The responses to the Delphi exercise (see Annex 2 in the PDF for a full explanation of this process) from those who are deeply engaged in thinking about economic inequality show the breadth of the challenge ahead for Government.

The full list of 38 issues includes different facets of high inequality (such as excessive top pay, or high levels of poverty and deprivation), structural drivers of inequality (such as unequal access to educational opportunity, or the lack of worker representation on company boards) and undesirable consequences of high inequality (such as growing health inequalities, a lack of social mobility, or political polarisation). Participants also highlighted areas of policy that either contribute to high inequality (such as the UK’s system of wealth taxation, overly restrictive family and child benefits, or the insufficient support for households with disabled members) or make the impact of inequality more damaging (such as poor transport infrastructure, or the limited availability of free childcare). It shows that this is not an easy challenge to define.

Many we spoke to highlighted that there needs to be as much of a policy focus on reducing inequality as there is on mitigating the impacts of that inequality on people’s lives. In fact, reducing the gap between the richest and the poorest was ranked seventh as an issue to address in its own right (when participants were asked about the impact of inequality on outcomes).

Of the top three issues that emerged, two could be defined as both symptom and cause. The first is the issue of low pay and insecure work, and the second is the lack of affordable, quality housing. The former instinctively feels like a cause, but is also a symptom, with those stuck in this kind of work often lacking the power or resource to do otherwise. The latter feels like a symptom, but is also a cause, with poor, unaffordable housing exacerbating an individual’s circumstances. The final of the trio is insufficient and overly restrictive unemployment and income benefits – a driver directly amenable to policy change.

Participants in our workshop agreed that although there would always be some level of income and wealth inequality, they considered the scale in the UK to be excessive. A choice for the next government will be how much it attempts to shift the focus from the visible consequences of inequality to tackling the gaps themselves.

Top issues from Delphi exercise

1. Low pay and insecure work
2. Insufficient and overly restrictive unemployment and income benefits
3. Lack of affordable and/or quality housing
4. Lack of access to quality public services
5. Insufficient wealth taxation including inheritances
6. Unequal access to educational opportunity
7. Too much focus on tackling the effects of inequalities rather than focusing on reducing the inequalities themselves
8. Level of poverty and deprivation
9. Insufficient and overly restrictive family and child benefits
10. Lack of a sufficiently progressive tax system

In the UK, wealth has grown at a rate that has eclipsed GDP growth. National wealth – a mix of financial, property and state assets – at last measure stood at seven times the size of the economy, over double what it was in 1991. This is not a result of households actively saving. Instead, much of this wealth is ‘unearned’. It results from, for example, passive capital gains at a time when productivity growth has been stagnant. This has widened the wealth gap: total wealth for the richest 10% (shown in the graph below) has grown by nearly 25 times more than wealth grew for the bottom 30% between 2006-2020.

A major concern in this conversation is the growth in wealth and the inequalities that come with it. One of the major choices the UK Government will face is the extent to which policy addresses this. This challenge is not straightforward politically or in terms of policy options. Wealth was repeatedly raised as the core issue, but our experts more readily had income-related solutions to suggest, and the debate about a wealth tax isn’t easy (which might help to explain why the Labour party has recently ruled it out.)

However, what was clear was the need for the Westminster government (and devolved governments, when it comes to the taxation of housing) to take a good look at the tax powers it has at its disposal: our experts felt the benefits would be plentiful if it were better set up to tackle these inequalities. Better, more effective and fairer taxation was considered the most impactful tool in this space. As one participant pointed out, the Delphi contained so many suggestions on tax and redistribution because “that is what can make a real difference”.

As we have heard throughout our UK 2040 Options work, many parts of the tax system are unfair or ineffective. At the same time, there is evidence that public attitudes towards wealth taxes are shifting, with more people supporting tax rises than one might expect, possibly because they can see the extent of the problem.

Despite the difficulties of reforming the tax system, there are choices. A reformed capital gains tax, for example, was described by one participant as a “no-brainer”. The experts we spoke to raised equalising the tax treatment of earned and unearned income (or income whatever the source), as some of the most impactful policies that the next Westminster government could do early to reduce wealth and income inequality.

The most important interventions raised in the Delphi exercise

1. Income redistribution
2. Reforming the tax system so that the very rich and multinational companies pay more tax
3. Increasing minimum benefit levels to ensure everyone has a decent standard of living
4. Higher taxes on wealth (as opposed to income)
5. Major investment in social housing to reduce burden of housing costs for lower income households
6. A more generous social security system
7. Abolishing the two child limit benefit cap
8. Taxing unearned income the same as earned income
9. A more progressive consumption and income taxes
10. A double lock for ordinary families’ benefits linked to inflation and earnings

Although measures of income inequality have shown little change since the early 1990s, that does not mean that the relative fortunes of different groups have stayed the same. While politically difficult, change is possible, and it’s happened before. In the early 2000s there was a clear policy focus on reducing the number of pensioners in poverty. This was in response to a widespread concern that the state pensions did not keep track of our country’s growing affluence through the 1980s and 1990s. This focus built cross-party support for, among other measures, pensions to be linked to earnings, and helped to shift the dial on poverty within this demographic. Other factors, such as increased pension saving among baby boomers also contributed to the trends shown in the graph below: falling rates of relative poverty among pensioners in recent decades.

