Jim-Murphy_3093121bIn this evening’s speech to the David Hume Institute, Scottish Labour leader Jim Murphy MP sets out what he sees as Scotland’s single biggest challenge – inequality – and how we can tackle it.

 

Thank you for the invitation to come and speak today and for the opportunity to set out some of my ideas about how we create a fairer and more prosperous country.

We simply don’t have enough think tanks, enough places for thoughtful discussion outside of the usual cut-and-thrust of politics in Scotland. The David Hume Institute plays a really valuable role in creating opportunities like this and we are grateful for it.

I want to set out how inequality represents the biggest moral, social and economic challenge to Scotland. And I want to set out how we tackle inequality through reforming, redistribution and a renewed focus on productivity and growth in the Scottish economy.

My case is that Scotland flourishes when the people of Scotland flourish. That Scottish business does well, when workers do well. And that greater equality is not just the goal of a prosperous economy, but rather a prerequisite for it.

Working people in Scotland no longer have confidence that if they work hard they will be rewarded for it. Too many businesses are stuck in the same low skill/low wage trap that neither works for them or for their employees.

I have spoken in previous speeches about how the transfer of substantial financial and spending powers to Holyrood, making our parliament the most powerful devolved parliament in the world, means there is no excuse for our political leaders to talk about fairness and then not to take action to create a more prosperous, more proportionate society, where people get a fair outcome for doing the right thing by themselves and their families.

So tonight I don’t want to simply talk in terms of economic prosperity and social justice being compatible. Politicians from all political stripes can and indeed have made that argument. It sounds good, makes us feel content, but it costs nothing and leads nowhere. I want to talk about the real political choices that make creating a fairer economy here in Scotland possible.

I want to begin by reflecting on three ideas and then go onto talk about three specific policy areas. The three ideas are:

  • That inequality is morally wrong.
  • That inequality is corrosive to the values of our society.
  • And that inequality is holding back our economy, and tackling it is in our own, selfish interests.

Inequality is immoral

The number I have in my head when thinking about the unfairness in our economy is ten. Not the Number Ten of Downing Street. But today the top ten percent now earn nearly ten times what the bottom ten percent earn. And that has knocked nearly ten percentage points off economic growth over the last twenty five years.

That has cost Scotland billions; I’ll leave it to the economists in the room to work out what losing nearly 10 percentage points from Scotland’s economy was worth. I will argue that this distribution of resources in our economy and society is inefficient and harms our economy, but more than that it is just unfair.

I see it as my mission to put those missing billions back into Scotland.

Disadvantage now cascades down the generations in Scotland. It is simply wrong that Scotland is still a country where the opportunities many of our young people have in life are determined by their social background. A generation ago when I went to a school in a scheme in the south side of Glasgow, back then the idea of going to university didn’t really come up. That’s still true for too many Scots. A generation later too many kids from my background still have to rely on luck to get on in life.

We have a sense of a conceit in Scotland about our education system. Yes, we have many great schools and colleges, and some of the best universities in the world. That is something to be proud of. But that pride can’t ever become satisfaction with the status quo. Not when so many youngsters from working class communities in Scotland are being left behind.

Only one in five of the poorest kids in Scotland achieved five or more credit qualifications at the end of fourth year in 2013. That compares to three in five for kids from the wealthiest backgrounds. Just 220 of the poorest 9,000 kids in Scotland achieved the three higher A grades needed to get into our best universities.

I’ll say that again: just 220 kids from poor families in the whole of Scotland got the grades to go to university. Just 1 in 40; put it another way – it’s the equivalent of in some school classes not a single child gets those qualifications. 220. That’s only a little more than the number of people in this room; in the whole of Scotland amongst the poorest.

That’s unacceptable. It is immoral. We can’t accept that level of disadvantage, passed down from generation to generation.

The evidence suggests the situation isn’t improving. The international PISA education rankings show a decline in our relative international standing, and no real change in the attainment gap. The number of young people who are not in education, employment or training remains stubbornly high at around 30,000, numeracy levels are falling at every level.

Poor education leaves scars. The kids who have poor education go onto have poor skills, less highly paid jobs and of course poorer health.

It is wrong that the prosperous live 9 years longer than the poorest. It is wrong that someone is one and half times more likely to die of a heart attack in poor areas. It is wrong that the poorest 7 times more likely to be admitted to hospital for alcohol abuse and 16 times more likely for drug abuse. It is wrong that the poor are three times more likely to take their own lives.

