Iain Macwhirter: We need to put our house in order if we want to cut inequality

It’s well known, too, that the average CEO of a Footsie firm earns 145 times the average salary, up from 47 times in 1998. What about the quarter of Scottish children living in poverty? The longest period of wage stagnation since the Napoleonic Wars? The endemic gender pay gap? House prices? Tax evasion? Most of us probably think we could write the report tomorrow.

All true. However, like many highly politicised issues, inequality is not always what it appears. For a start, on the internationally-recognised Gini coefficient, income inequality in the UK has actually fallen in recent years. That seems to fly in the face of all evidence.

This is partly because, while pre-tax household earning inequalities have increased, measures like tax credits, pensions increases and the rising national minimum wage have mitigated the broader effects. So, if you compare the earnings of the top 10 per cent with the bottom 10 per cent of earners, inequality has actually fallen.

Then there is the gender pay gap, which is going to be a prime focus of the IFS research. As the institute acknowledged yesterday, the gender pay gap isn’t really to do with equality as such, but earnings progression. We already have equal pay for women by law – as Glasgow Council recently discovered to its cost. The gap between average male and female earnings is negligible, according to the IFS, until women reach child-bearing age, after which it rises fast.

This is not generally because women are being paid less for the same work, but because they often take a career break, go part-time, or take on less demanding or less well remunerated roles. Their husbands, meanwhile, start working longer and seek faster promotion in order to support their families with one income. The answer to the gender pay gap is to do with, either, compensating women for their child-bearing years and lost promotion, or forcing men to take on equal child-care responsibilities, avoid promotion and work fewer hours. Neither of these is simple to achieve.

So, the IFS study is not really into the bald figures of inequality, but its more subtle consequences. A major focus will be the “squeezed middle”. As the OECD reported recently, the biggest social change in the past 30 years has been the collapse of middle-income earners who have lost out, partly through automation, partly through taxation policies and partly through globalisation. As the old middle-management career structures have been flattened, suburbia is not what it used to be.

But this isn’t so much about professional earnings as the collapsing living standards of those who used to live comfortably doing relatively routine work in manufacturing or offices. When I began my career, miners earned as much in real terms as teachers do today. Academics wrote books about the “Affluent Worker” in the Midlands car industries or in steel-making. Many of those secure pensionable jobs have disappeared and been replaced with insecure and transient work in services. Formerly “affluent” workers are now falling down the earnings leagues and, hey, they don’t like it.

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This structural change has been overlayed by another complex phenomenon: the generational wealth gap. Again, this isn’t so much about equal pay as opportunities. Young people entering the jobs market come burdened with student debt (mainly in England), face uncertain careers, and have excessive housing costs. When I joined the BBC straight from university, it was like the civil service, with annual increments, secure promotion and the expectation of a final-salary pension at the end of a 35-year career. Broadcasting is not like that today.

Across the private sector, defined benefit pensions have all but disappeared, along with job security and annual pay rises. Many young people starting careers today rely on inherited wealth to finance them in their early years as they work as interns, or on low salaries in high-cost cities. As the researchers for the recent book The Class Ceiling observed, there is an opportunities gap too between well-spoken and confident scions of the elite and equally qualified working class job applicants.

So inequality takes many forms, and is often hard to address. However, while this is all very important, so is the bald and glaring fact of gross inequality, especially wealth inequality which is directly related to inflated house prices. This, and the tax cuts introduced by Margaret Thatcher 30 years ago, are the big factors tearing society apart today. Average house prices in prime central London postcodes recently topped £1.8m. Just think on that for a moment. Sell a two-bedroom flat in Pimlico and you never have to work again.

To restore the balance, there needs to be reform of the housing market and an end to untaxed windfall gains and anonymous foreign ownership. There also need to be judicious and progressive increases in taxation, including a 50 per cent tax rate on very high earnings; abolition of higher rate tax relief on pension contributions and an increase in the minimum wage. Trade unions need to be encouraged to recruit in the private sector, where workforces are increasingly unrepresented. To restore the nation’s finances, a crackdown on tax avoidance by multinationals like Amazon and Google. Too much of the nation’s wealth goes into unproductive speculation, so Britain also needs an industrial policy.

So let’s not get too focused on the detail. Inequality isn’t rocket science, or even social science – it’s about political science.