The welfare state is having to work much harder merely to keep inequality standing still than it did in 1949 when it was established because of the rising gap between rich and poor, according to a report by the London School of Economics (LSE).

A sharp growth in income for the very rich under New Labour, along with a real-terms fall in income for less affluent households has helped pile pressure on the welfare state.

While inequality fell during the 1950s and 1960s, mainly due to full employment rather than benefit payments, the gains that the working classes made started to make during this period were rolled back once Thatcher took power in the '70s.

This trend has actually gathered pace in the last decade. One of the main reasons is the shift from direct taxes such as income tax to indirect ones like VAT. Indirect taxes mean that the rich and poor pay the same.

Labour's policy of targeting certain groups for benefits such as pensioners, while helping these people, means that others have missed out. Targeting is also a return to the notion of a `deserving poor'. In contrast universal benefits ensure that everyone who needs help gets it.

Professor Glennerster of the LSE, who led the survey, said that the welfare state "has not led to a more equal society than in 1948.Tax and benefits policy is having to work much harder merely to stand still in terms of redistribution".

Put simply inequality has continued to increase under Labour – and evidence shows that societies with large gaps between rich and poor experience more crime and other social problems than more equalitarian countries.

The LSE survey was published at the same time as the National Audit Office revealed that one third of the biggest companies in the UK, like Sainsburys, paid no corporation tax last year, while a further 30% paid less than £10 million each.

Government-sanctioned loopholes such as allowing companies to move cash out of the UK to branches in other countries means that many of the richest corporations are legally able to get away with paying no tax at all. Concerns have already been raised about the lax tax regime for private equity firms.

Boardroom pay and bonuses have continued to massively outstrip inflation, with full-time directors pulling in an average of 37% more than last year – which was itself a 28% improvement on the year before, adding up to a massive 225% in total compared to 2003 figures.

This runaway pay now places the average for a chief executive at £2,875,000, which is more than 11 times the increase in average earnings, and values bosses at 100 times the worth of employees.

Less than 1,400 top directors took home over £1 bn between them, with 527 top directors taking the lion's share.

City bonuses too have risen by an average 30% to a record £14bn, up from 10.9bn in 2006.

Yet wages across the labour market are growing at the lowest rate in four years, with the public sector being offered below-inflation pay-rises along with much of the private sector this year – just 3.3%on average according to the ONS.

The figures make a mockery of Gordon Brown's recent assertion that the labour markets should `show discipline' their in wage demands, as it is not them whohas been pushing inflation up.

After three Labour governments it seems that things keep getting better for the rich, at the cost of the working classes.

– from Freedom, 8 September 2007