Inequality isn’t simply immoral, it undermines people’s belief that we live in a society that is fair, corroding the rules and norms that underpin our daily lives.

Inequality is corrosive to society

We all have an idea of Scotland as a fair society. Two centuries ago Burns wrote:

“It’s hardly in a body’s power
To keep at times, from being sour,
To see how things are shared”

On Monday the Herald front page reported a new study by the TUC. It found that wages have fallen by more than £1,800 in real terms over the last 5 years. That offends our shared idea of fairness in society. That rewards should be commensurate to talent and effort. There is now compelling evidence that the more unequal a society is, the less trust we have in one and other.

I recognised the sentiment expressed by Burns two centuries ago as I was talking to a man in the east-end of Glasgow earlier this week. He wanted to share with me his anger at the way things worked. He had a few specifics, he couldn’t get enough hours at work, he struggled with debts, he worried that he was letting his kids down but wondered how he could work any harder. I’ll put it more politely than he did when summing up his sentiment “something is fundamentally wrong with the way things are working.”

The feeling, informed by bitter experience for many, that they are not getting a fair share in our economy is undermining core precepts of our society. That you get out what you put in. That hard work is rewarded. That if you do the responsible thing, you and your family will do ok.

Many parents now believe that their children will do worse than them. Just a quarter of parents believe their kids will be better off than they were. That concern for the future, often now replaced by a directionless anger, is a new and dangerous feature of our society.

Inequality is holding back our economy

It has long been intuitively obvious that inequality is inefficient. When the opportunity to succeed is denied to individuals, it also means opportunity denied to the economy. Inequality of opportunity means economic waste. Warren Buffet put it better than almost anyone else. Allowing economic success to be determined by our parent’s background is like “choosing the 2020 Olympic team by picking the eldest sons of the gold-medal winners in the 2000 Olympics”.

A decade ago the Blair Government effectively ended the idea that hereditary privilege should exist in our legislature, in the future we should look at economic opportunity and wonder why it was ever so heavily determined by who came before us in our family’s history. Children denied educational opportunity don’t just miss out on a more prosperous, fulfilling and happier life, they fail to reach their economic potential, and so every one of us misses out on a more productive, creative individual.

As we deal with the deficit, Scotland simply cannot afford the costs of economic failure. Over the next 30 years we will have half a million more pensioners in Scotland. Our ageing population, ageing faster than the rest of the UK, means that we need to nurture the full economic potential of every person of working age.

When income and wealth are held by those who already enjoy high levels of income and wealth spending is withheld from the economy. People on relatively lower incomes have a higher propensity to spend. When poorer consumers have more income the multiplier effect is particularly important in our economy.

With 65% of the UK economy based on consumer spending – far higher than, for example, France and Germany where the figure is 55%. So here, lower consumption due to unequal distribution of income has a bigger economic impact.

For so long the debate has been about whether trickle-down economics works. My argument is different which is that it is clear that a lack of resources amongst people at the bottom is hindering growth, inequality holds everyone back. Inequality is I believe now the single biggest issue in world economics.

In the developing world rapid growth in many economies has left societies deeply divided between a new prosperous middle class and the rest. In some parts of Latin America, there is some evidence that economic growth has begun to close inequality. But everywhere in the developing worlds we see tensions created as those who feel left behind as global wealth increases, in places that hopelessness spilling over into anger that makes the world less secure.

In the developed world, over the last century, we saw the rapid increase in inequality as we industrialised, only for the spoils of the economy to be more equally shared over time. However what is causing concern today is that the inequality is rising again causing people to question whether we are returning to an economic model closer to the early growth of capitalism than the more egalitarian situation of the mid-twentieth century.

Increasingly in the developed world, the debate is dominated by talk of inequality.

  • Last summer, Copies of Capital in the 21st Century, a translation of a 700 page French economic treatise, was number one on the bestseller list, preferred as beach reading above 50 Shades of Grey.
  • This winter the great and the good, arriving by private jet at their annual gathering in the snows of Davos, picked inequality as their theme.
  • In the last few months the IMF, OECD, the Institute of Directors and the CBI all warn that inequality is holding back our economy.

What I’m glad to say is this is now belatedly becoming an increasingly crowded debate, and those of us who have been on this political territory all along are less interested in arguing whether it is Thomas Piketty or Joe Stiglitz who have captured the true nature of the global economy.

As Marx put it, and with apologies to David Hume, “The philosophers have only interpreted the world, in various ways; the point is to change it.”

And people are desperate for change. For a sense that their lives will be easier, but more importantly, that their children will enjoy a better standard of life, with more opportunities than they enjoyed.