Similarly, the national minimum wage, once thought by some to be unimplementable, is now considered to be one of the UK’s modern policy successes. It has made a big difference to wage inequality, and a huge difference to the fraction of the workforce on low pay. 

One of the biggest questions therefore is: what should the next policy focus be, and where can we build a consensus-driven approach for meaningful reform? 

Our experts had a number of suggestions. One concern was that the large falls in pensioner poverty look to be under threat, as newly retired workers become less likely to hold the generous defined benefit pension schemes. To counter this, they said that enhancing auto-enrolment, where employers are required to enrol their employees in a workplace pension scheme, was a clear winner, as well as extending it through to groups that are not already covered. It will become even more critical that employers share in helping people save for retirement as our population ages, with the number of people of pension age projected to rise by 30% to 15.5 million by 2040.

They also discussed the need to shift the policy limelight and focus on working age benefits. The rising trend of the ‘working poor’ was identified as a concern. As one expert put it, “we made the case a number of generations ago that pensioners should share in the nation’s prosperity, now we need to make the case for working age populations”. Here, our experts discussed the fact that current benefit levels are inadequate, and have been set without robust consideration for what a household needs. The evidence backs this up: the current basic rate of Universal Credit is at the lowest-ever level as a proportion of average earnings. This, of course, impacts children as well as adults, with the rate of children in relative poverty continuing to remain persistently high. 

As well as thinking about how social security benefits should be uprated, there was also a discussion about the right level of generosity, and a discussion about whether the benefit system provided claimants with an adequate income. One idea raised was the implementation of an independent advisory group that would set minimum benefit levels based on a range of factors, including ensuring that people can afford the essentials. While some considered that an independent group would be unlikely to have the power to implement recommendations over such a large amount of state spend, all agreed that the power of building consensus for interventions should not be overlooked if policy is to be successful in this space.

As one of our experts put it, “the problems and the solutions can sit there as a list of bullet points, but the context that they sit in is a rapidly moving and quite frightening one”. Changes in the structure and size of the economy, technological advances and demographic changes have all had an impact on inequality in the past, and will in the future, too. 

For now, one key theme that emerged was changes in the labour market. Access to decent work, with consistent hours and fair pay, is now a requirement for sharing prosperity and tackling wealth and income inequality.

Insecure work and low pay was ranked as the number one issue by participants in our survey. One of our participants called out low pay and insecure work as “the devil” stating that “the knock-on effect of low pay [on people’s living standards] is phenomenal”.

The UK’s labour market has low unemployment and a high national minimum wage: two elements that stand in its favour. But at the same time, it has some tricky and long standing structural issues. Wages have been stagnant in real terms since 2009, which is contributing to widening inequality between the middle and the top of the pay distribution. Insecure work is now rife, with employment arrangements that can exacerbate this problem, such as zero-hour contracts, now widely used. And, at the same time, there are exploitative or unlawful employment practices in some sectors. 

But while it was the top issue raised in our Delphi, very few of the interventions proposed addressed how the Government should tackle insecure work and low pay. As one participant pointed out, this could be because “there isn’t really a clear idea of the things that we can do”. The blight of insecure work also had not, until very recently, featured high on the political agenda. Here, one participant hypothesised that this could be because “it’s not simple, and the structural drivers of these parts of the labour market are complex”.

Given the competitive advantage employment arrangements that exacerbate low pay and insecure work can grant employers, it is highly unlikely that this is a problem that the market itself will fix. The Government will have choices: experts discussed focusing on labour market institutions, such as implementing sectoral agreements covering fair pay and other conditions, and looking again at union relationships. Beefing up employment regulation and enforcement to better protect workers could also have an impact.

Another issue that has recently risen to the top is the UK’s transition to net zero, with one participant stating that “even if inequality isn’t on the agenda of politicians, considering the impact that these policies will have on different groups will be critical for politicians who seek to implement them”. We know that the transition will impact groups very differently: it was on the radar of all in the room that the inequity in the transition will be at the forefront of the debate around net zero.

Regardless of the solutions our experts were advocating for individually, there was agreement that the political barriers to meaningful change are plenty and will take work to overcome. 

There are different dimensions to this. Participants spoke about how they felt that there had been a shift in recent decades from a collective mindset to a more individualistic culture – and that this impacts on policy. One clear exception to this was the Covid-19 pandemic, which made the country feel that we were in this together, and during which time the Government was able to carry out much bigger and more radical interventions (such as furlough) without significant opposition. But, despite predictions made at the time, this spirit of collectivism does not seem to have persisted. Part of the challenge for the Westminster Government in making meaningful change is re-capturing this, in order to get public consensus for more radical policy. Some argued that public deliberation techniques are under-used in this space in the UK and could (if used effectively) make a real difference.

A more concerning discussion was whether our social and political institutions, including the media and our rules of democracy, act to lower political engagement and the representation in discourse of those in poverty or suffering from disadvantage. The very wealthy, by contrast, find that financial resources can lead to political power.

There may be a case for seeking structural or institutional changes to help equalise the power imbalances that can come with economic inequalities. Suggestions included reforming our political structures (such as moving away from first past the post) through to implementing Future Generations Acts. Legislation that actively considers the future could help tackle the short termism that is often baked into Government decision-making, and also help to reduce income and wealth inequality by focusing on the long term.