Things can only get better…no wonder more old Prezza tried to eat himself to death!

Here’s a fact: inequalities in income under this government have got worse, both before and after tax. To put matters more brutally: the rich have got richer under Labour – relatively, while the poor have got poorer. And after the abolition of the 10p tax bands, things will get worse.

Delve into the more arcane recesses of the HMRC website and you will find a table showing that between 1999-2007, the pre-tax share of income of the bottom 1%, 5% and 10% and 25% and 50% of earners has fallen - while the share of the top 1%, 5%, 10%, 25% and 50% all rose. The after-tax figures make little difference.

If you don’t believe me, look at the Commons answer on the subject from Treasury minister Angela Eagle for July 17th 2007. I’m glad that Angie was forced to choke out that reply, because the rise in inequality under the Tories was a rallying cry for old Trots like her.

In fact movements in inequality varied in the Tory years. Overall, though, Angie and her gang had a point. Income did become more unequal between ’79 and ‘97. The excuse – and it was a decent one - was that the Conservatives began by dismantling a penal tax regime and that economic reforms delivered massively improved prosperity across all income groups.

In fairness, this government has also delivered an overall increase in wealth – up to now, anyway. But they have little excuse for increasing inequality. So what went so wrong?

First, they promised what they could not deliver. To take one small example, Gordon Brown came to the Treasury in ’97 on an election pledge of taxing the non-doms. Non doms are, as we know, often very rich people who live in this country but pay no tax. Yet nothing happened for a decade – and we all know what happened next.

Then, in an attempt to produce a “fair society”, Brown micromanaged the tax system by introducing a new 10p tax band and tax credits.

The theory behind tax credits is good. The interaction of the tax and benefits system often disincentivises people from going to work. The Tory government struggled with the problem and didn’t really come up with answers.

Tax credits for less-well off workers and families address the problem – in theory. In practice, the tax credits system has been so complex that even the HMRC don’t seem to understand it. Over-payments suddenly reclaimed and under payments not remedied have left thousands of poorer people in a desperate state.
Five years ago Treasury minister Dawn Primarolo admitted “the system has not worked 100% right from the word go”. It still isn’t. Did someone mention joined-up government?

Overall, Brown’s obsessive tinkering with the tax system has mirrored his U-turns on capital gains tax, pensions and savings policy, all of which has been a bonanza for accountants and tax lawyers - without addressing inequality.

And now they’re supposedly concentrating on the 20p band to “simplify” the system. Yeah, right! The truth is that Brown failed to save in the fat years, so now the lean times are coming the government is skint and needs to tax the poor to raise some dosh – at just the time when the economy needs a bit of consumer spending

No wonder poor John Prescott tried to eat himself to death. “Things can only get better..” – remember the new Labour anthem of 1997? Wrong. They just got worse.

Phillip Oppenheim