So, as I said at the beginning of this speech, I want to talk about the political decisions we need to make. We cannot have radicalism on the cheap. Scots are tired of listening to politicians setting out a lofty vision of a more equal Scotland but failing to deliver because we aren’t prepared to make the difficult choices.

So I will set out three particular areas where there needs to be action:

  • First what economists would call ‘before tax’ interventions. Structural change to the way the economy works to ensure fairer outcomes for more people.
  • Second ‘after tax’ interventions. Using redistribution to tackle where our economy fails people.
  • And thirdly and most importantly, ensuring faster growth and greater productivity.

Before tax

The last Labour Government had a good record on tackling poverty and inequality. Both absolute and relative poverty amongst children and pensioners fell. These gains were hard won and expensive with £18 billion more a year spent on support for families and £11 billion more a year spent on pensioners.

But more needs to be done to deal with the underlying causes of unequal rewards within the economy. Too many people feel the link between the prosperity of Scotland and the prosperity of their family has been broken.

Today, the real terms drop in income has been accompanied by structural shifts in the labour market which have increased people’s insecurity. The number of workers earning less than the living wage has increased. Half the growth in jobs since 2010 has come from low paid jobs. The numbers working part time because they can’t get the full time hours they need has increased.

Flexibility has benefits for companies and workers but exploitation that creates insecurity has to be stopped. Many workers who do have full time hours still find they have too little security as they are on zero hours contracts. The STUC estimates that there are now 84,000 people on zero hours contracts in Scotland.

Today’s Labour market statistics are welcome in the good news for those finding work. They also showed an increase in temporary working and part time working. This insecurity makes it more difficult to balance the books with weaker tax revenues from workers and higher government spending through tax credits and social security to make up for low pay.

When people have decent wages and feel secure at work, they can spend more and that creates jobs. Our plan is to grow our economy by backing working people. We will raise the minimum wage, use the power of government to promote a living wage, including through procurement, ban exploitative zero-hour contracts, ban practices that abuse migrant labour to undercut wages such recruitment agencies that only hire workers from overseas.

After tax

For as long as rewards from the economy are unevenly spread we need to also take what economists call ‘after tax’ measures to tackle inequality. I do not seek redistribution out of envy at what the few at the top have, but because we all pay the price for the opportunities missed by the many at or near the bottom.

There has long been an argument over whether redistribution damages economic growth by damaging incentives in the economy. The OECD now argue that the evidence is that this isn’t the case, but as we redistribute we have a responsibility to target spending where it will have the most impact.

Our approach is to focus spending on the things in Scotland that are holding our people and our economy back:

  • Education
  • Health
  • Job opportunities.

To tackle poor education we propose to use some of the proceeds of a 50p top rate of tax, raised on incomes of over £150,000, on educational disadvantage. The richest brains are sometimes locked behind the doors of the poorest homes. Many of the engineers, entrepreneurs and inventors of the future are growing up today in Pollok, Coatbridge and Craigmillar. They just don’t know it yet. It’s our job to help them realise their potential. For that to happen we need to radically change Scotland. That’s what I plan to do.

I want to begin by identifying the twenty secondary schools in the country where poorest kids are being failed the most. In these schools teachers often do an amazing job in the most challenging of circumstances, but our focus has to be on the outcomes of children who are being failed by the system. The twenty schools would be a combination of the schools where educational disadvantage means poor results, but also those with good academic records but where too many of the poor kids are slipping through the net unnoticed.

I would double the number of classroom assistants in the primaries associated with the most challenging twenty secondary schools. I would introduce Chartered Status for teachers, to attract more of the best talent to these schools teaching disadvantaged kids. I want to create a centre for national excellence across Scotland so schools can learn from one another and share best practice. And I want to transform the twenty poorest schools into places of community learning and opportunity, where the parents can learn as well as their children.

There are examples where local authorities are, in the face of real financial constraints, doing more to ensure that children aren’t left behind. Earlier this week I visited Sandaig primary school which Glasgow City Council has designated as a ‘nurture school’ where they help kids with various communication issues to integrate better with their peers and get more out of their education.

To tackle poor health we propose to introduce a new tax across the UK on homes worth over £2 million and to put the proceeds into our NHS.

In the debate on inequality we often focus on poor life expectancy but Scotland has a huge problem with poor healthy life expectancy. It is not just the terrible human cost of ill health and early death, our poor health record means disadvantaged families are further held back as working days are lost. So our aim has to be not just to increase life expectancy but to increase healthy life expectancy.

