The chapters in the first part of this book each concentrated on a different area of social policy. They examined policy, spending and outcomes since the crash in relation to a particular pillar of the welfare state (cash transfers, education, health, housing, employment), or to a given demographic group (young children). In this chapter we consider overall trends in socioeconomic differentials, including both economic inequality and the distribution of benefits in kind. These differentials reflect the combined effects of a range of social and economic policies, although they are also affected by wider factors over which the government has limited control, including demographic change and the operation of global economic forces.

One recurrent issue is that data on socioeconomic outcomes become available with a lag. For instance, the final picture of how the 1997 Labour government left the income distribution in 2010 only became available in 2012. The coalition left office in May 2015, by which time it had set in place the main rules governing the tax-benefit system – one of the major influences on the income distribution – up to 2015/16. But the data available to us at the time of writing and used here largely relate to periods up to 2013/14 or earlier. It will be 2017 before we are able to see a more definitive picture of the coalition’s legacy. The lag is particularly important because many of the coalition’s key policies – including cuts to some benefits – started having their main effects from 2013 onwards, while its initial policies protected the real value of benefits and tax credits up to that point (see Chapter Two, this volume).

This chapter begins by examining labour market outcomes – employment trends and wage disparities. The second section looks at household income overall, presenting data on income inequality and poverty. We then consider the distribution of benefits in kind, and how this has changed since the crisis. A final section focuses on changes in wealth and wealth inequality.

While we present some of the labour market trends by gender in this chapter, the following chapter looks in more detail at how the overall trends presented here vary between different groups, such as by age, housing tenure and region, as well as by gender.

In June 2007, when Gordon Brown took over from Tony Blair as Labour leader and Prime Minister of the UK, the climate for social policy-making in the UK was decidedly warm. The country was enjoying a sustained period of economic growth, the current budget deficit and public sector net debt were both lower than when Labour came to power, and the electorate was broadly supportive of the government's expansive social spending and the improved public services they had delivered.

Our own assessment of Labour's decade under Blair highlighted a complex and nuanced story, but one which indicated a shift towards a more equal society in several important respects (Hills et al, 2009). Inequality at the very top and the very bottom of the income distribution had continued to rise, as had absolute gaps in wealth and a range of measures of inequality in health outcomes. But there had been notable reductions in child and pensioner poverty, improvements in the relative position of disadvantaged neighbourhoods, narrowing gaps in educational achievement between children from lower-income families and others, and narrowing gaps in employment, education and incomes between some minority ethnic groups and the majority white population. The significant increases in the ‘social wage’ delivered through education and healthcare spending had had a substantial equalising effect. Looking at a range of official Opportunity for all indicators, trends had improved from 1997 compared to the decade before for nearly half of them, although they had deteriorated for a quarter. Where significant policy initiatives had been taken – and many were – we concluded that outcomes had generally moved in the right direction, if not always as rapidly as policy-makers and other observers might have hoped.

The period that followed, until the election of the Conservative government in May 2015, was an extraordinary one in British economic and political history. As has been well documented elsewhere, the global financial crisis that began to unfold in the summer of 2007 and culminated in the banking collapses and bailouts of autumn 2008 plunged the UK, like many other countries, into their worst recession since the 1930s, and punched a large hole in the public finances (see, for example, Gregg et al, 2014; Riley and Chote, 2014).

In this book, we set out to describe how different parts of social policy in the UK have changed in the eight years from the beginning of the economic crisis in 2007 up to the end of the Liberal Democrat- Conservative coalition government in May 2015. We have also looked at what is known so far about outcomes from those policies and changes in them, although given lags in both the effects of many policies and reforms, and in data that allow one to assess them, this must inevitably remain an interim assessment.

Given the scale of the economic shock – unprecedented since the 1930s – and the effect it had on public finances, and then the change in government priorities after Labour lost office in 2010, this was, indeed, as suggested in the Introduction (see Chapter One), an era with a ‘cold climate’ for many areas of social policy. As the contrasts between the chapters show, however, this has been by no means a uniform history. There were some strong contrasts between the policies Labour continued to pursue until it lost office in May 2010, and those of its successors (although there were also continuities). But as we have documented, there were sharp differences between social policy areas under the coalition, especially in how severely each was asked to contribute to that government's plans for reducing the public budget deficit. There were some areas that were comparatively insulated, although still affected by major reform, while in others the role of the state has been redrawn or even substantially withdrawn. Writing early in the life of a new majority Conservative government, much of this conscious reshaping of Britain's welfare state is set to be continued or intensified.

Social policy in a warmer climate

In an earlier book (see Hills et al, 2009), we surveyed what had happened to a comparable range of policies in the period of Labour government ending as the economic crisis began. We concluded that the picture was neither that a government with a strong parliamentary majority, egalitarian objectives and a favourable economy had decisively reversed the gaps in society that had widened over the previous two decades, but nor was there a simple pattern of the betrayal of those egalitarian ideals.

The situation on the eve of the crisis

Until 1997, early childhood sat on the periphery of government concern in the UK. With the exception of health check-ups and universal Child Benefit, the state largely stepped out of a baby’s life after birth, and only stepped back in when the child arrived at primary school more than four years later. While some inner-city local authorities provided free nursery education, for the most part nurseries, playgroups and toddler groups were organised by the voluntary or independent sector. Maternity leave provision was among the least generous in Europe, and state spending on childcare almost non-existent.

By 2007 the landscape for young families looked very different. Investment in early childhood had been a key feature of the Labour administration for a decade, promoted by a constellation of Labour politicians because it promised to further a number of policy goals at once. Centre stage was the goal of eradicating child poverty in 20 years, which required both higher family incomes in the immediate term and a focus on early child development, with an eye on giving the next generation of parents a fighting chance of non-poverty wages. Policies that made it easier and more financially viable for mothers (and fathers) to combine work and family responsibilities were also recognised to be key to furthering growth, promoting gender equality and reducing gender pay gaps.

Between 1997 and 2007 spending on cash benefits for families with children in the UK nearly doubled. Most of the increase came from the expansion of targeted in-work benefits under the tax credit system, but benefits to out-of-work families with children were also made more generous. Poverty fell steeply for some household types, and especially for children living with a lone parent working part time (Stewart, 2009). Poverty also fell much more quickly in families with a child under five than for those with older children, reflecting a series of changes to benefits favouring these households: Income Support allowances for children under 11 were increased in line with those for older children, and there were new benefits for babies, including the near-universal baby tax credit and the £500 Sure Start Maternity Grant for low-income families (Stewart, 2013).