Economic inequality is a hot topic. Most people are now aware that the rich have got richer, leaving everyone else with less to share. However, most do not know why the situation has got so bad and what to do about it. Tax is the obvious remedy, but in the current context where demands are growing on shrinking public resources, this is not a realistic possibility.
nef’s research sets out to consider how to tackle inequality at its source. It explores pre-tax or market income inequality, bringing together the academic literature that identifies the key factors and processes that have caused inequality to grow in the UK. It also considers how more equal countries have successfully addressed causal factors. Finally, it uses these findings to highlight policy areas that offer potential direction for change.
There are multiple reasons why inequality has grown, and varying degrees to which each factor has mattered. In order to sort and make sense of these factors we have grouped them under five headings:
- Initial conditions: the economic situation that people are born into, including wealth and asset ownership.
- Channels of influence in early life: the routes that could potentially inflate unequal starting points, most notably early childhood education and care, primary and secondary education.
- External influences: globalisation and liberalisation are two major external forces that have both directly fuelled inequality and played a considerable role in shaping the UK economy and labour market.
- The national economic system: including the make-up of sectors and profile of the labour market.
- The political system and tax: the type of political system, namely if it is proportionally representative or not, dictates the likelihood of governments tackling inequality. This in turn influences the progressive or regressive tilt of tax policy.
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