FAIRNESS SHOULD NEVER BE A NUMBERS GAME / THE FINANCIAL TIMES COMMENTARY & ANALYSIS ( VERY HIGHLY RECOMMENDED READING )

Fairness should never be a numbers game

By Nick Clegg

Published: August 25 2010 22:41

This government has put delivering fairness at the heart of our agenda and, like the British people, we have a clear sense of what we mean by the word. Fairness is about every child getting the chance they deserve, regardless of their background. Poverty and deprivation matter enormously but fairness also demands that what counts is not the school you went to, the jobs your parents did, or the colour of your skin but your ability to move beyond the circumstances of your birth.

These ideas are easy to understand, but difficult to translate into numbers and statistics. Unfortunately, many people who have analysed the government’s decisions have adopted a purely numerical view of what fairness is about. The Institute for Fiscal Studies’ report on the emergency Budget, published on Wednesday, is a case in point. Its methodology ignores the impact of our increase in capital gains tax for those on high incomes, and makes impossible assumptions about the effect of reform to disability living allowance and tax credits. These are not technical quibbles. They matter.

But there is a bigger problem with the analysis: it measures the impact of the Budget solely on the basis of how much money people could be receiving from and giving to the state at a single moment. This is a definition of fairness championed for the past decade and a half by the Labour party. It led Gordon Brown, as chancellor and as prime minister, to set statistical tests, based often on somewhat arbitrary measures, so that all government policy was dedicated to shifting people from just below to just above a line on a chart, sometimes only by a couple of pounds, with little evidence that it made any difference to their long-term chances in life.

Distributional analysis of the impact of taxes and benefits has an important role to play; we were the first government to include such analysis in our Budget. But we recognise that it only tells part of the story. In the real world, things are more complex than that.

Imagine a workless couple living on £5,000 a year in benefits, currently categorised in the bottom decile. If we increase their benefits by £5 a week, they are £5 a week better off. In the language of the IFS, this counts as fairness, because overall the bottom decile has a little more money, and clearly it is a good thing that the couple have an extra £260 a year.

But imagine the government helps that couple find work. Now they have a shared income of £20,000 a year and fit into the fourth decile. This, in IFS-speak, is not fairness, because the government has not changed anyone’s taxes or benefits. The fact that this couple’s lives are better disappears from the statistics the very second those improvements happen.

You cannot measure poverty with a snapshot because people’s lives last longer than a single second. If you want to measure genuine fairness, the question to ask about government policy is what its dynamic effects are, particularly across the generations. How does it change the future course of people’s lives? How does it increase their opportunities? Will it unlock the poverty trap or deepen it?

This government is having to make difficult choices in order to cut the deficit. But over time, those changes will help the economy to grow and create opportunities that would be destroyed if we allowed borrowing to continue unchecked. There is nothing fair about ducking decisions and burdening the next generation with debt.

But our determination to enhance social mobility goes deeper than that. We are going to increase people’s incentives to work by radically simplifying the welfare system and by raising the income tax threshold, to make sure that work pays. By next April we will have already taken nearly 900,000 low earners out of tax altogether, and that’s just the start. We have lowered corporation tax, which will encourage businesses to grow and take on more staff, and created a special incentive in the national insurance system for small businesses outside London that take on new employees. All these changes will over time help people into work, which is the best and most sustainable route out of poverty.

What happens in our schools is also crucial. We are creating a Pupil Premium targeted at those who need it most, so the best schools have an incentive to take on poorer children and the resources to teach them well. We have learnt from other nations, such as Sweden and the Netherlands that by supporting parents and targeting investment on disadvantaged children, we can boost social mobility.

It will take some time before everybody feels the benefits of the substantial reform we want to see. If fairness was a simple matter of benefits and taxes, it would be easy to achieve. But fairness that lasts demands bigger changes to the way we teach children, the way we encourage work and the way we create growth. Those changes are what really matter, and they are what this government will be – and should be – judged on in the end.

The writer is deputy prime minister

Copyright The Financial Times Limited 2010