Predistribution is a necessary but insufficient tool

The ‘predistribution’ of income is the latest economic policy tool that Ed Miliband has found to try and own the future of how we create a more equal society. The guiding economic tool of the Labour party since its inception has been redistribution of income and wealth using transfer payments via the state from higher to lower income earners. Whilst predistribution seeks to raise income at source effectively ensuring workers retain more of the value of their own labour and hence less subsidy and redistribution is needed from the state or for workers to fall into poverty.

The most popular expression of predistribution is the living wage but other predistributive measures could be enacted in the areas of housing with rent controls, rent tribunals or fair rent systems or mandatory private sector occupational pensions with employer contributions are policy tools an incoming Labour administration should consider to move the burden of responsibility from taxation to tackling inequality at source. So far the only talk from Labour has been on small-bore measures such as the living wage  and putting workers on company boards which would be insufficient to realise a significant realisation of predistribution which can be part of a much wider and deeper vision of society and set of policies to tackle inequality.

During the last Labour government the UK’s Gini coefficient was discussed widely in both political and academic circles as the single most important measure of success of the Labour government and even with mild redistributive methods, Gini barely shifted during the Labour administration and started to widen after the banking crisis and has since widened and is expected to widen further to 2015.

An incoming Labour administration needs an overarching narrative and vision, the most obvious and compelling is narrowing the inequality gap with predistribution as the main tool and Gini as the measure. Although Gini doesn’t take into account the effect of universal public services like an improved NHS or National Care Service, which very much reflect the traditional redistributive side of Labour policymaking.

Predistribution rather than redistribution has become necessary due to the fact the large rise in inequality in the UK under Thatcher and Major was driven by the efforts of women in the 60s and 70s to open up workplaces and develop careers after having children which caused society to increasingly fall into families with two wage earners and families with no wage earners, this was accelerated by deindustrialisation and the forced closures of much of heavy industry and mining industries in the 1980s where workers with few academic qualifications could earn above median wages. At the same time there was an unprecedented rise in service industry employment, which is notoriously poorly paid.

At the Fabian New Year Conference, Steve Hart, the political director of Unite and chair of Class thinktank told me without a much greater density of trade union organisation in the private sector and far more widespread use of collective bargaining, predistribution would be of very limited use in tackling inequality. Steve is absolutely right and this has been caused by the Thatcherite shattering of the post-war consensus and the dilution of organised labour in manufacturing and the growth of low wage and temporary jobs in the service industry. This has been compounded by privatisation in the public sector which has diluted collective bargaining and the growth of zero hour contracts and virtual self employment which have created high levels of insecurity as well as keeping the minimum wage as both floor and ceiling in many service industries.

This stark challenge facing an incoming Labour administration means that to achieve effective predistributive measures legislation will be necessary to ensure labour in the service sector can adequately organise to achieve the living wage and reducing company wage differentials. This legislation would include mandatory worker representation on company boards but those workers would be elected through recognised trade unions and compulsory right for employee vocational and skills training with a much wider role for UnionLearn making unions valued partners who would provide training for better remunerated employees.