In January of this year, the Managing Director of the International Monetary Fund (IMF), Kristalina Georgieva, issued a powerful message about the impact of inequality on development. She described it as ‘one of the most complex and vexing challenges in the global economy’ over the past decade and emphasised the policies needed to address inequality, including progressive taxation, gender budgeting and social spending in key areas including education and health.

We have now entered the Decade of Delivery for Agenda 2030 and the Sustainable Development Goals (SDGs).[1] Goal Ten (SDG10) seeks to ‘reduce inequality within and among countries’. The United Kingdom has been an important voice for international development, especially since the creation of the Department for International Development (DFID) in 1997. This heralded a period of growth in UK aid expenditure, culminating in legislation adopted in 2015 that legally commits the UK to spending 0.7 per cent of our national income on Official Development Assistance (ODA).

DFID has played a crucial role in tackling extreme poverty and hunger around the world. SDG1 aims to eradicate extreme poverty by 2030, building upon the progress made during the period of the Millennium Development Goals. The challenge now for governments and campaigners alike is to focus both on extreme poverty and on inequality. How might DFID go about doing this?

There is a strong argument that without tackling inequality, we will struggle to overcome poverty by 2030. The World Inequality Report 2018 showed that, between 1980 and 2016, the poorest 50 per cent of people only received 12 cents in every dollar of global income growth. By contrast, the richest one per cent received 27 cents of every dollar.[2]

The first target in SDG10 (Reduced Inequalities) is to ‘by 2030, progressively achieve and sustain income growth of the bottom 40 per cent of the population at a rate higher than the national average’. There is a longstanding debate about how to measure inequality most effectively in light of the evidence about patterns of income distribution in different societies.

Chilean economist José Gabriel Palma found that the ‘middle 50 per cent’ (those with a household income between the fifth and ninth deciles) have a proportion of national income that is relatively stable and close to 50 per cent, whereas the division between the top ten per cent and the bottom 40 per cent varies considerably.[3] Therefore, to put it simply, Palma’s argument is that the level of inequality is determined by the distribution of what we might call the ‘other 50 per cent’ of income – how much goes to the top ten per cent and how much goes to the bottom 40 per cent?

In 2013, the Centre for Global Development (CGD) outlined a possible new measure of inequality: the Palma ratio between the top ten per cent and the bottom 40 per cent. Oxfam has proposed that the UK and other nations should set clear, targeted plans to reduce the gap between the rich and poor as expressed in the Palma ratio using what they term the ‘Palma Premium’ – the extent to which the incomes of the poorest 40 per cent are growing faster than the richest ten per cent.[4]

I recommend that DFID does some further work on how the Palma Premium concept could assist the UK’s efforts to promote the SDGs and how best to combine it with the important continued focus on eliminating extreme poverty. I recognise that there are serious challenges here, including the availability of reliable data, but the potential prize is a big one if we are going to make a reality of the slogan ‘Leave No One Behind’ that is attached to the SDGs.

There is a compelling argument to enshrine this in UK law, which would strengthen our existing legislation on international development. Under the 2002 International Development Act, DFID spending must be ‘likely to contribute to a reduction in poverty’. It would be a straightforward change to add ‘and inequality’ to the legislation and to be explicit that this would apply to all Official Development Assistance by the UK – whether delivered by DFID or other government departments.

Legislation alone, however, is not sufficient. There is a strong case for a focus by DFID on SDG10 in the forthcoming Comprehensive Spending Review and for it to feature prominently in the UK’s next Voluntary National Review to the United Nations. I hope my successor as Chair of the International Development Committee might pursue this.

The focus of this chapter is what DFID can do to address inequality. It is worth making the point, however, that the UK has its own domestic challenges on inequality and we can learn some lessons from other European countries with lower Palma ratios, including Sweden and the Netherlands. As the UK Government’s own Voluntary National Review said in 2019, ‘The Palma ratio has … fallen slightly over this period. Despite this, the UK has the sixth highest level of income inequality in the OECD’.

Of course, agreeing a DFID inequality indicator is just one step forward – albeit an important one. Alongside such an indicator it is crucial that we take an evidence-based approach to the policies that could contribute to a more equal distribution of income. Investment in health, education and social security systems is a critical element here. Properly resourced public services are essential to the achievement of SDG10, and I urge DFID and other donors to continue to give high priority to working with the least developed countries towards universal health coverage, high quality education and social protection systems.

However, money alone will not be enough. Take education. There is a big set of issues around the quality of education and the importance of having reliable data on which to assess progress. I know from my previous experience as Minister for Schools that inequality is a major challenge with significant differences both between schools and within schools. This affects many sections of society but can be especially significant for disabled children and children with Special Education Needs.

SDG10’s second target is to ‘by 2030, empower and promote the social, economic and political inclusion of all, irrespective of age, sex, disability, race, ethnicity, origin, religion or economic or other status’. Disability-inclusive development is vitally important if we are to address exclusion and tackle inequality.

