Rightly, poverty and its negative consequences are important, politically charged subjects. The purpose of this blog post is to put the feasibility of addressing these issues in Scotland today in a context viz. that within which the Scottish Parliament and Government operates whilst within the UK.
The Scottish Government’s constraints and dependencies were described recently in a publication from the Institute for Fiscal Studies (IFS):
‘… the challenges of projecting the finances of a government (the Scottish Government) that has to run a balanced budget, and whose funding depends to a large extent on decisions by the UK government.’ (my emphasis)
‘…. the Scottish Government which cannot borrow or accumulate debt in the same way as the UK government. Instead, it would have to tackle any budget gap on a year-by-year basis.’
And whilst referring to upcoming work by the Scottish Fiscal Commission (SFC): ‘… the SFC plans to look at how the Scottish Government’s long-term fiscal outlook would differ under different assumptions about population and demographic change, and different assumptions about UK government spending decisions.’
Crucially, the significance of this latter point from the IFS – on having to depend on assumptions about what a Westminster government might do in future – is of course reinforced by the earlier one viz. ’whose funding depends to a large extent on decisions by the UK government’! Here the IFS is neatly encapsulating the Scottish Government’s much constrained agency – the double whammy of the Union – on tackling poverty, inequality and indeed a host of other matters of public policy!
Source: Phillips, D (2 Sept 2022) How could a falling population affect the Scottish Government’s funding? (https://ifs.org.uk/articles/how-could-falling-population-affect-scottish-governments-funding )
Data from the OECD are available to compare and contrast the nature and scale of poverty at the population level in the UK with that in other western democracies. In the charts below, the poverty rate is defined as ‘the ratio of the number of people whose income falls below the poverty line, taken as half the median household income of the total population’.
Source: OECD (2022), Poverty rate (indicator). doi: 10.1787/0fe1315d-en (Accessed on 17 September 2022) (https://data.oecd.org/inequality/poverty-rate.htm)
The first chart is for the total population of the featured countries. The rate for the UK is shown relative to all other OECD members. Note the countries with rates at the lower end (left side) of the scale – smaller independent nation-states including Denmark, Norway Finland, Ireland. (For interest, note the position of the UK relative to Greece, and recall when the latter was a comparator favoured by some Unionists to predict the calamitous nature of an independent Scotland!
The next chart plots the data on the poverty rate for the over 66 year olds in each OECD country. Again the position of the UK should be contrasted with smaller nation-states such as Denmark, Norway, Finland and Ireland with substantially lower rates of poverty amongst their older populations.
The OECD also measures income inequality. Here income is defined as household disposable income in a particular year. It consists of earnings, self-employment and capital income and public cash transfers; income taxes and social security contributions paid by households are deducted. Full details of the OECD’s measurements can be found at this source:
Source: OECD (2022), Income inequality (indicator). doi: 10.1787/459aa7f1-en (Accessed on 17 September 2022) (https://data.oecd.org/inequality/income-inequality.htm#indicator-chart )
The chart below is a plot of the S80/S20 ratio i.e. the ratio of the average income of the 20% richest to the 20% poorest. The UK plots well to the right, the higher inequality end of the distribution. The smaller nation states with much less income inequality – plotting at the left end of the distribution – is notable.
In a briefing published in November 2021, the House of Commons Library (HoCL) characterised the UK as having among the highest levels of income inequality when compared to European Union member countries (as measured by the Gini coefficient).
The next two charts taken from this HoCL briefing compare the levels of income inequality internationally using OECD and EUROSTAT data. The higher the percentage value the greater the income inequality in the country. The UK is located relatively high in both charts.
Tax and redistribution
From the same HoCL source, the next graph shows how over decades and under successive UK governments, household income in the UK has become more concentrated.
The HoCL briefing explains: ‘By comparing inequality in original incomes (before the effect of taxes and benefits) with inequality in disposable incomes (after taxes and benefits), we can get some indication of the extent to which different countries’ tax and benefit systems redistribute income between households. The UK has a similar level of inequality in original income to Germany and France. However, in these countries there is less inequality in disposable incomes indicating a greater degree of redistribution’.
This is illustrated in the chart below from the HoCL briefing paper (red lines have been added to emphasise where the UK plots). The UK’s tax and benefits system performs relatively poorly as a means of redistribution.
The relatively high level of poverty and of income inequality, and the relatively limited redistributive effects of the tax and benefit system in the UK compared to other developed countries, are marked. It doesn’t need to be this way: this is a consequence of policy choices by successive, democratically elected governments in Westminster, governments overwhelmingly the result of choices made by England’s electorate.
The various statistical comparisons reveal not only that other countries have made different choices and achieved different outcomes. They demonstrate that many smaller countries – similar in many ways to a future independent Scotland – have been able to use their (normal) agency to achieve lower poverty rates and less income inequality. With independence, the people of Scotland would have opportunities to opt for governments committed – and with the full powers necessary – to realise similar (or other) outcomes.
Without independence, majority views on these issues held by Scotland’s electorate will need to continue to await what England’s voters decide they want!
(On a similar theme, I have posted previously on Talking up Scotland the diverse fiscal choices that normal independent nations states in Europe make – even those within the EU, even those within the Eurozone: – ’agency leads to distinctive choices: the case of tax systems in ‘normal’ European nation-states’.