned so many contributions to this debate. In stressing that, I come to the point made by the noble Lord, Lord Marlesford. We have been running an economy that, as he has freely recognised, has been successful for more than a decade in controlling inflation and producing necessary economic growth, which means that real household disposable income has grown substantially in the past decade. There has been a significant reduction in the number of children in poverty. Some 600,000 children have been taken out of poverty.

The concern has also been articulated that the Government are wedded to a target, but the target to reduce child poverty totally by 2020 and to halve it by 2010 is an estimable one. I know that it leaves us vulnerable to the charge that we are having difficulty hitting it. We all know that we need to redouble our efforts in order to tackle child poverty, but we should recognise the success that has been achieved. I am grateful to my noble friend Lord Haskel, who did precisely that.

I listened carefully to the noble Lord, Lord Sutherland, on the pensions position. I recognise that we have to make progress with regard to an increasing number of older people in our society and to pensions, which are a crucial issue for so many of them. In addition, we must consider a flexible working age and the ability of people to sustain themselves when they still have a contribution to make to society. However, the number of pensioners in poverty has reduced by more than a million under this Administration.

The last major point that I want to respond to—I hope I will also have the opportunity to reply to other detailed points that have been made—was the one on which my noble friend Lord Giddens reflected. Employment is crucial to reducing poverty. The opportunity to get and to hold a job is a critical escape route out of the irretrievable poverty that settles on the workless. This Government take pride in the fact that there are record employment rates for lone parents in our society. Indeed, we have the highest number of employed people in any significant economy. These measures help us to respond to a debate which I recognise challenges the Government on issues that are fundamental to a fair society. Nevertheless, it would be remiss of me not to assert with considerable pride from this Dispatch Box the achievements that have been made, or to recognise that the debate has highlighted how much needs to be done.

On the stretching out of differentials in our society, I concede the point made by the noble and right reverend Lord, Lord Harries, that those in the top 1 per cent have seen a significant growth in their resources in the recent decade or more, although that is against a background in which all incomes have risen significantly. There is a slightly wider measure than that. The growth in income of those in the top 10 per cent is not greatly above the median growth of incomes across society. It might be said that that is no answer to extremes of wealth—when has it not been?—but it might also reflect the fact that we can exaggerate the influence of the few when perhaps we should look at the quality of distribution over greater numbers than those in a restricted category, into which we put the hedge fund managers and the few who, with their reckless behaviour, have plunged us into considerable financial difficulties. Their impact on the real economy is quite limited.

In the same way, I am not sure that noble Lords can sustain the argument—the noble Lord, Lord Newby, raised this topic—that the large numbers of working people who go to football matches resent the earnings of footballers, except when they fail. It is all fine and dandy if their side is successful and at the top of the league. We can exaggerate the politics of envy that might sometimes creep into some arguments about income distribution, and I am not at all sure that it stands up to real analysis. I was therefore grateful to both my noble friend Lord Desai for congratulating us—he rightly should do—and to the noble and right reverend Lord, Lord Harries, for sketching out the main issues in the debate so brilliantly in his opening speech. My noble friend Lord Desai also said that the important thing for a Government to do on the question of distribution was to eradicate poverty. That is the moral case, the one that ought to drive government objectives, and is the one that will continue to drive this Administration against a background, as I have said already, where we have made substantial progress.

The noble Lord, Lord Livsey, introduced an extra dimension to the debate and was followed, as far as the Welsh perspective was concerned, very closely by his noble friend Lord Roberts. The right reverend Prelates the Bishop of Liverpool and the Bishop of Ripon and Leeds brought out regional dimensions and the fact that communities in other parts of the country did not enjoy some of the more obvious extremes of wealth that are seen in London. However, I always say to my colleagues in the other place that one of the great distortions that Members of Parliament can have is that, when they think of London, they think of the arrival at a railway station and travel through the West End to the Houses of Parliament. If they went a little closer to Hackney and the East End of London, they would see the same regional deprivation that obtains in other parts of the country. That does not alter the fact that there is an argument about regional distribution and I emphasise that the Government are increasing their support to regional development agencies. They do very good work and I was in conversation only yesterday with someone who marked out the fact that employment in South Wales for one company was directly due to the incentives given and work done by the regional development agency. Good work can be done there, and we intend to increase resources to the agency.

My noble friend Lord Giddens gave us the concept of trends. He is absolutely right: we cannot talk about issues of distributions as a snapshot, we have to look at trends of policies. There are aspects of the Government's policies that we never conceived could be fulfilled within the narrow framework of the four-year perspective that the parliamentary election cycle tends to determine these days. Nevertheless, he indicated that, while there are trends concerning aspects of the work of the Labour Government since 1997 that he castigated as being too timorous, considerable work had been and is being done to conquer poverty. I agree with him, of course: we cannot concentrate on limited groups of the poor alone, although they are undoubtedly the most important.

I am greatly restricted on time, not least because noble Lords also pushed their time limits to a greater extent and were not entirely in keeping with the clock, but I promised the noble Lord, Lord Patten, a response. We do publish examples of measures and gains from the Budget. There are clear illustrations of the position as regards couples and lone parents. I will be happy to discuss that with him subsequent to the debate. He will recognise the constraint that I am under now and he will forgive me for that.

I can see the noble Lord, Lord Sheikh, shaking his head at me because I have not really talked about taxation or responded to the question on benefits posed by his noble friend Lord Skelmersdale. I am all too well aware of the fact that with so many participants in the debate, some noble Lords are disappointed with my response today. I can say only that there is a second round to the debate.

However, I want to emphasise that we have set out some quite critical objectives. We have established increased opportunity for work. We are concerned that work should be the option for people to get off benefits. We have introduced a national minimum wage, mentioned by some in the debate but certainly a critical factor for fairness in society. We have introduced pension credit, which has helped transformed the lives of many pensioners. We have been concerned, through child tax credits and working tax credits, to deal with child poverty. These are solid achievements of a Labour Government. It is redistribution in action. There is a great deal to do and we intend to carry on with that work.

Photo of Lord Harries of Pentregarth Lord Harries of Pentregarth Crossbench 2:05 pm, 27th March 2008

My Lords, it remains for me only thank all noble Lords who have contributed the debate, and not least the Minister. What has been particularly valuable is that we have had perspectives from so many different areas of life, from Wales and the different regions of the UK, and from the City and industry. We have heard about the impact on older people and the dire consequences of debt. All that has helped us to face the many-faceted aspect of this problem that needs to be treated at both a macro and a micro level. As some noble Lords have brought out, even within the City, we need to pay attention to the very sharp differences within a few miles.

The noble Lord, Lord Lea of Crondall, talked about an equality of respect. I think that we would all agree about its importance, but I am left with the question as to how far our present situation favours or undermines such equality.

I beg leave to withdraw the Motion for Papers.

Motion for Papers, by leave, withdrawn.