DFID has done some excellent work on the education of women and girls, which reminds us that we will not seriously overcome inequality until we empower women and girls. So far, I have focused on Global Goals 1 and 10 – tackling extreme poverty and inequality. Let me turn now to SDG5: to ‘achieve gender equality and empower all women and girls’. This goal is both of paramount intrinsic importance and is vital to the other goals. We cannot achieve sustainable development without a fundamental change in the lives of women and girls.

Earlier I referred to the recent remarks of the IMF’s Kristalina Georgieva and her emphasis on gender budgeting. Women’s economic empowerment is essential to lasting development and greater social and economic equality. Gender budgeting is where fiscal policy is used proactively in support of gender equality. DFID has funded the IMF’s review of tax and public expenditure policies against how they promote gender equality. There is considerable scope to learn from and build upon this work.

Legislation in this area was strengthened by Conservative MP Bill Cash in his excellent 2014 International Development (Gender Equality) Act, which was passed with strong cross-party support.[5] Six years on from this, I urge DFID to review the impact of the Act on DFID’s work, on ODA-eligible programmes run by other government departments and in multilaterals. The UK has shown real leadership in this area but as the recent Independent Commission for Aid Impact review into the UK’s Preventing Sexual Violence in Conflict Initiative shows, it is critical that leadership is sustained if lasting change is to be achieved.[6] The Prime Minister’s strong personal commitment to girls’ education is an encouraging example of such leadership.

I have sought to emphasise two priorities for DFID: the importance of a clear indicator on economic inequality and the centrality of gender to development. Important policy considerations follow from these two priorities including:

• the importance of policies being shaped by communities at the sharp end of inequality. This means strengthening the voices of the Global South in international institutions and ensuring that the most marginalised are heard, including refugees and the internally displaced;
• the availability of good, secure jobs and workplace rights. Trades unions and businesses are essential partners in achieving sustainable development;
• economic development strategies that explore alternative business models, including a greater role for co-operatives and other forms of social enterprise;
• progressive taxation, which requires countries to be able to mobilise domestic resources and for wealthy individuals and profitable companies to pay their fair share; and
• remittances, which play a vital role in development, together with a much greater focus on reducing associated transaction costs.

The challenge now is to build a strong alliance of commitment to tackling the scourge of inequality. DFID is crucial here, but the challenge is for the Government as a whole. If the Prime Minister takes the lead on a sustained effort by the UK to deliver on SDG10, he would attract cross-party support and mobilise civil society here and internationally. It would, surely, be a powerful signal of the UK taking seriously our role in a changing world.

Stephen Twigg served as the Labour and Co-operative Member of Parliament for Liverpool, West Derby from 2010 until 2019. He was the Chair of the UK House of Commons International Development Select Committee from June 2015 until standing down from Parliament in 2019. Between 2005 and 2010 he served as Director of the Foreign Policy Centre. He also worked for the Holocaust Centre and the Aegis Trust. He previously served as Member of Parliament for Enfield Southgate from 1997–2005. His ministerial and shadow ministerial roles have included Deputy Leader of the House of Commons, Education Minister, Shadow Education Secretary, Shadow Foreign Minister and Shadow Justice Minister.

[1] UN Sustainable Development Goals, https://sustainabledevelopment.un.org/sdgs

[2] Facundo Alvaredo, et al, The World Inequality Report 2018, World Inequality Lab, December 2017, https://wir2018.wid.world/

[3] The idea was first raised in the journal Development and Change: José Gabriel Palma, Homogeneous Middles vs. Heterogeneous Tails, and the End of the ‘Inverted‐U’: It’s All About the Share of the Rich, Development and Change, 87–153, April 2011, https://onlinelibrary.wiley.com/doi/10.1111/j.1467-7660.2011.01694.x. For more recent analysis of the ratio see: IBEI, José Gabriel Palma re-examines the ‘Palma Ratio’ at the IBEI, October 2016, https://www.ibei.org/en/jose-gabriel-palma-re-examines-the-palma-ratio-at-the-ibei_46738

[4] See for example: Chiara Mariotti and Claire Spoors, Fighting Inequality to Beat Poverty: The role of UK international development, Oxfam GB, June 2019, https://policy-practice.oxfam.org.uk/publications/fighting-inequality-to-beat-poverty-the-role-of-uk-international-development-620763

[5] UK Government, International Development (Gender Equality) Act 2014, http://www.legislation.gov.uk/ukpga/2014/9/contents/enacted

[6] Independent Commission for Aid Impact, The UK’s Preventing Sexual Violence in Conflict Initiative, January 2020, https://icai.independent.gov.uk/report/psvi/

Photo: A woman tea plantation worker shows the breakdown of wages on her pay slip. The slip is impossible to understand for a majority of the workers; they do not know what comprises their salary or what is it that they actually get. Photo credit: Roanna Rahman/Oxfam.