Wislon - First Term As Prime Minister - Domestic Affairs - Record of First Term On Income Distribution

Record of First Term On Income Distribution

Despite the economic difficulties faced by the first Wilson government, it succeeded in maintaining low levels of unemployment and inflation during its time in office. Unemployment was kept below 2.7%, and inflation for much of the 1960s remained below 4%. Living standards generally improved, while public spending on housing, social security, transport, research, education and health went up by an average of more than 6% between 1964 and 1970. The average household grew steadily richer, with the number of cars in the United Kingdom rising from one to every 6.4 persons to one for every five persons in 1968, representing a net increase of three million cars on the road. The rise in the standard of living was also characterised by increased ownership of various consumer durables from 1964 to 1969, as demonstrated by television sets (from 88% to 90%), refrigerators (from 39% to 59%), and washing machines (from 54% to 64%).

By 1970, income in Britain was more equally distributed than in 1964, mainly because of increases in cash benefits, including family allowances.

According to one historian,

"In its commitment to social services and public welfare, the Wilson government put together a record unmatched by any subsequent administration, and the mid-sixties are justifiably seen as the 'golden age' of the welfare state".

As noted by Ben Pimlott, the gap between those on lowest incomes and the rest of the population "had been significantly reduced" under Wilson's first government. The first Wilson government thus saw the distribution of income became more equal, while reductions in poverty took place. These achievements were mainly brought about by several increases in social welfare benefits, such as supplementary benefit, pensions and family allowances, the latter of which were doubled between 1964 and 1970 (although most of the increase in family allowances did not come about until 1968). A new system of rate rebates was introduced, which benefited one million households by the end of the 1960s. Increases in national insurance benefits in 1965, 1967, 1968 and 1969 ensured that those dependant on state benefits saw their disposable incomes rise faster than manual wage earners, while income differentials between lower income and higher income workers were marginally narrowed. Greater progressivity was introduced in the tax system, with greater emphasis on direct (income-based) as opposed to indirect (typically expenditure-based) taxation as a means of raising revenue, with the amount raised by the former increasing twice as much as that of the latter. Also, in spite of an increase in unemployment, the poor improved their share of the national income while that of the rich was slightly reduced. Despite various cutbacks after 1966, expenditure on services such as education and health was still much higher as a proportion of national wealth than in 1964. In addition, by raising taxes to pay their reforms, the government paid careful attention to the principle of redistribution, with disposable incomes rising for the lowest paid while falling amongst the wealthiest during its time in office.

Between 1964 and 1968, benefits in kind were significantly progressive, in that over the period those in the lower half of the income scale benefited more than those in the upper half. On average those receiving state benefits benefited more in terms of increases in real disposable income than the average manual worker or salaried employee between 1964 and 1969. From 1964 to 1969, low-wage earners did substantially better than other sections of the population. In 1969, a married couple with two children were 11.5% per cent richer in real terms, while for a couple with three children, the corresponding increase was 14.5%, and for a family with four children, 16.5%. From 1965 to 1968, the income of single pensioner households as a percentage of other one adult households rose from 48.9% to 52.5%. For two pensioner households, the equivalent increase was from 46.8% to 48.2%. In addition, mainly as a result of big increases in cash benefits, unemployed persons and large families gained more in terms of real disposable income than the rest of the population during Wilson's time in office.

Between 1964 and 1968, cash benefits rose as a percentage of income for all households but more so for poorer than for wealthier households. As noted by the economist Michael Stewart,

"it seems indisputable that the high priority the Labour Government gave to expenditure on education and the health service had a favourable effect on income distribution."

For a family with two children in the income range £676 to £816 per annum, cash benefits rose from 4% of income in 1964 to 22% in 1968, compared with a change from 1% to 2% for a similar family in the income range £2,122 to £2,566 over the same period. For benefits in kind the changes over the same period for similar families were from 21% to 29% for lower income families and from 9% to 10% for higher income families. When taking into account all benefits, taxes and Government expenditures on social services, the first Wilson government succeeded in bringing about a reduction in income inequality. As noted by the historian Kenneth O. Morgan,

"In the long term, therefore, fortified by increases in supplementary and other benefits under the Crossman regime in 1968–70, the welfare state had made some impact, almost by inadvertence, on social inequality and the maldistribution of real income".

Public expenditure as a percentage of GDP rose significantly under the 1964–1970 Labour government, from 34% in 1964–65 to nearly 38% of GDP by 1969–70, whilst expenditure on social services rose from 16% of national income in 1964 to 23% by 1970. These measures had a major impact on the living standards of low-income Britons, with disposable incomes rising faster for low-income groups than for high-income groups during the course of the 1960s. When measuring disposable income after taxation but including benefits, the total disposable income of those on the highest incomes fell by 33%, whilst the total disposable income of those on the lowest incomes rose by 104%. As noted by one historian,

"the net effect of Labour's financial policies was indeed to make the rich poorer and the poor richer".

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