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Action needed to reduce inequality

The gap between the rich and the poor should be a matter of public shame and yet it is growing faster in Britain than most other developed countries, and faster in Scotland than elsewhere in the UK.

According to the Sunday Times Rich List, published yesterday, the wealthiest 100 people in Scotland saw their fortunes rise by 19% to £25 billion last year, leaving the gap between the richest and the poorest at its highest for 50 years.

What has widened the gap even further in recent years is the recession. Since 2008, average wages have fallen in real terms and savers have been squeezed by low interest rates, but at the top, incomes have continued to grow. In particular, there has been no real change in the earnings culture at the top of the financial sector in the UK: huge bonuses continue to be paid and the argument persists that managers in the financial sector must receive big salaries to prevent them leaving the UK for other countries.

There is, at least, the prospect of some small improvement to come on earnings for the least well-off, with Mark Carney, the governor of the Bank of England, saying he expects wages will be growing faster than inflation soon. However, it would take a long time for even generous increases in average pay for the poorest to correct the gains the richest have made in recent years. To make matters worse, benefits have also become less generous and the Chancellor has said he plans to cut the welfare bill even further if he is elected again.

The current improvement in the employment rate in Scotland will help to drive up incomes, but the gap between rich and poor will not narrow in the long term without a serious attempt to protect and grow income for the lowest-paid. This must involve increasing the minimum wage and while an annual minimum of £32,000 - which the Swiss have just rejected in a referendum - may be too much, the current minimum rate in the UK of £6.50 is too low, as Ed Miliband is expected to acknowledge today when he announces that a future Labour government would increase it.

Reasonable restrictions must also be made on earning at the top, including changes to the tax regime so everyone is paying a fair share. The case for a super-high rate of 80% for the richest, proposed by the French economist Thomas Piketty, is unlikely to gain traction in the UK, but the Government still has more to do to control tax avoidance by corporations and individuals, which costs the UK billions every year. When Starbucks volunteered to pay more tax, it was a demonstration of consumer power - many people had stopped buying their coffee - but effective reform will only be achieved through legislation.

The risk of such action is that firms will move to countries where the tax regimes are more favourable, but fairer tax remains a critical part of reducing the gap between the rich and the poor. There are other important elements - a higher minimum wage, fairer access to universities, a reduction in the gap between the best and worst schools - but, most importantly, the work has to start now before the gap between the haves and have-nots widens even further.

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