Why predistribution is essential, and should be banned

Predistribution is an ugly, wonkish and in fact misleading term that in my view should be banned from the lips of politicians. Yet the sentiment behind it is fundamental to any future progressive agenda.

What I think predistributionites are saying is pretty simple, and clearly true. It’s that there are severe limits to how far the pursuit of equality by taxing and redistributing earned incomes will be politically acceptable. So we need to think of ways of ensuring that earnings themselves are more evenly distributed across households.

Calling this predistribution in contrast to redistribution is confusing not just because people don’t get the jargon, but also because the Treasury, through the tax and benefit systems, is not the only agent of redistribution. Greater equality of earnings does not ‘precede’ redistribution but is part of it. It needs to reflect various forms of redistribution within work. This can include the redistribution of roles and responsibilities (fewer ‘drudge’ jobs), of opportunities (better chances for development and promotion) and ultimately of power (less domination of control by a small elite).

Ignoring these wider aspects and limiting the concept of redistribution to state-ordered income transfers allows those policies to be isolated, and the whole concept of redistribution to be attacked as discouraging effort.

Never has it been more important to avoid a dichotomy between the redistribution of the state and the ‘predistribution’ of the labour market. The shrill baying of those who contrast ‘scroungers’ from ‘strivers’ has risen an octave in recent months. The government now wants to redefine ‘fairness’ to make it unfair for people on the lowest incomes to suffer proportionately less than others at a time of falling living standards. While this plays into an anti-poor zeitgeist in the case of state transfers, helping low-paid workers is more fashionable. The idea of a living wage has gained considerable traction, including at the Department of Work and Pensions. All this totally misses the point that those earning the living wage are also, in many cases, gaining substantially from state redistribution, through tax credits and, in future, through the universal credit. They will suffer greatly from the forthcoming welfare cuts.

But this is not a new issue. The need to have a varied toolkit in combating poverty and inequality has been evident for some time. Back in 2006 I showed that Gordon Brown’s mission to end child poverty would become impossibly expensive if budget-style redistribution were not matched by a more even distribution of earnings.

Earnings redistribution at household level has several aspects, including increased working hours in low earning households, improved wage floors (minimum or living wage) and more generally improved wages at the lower end of the labour market, paralleling improved productivity through more intelligent use of labour.

The last of these is probably the most important, and certainly the most elusive. UK governments have spent a generation preaching the virtues of education and training, and indeed have raised educational attainment substantially. But our labour market continues to operate on a more unequal model, with less use and recognition of skills among those near the bottom, than most European countries. And recent governments, non-interventionist by instinct when it comes to business, have not found ways to change that fundamentally.

The Fabians’ Commission on Future Spending Choices is pondering how, in the long term, limited public funds should be prioritised. I think the inference is that if these funds can be directed towards actions that leverage a better distribution of earned income, they’ll go a lot further than they could if paid in benefits or tax credits.

This seems to me patently true, but at the same time, we shouldn’t kid ourselves. Whatever happens, the pressure to squeeze existing state transfers to low income families, in and out of work, will be huge. A better distribution of earnings may limit the damage caused by this squeeze, but only a dramatic transformation of our labour market would compensate for the planned cuts.

You have to be a pretty wild optimist to think such a transformation is possible in the next five or 10 years, when the cuts will be hurting. The present government is trying to imply that better opportunities in work can be a substitute for, rather than a supplement to, a decent system of income protection through state transfers. But for anyone really interested in a more equal society, social protection and labour market opportunity must continue to be a ‘both-and’, rather than an ‘either-or’.

Donald Hirsch gives evidence to the Commission on Future Spending Choices on Tuesday 8 January 10 am.