We can see in the crisis in A&E and the problems in social care that our NHS is already feeling the strain. With a population in Scotland that is ageing faster than the rest of the UK the pressure is only going to grow. This has been happening at a time when in Scotland we haven’t been increasing health spending as quickly as it is in England.

To tackle poor job prospects we propose to use a tax on the bonuses in the financial services sector and to use the proceeds to give young people the guarantee of a job and training. We will have more to say on this in the days ahead but we know that there is a strong ‘scarring effect’ on young people who experience unemployment. Youth unemployment has a knock-on effect on adult employment as young people lose confidence, experience and skills.

In truth we need a far greater focus on dealing with long-term intergenerational poverty. Families who, in previous downturns were not equipped to deal with the opportunities of the next upturn. This time we must do better with more targeted help to get into the labour market. That is why I want to see the DWP work programme devolved to local areas, so that we can match employment support to local economic barriers and opportunities.

Growth

The most successful anti-poverty strategy isn’t good intentions or moral indignation but instead it’s a successful and growing economy. Simply redistributing income is not enough. We need a faster growing economy with greater productivity or the problem of inequality will simply grow. It is obvious that we need a growing economy, generating wealth and the tax revenues we need to tackle unfairness. What is less well understood in the political debate is the need to grow differently in order to tackle the root causes of inequality.

Productivity in our economy is falling behind the rest of the G7. While productivity is too low, companies will struggle to raise pay, and many will compete on low skills and low pay. Governments will be left trying to correct imbalances in the economy rather than dealing with them at source.

In Scotland we have a celebrated comparative advantage in energy, bioscience, financial services, education, whisky, culture and creative industries. As the global middle class passes 1 billion, we specialise in many of the things they will want to buy and are well placed to grow.

Some sectors are able to make long term strategic decisions to raise productivity and take advantage of emerging opportunities. Whisky is a great example where billions are being invested now and 30 new distilleries are being opened in anticipation of these new consumers. In other areas including energy and education government needs to be more strategic to take more of a lead to ensure we maintain our competitive edge.

The biggest factor that will differentiate the Scottish economy over the next decades, from the last 40 years will be Scotland’s time as an oil economy coming to an end. Looking beyond the short-term challenges of low oil prices in the North Sea we know we are entering a prolonged period when oil fields will come off line and production will decline.

In this period we should, firstly support the high-value engineering jobs that must outlive oil in the North Sea, and second to ensure that just as we were leaders in subsea exploration, now we become leaders in international decommissioning. As the Brent field begins decommissioning, we need to urgently work to ensure that the clean-up of the North Sea generates jobs for Scotland’s North East.

By keeping the Barnett Formula, a key General Election difference between Labour and the SNP, who would replace Barnett with the uncertainty of Fiscal Autonomy, Scotland will be protected from the fiscal impact of the uncertainty of oil. Beyond taking maximum advantage of decommissioning we need a national debate about how we substitute oil jobs, especially in Aberdeen and Shetland.

We have world class universities in Scotland that no other small country can match. I have spoken about how we need to ensure that more of our young people from different backgrounds should have the chance to get into those institutions. The scientific innovation at these universities must be better supported, starting with a stronger focus on science and technology in our schools.

Our flagship industries cannot do this alone. Beyond our leading successes we have to support small and medium size industries to grow and to become more productive. That means government investing in, rather than cutting back on skills as has happened in Scotland over the last few years. We need more startup businesses and more graduates choosing to work for themselves. Currently less than 1% of graduates leaving our universities started employing themselves

It means investing in the long-delayed infrastructure projects that have become a national embarrassment in Scotland and it means a focus on devolving economic power down to local areas, especially to our cities, so they control more resources and can throw everything at supporting enterprise in their local economies.

Despite the huge challenges Scotland faces I am optimistic. We face enormous challenges as a nation. The challenge to our oil economy. An ageing population. Greater competition from developing economies. Low productivity in the national economy and personal insecurity in the personal economy. Alongside the growing inequality.

But I’m optimistic because the opportunities open to us are at least the equal to those challenges. Every month the world’s population grows by the equivalent of Scotland’s population. That’s the population of Aberdeen every day. What an amazing opportunity. Hundreds of millions more customers for the things we do well. The opportunity for greater prosperity which we can all share in.

We know what works; we know how to ensure that more of us share in this prosperity. We just need the leadership to make the right decisions.

Scotland works best when the economy works for all Scots. That should be our aim. It is what I will work for every day.