The UK earns a D for inequality
Inequality has risen faster in the UK than in any other rich country.
By George Eaton Published 05 December 2011 13:05
If you're an egalitarian-minded Brit this morning's report from the OECD Divided We Stand: Why Inequality Keeps Rising makes for grim reading. Income inequality has risen in almost every major economy and the average income of the richest 10 per cent is now nine times that of the poorest 10 per cent across the OECD. This should be a matter of concern to political leaders of all parties. We know from The Spirit Level that the most unequal countries do worse on almost every quality of life indicator. They suffer from higher levels of violence, mental illness, obesity and teenage pregnancy, and lower levels of trust, child well-being and happiness.
Unsurprisingly, it's a fairly dense report, so here, summarised for Staggers readers, are ten of the key findings.
1) Inequality has risen faster in Britain than in any other rich country. While inequality has risen in almost every OECD member state, nowhere has it risen faster than in the UK. The annual average income of the top 10 per cent in 2008 was just under £55,000, about 12 times higher than that of the bottom 10 per cent, who had an average income of £4,700. This is up from a ratio of eight to one in 1985 and significantly higher than the average income gap in OECD countries of nine to one. As the graph below shows, inequality fell in the early years of the Blair government (after soaring under Thatcher) but began to rise, albeit more slowly, after 2005.

2) Even the Nordics are doing badly. In Sweden, Denmark and Germany (all among the world's most equal countries) the income gap between rich and poor has risen from 5 to 1 in the 1980s to 6 to 1 today. Only in France, Hungary and Belgium has there been little change in inequality, while only in Turkey and Greece has it fallen (see graph).

3) The top 1 per cent are taking ever more of the pie. The share of income taken by the top 1 per cent of UK earners increased from 7.1 per cent in 1970 to 14.3 per cent in 2005.
4) And so are the top 0.1 per cent. In 2005 the top 0.1 per cent of earners accounted for a remarkable 5 per cent of total pre-tax income.
5) Tax cuts for the rich have increased inequality. The OECD notes that "between the late 1970s and mid 1980s, the tax-benefit system in the UK offset more than 50 per cent of the rise in market income inequality. This effect has fallen in the subsequent decades."
Indeed it has. In 1988, Thatcher's Chancellor Nigel Lawson reduced the top rate of tax from 60 per cent to 40 per cent (it was reduced from 83 per cent to 60 per cent in 1980), where it remained until Labour increased it to 50 per cent in 2009. The OECD also states that a reduction in the basic tax rate has led to increased inequality. As I've noted before, while the basic rate (a progressive tax) has fallen from 30 per cent to 20 per cent, VAT (a regressive tax) has risen from 10 per cent to 20 per cent (see graph).

6) Marrying within their class. In Britain, unlike many other countries, the earnings gap between the wives of rich and poor husbands has grown significantly: the gap was about £3,900 in 1987 but increased to £10,200 in 2004. In other words, through marriage, wealth has become increasingly concentrated by class.
7) Benefits have become less redistributive. One of the key explanations for higher inequality is that benefits have failed to keep pace with earnings. As I've noted before, In 1970, unemployment benefit rates (£5) represented 19.2 per cent of average weekly earnings (£26.10) but now represent just 11 per cent.
Even if we take into account other benefits claimed by the jobless, Britain still has one of the lowest net replacement rates in the OECD. For a married couple with no children, the replacement rate in the first month of unemployment is 45.5 per cent, compared to 59.4 per cent in Germany, 65.8 per cent in France, 72 per cent in Ireland, 53.7 per cent in Japan and 51.2 per cent in the United States.
The OECD also notes that tighter eligibility conditions and more people working in low wage jobs (thus not qualifying for benefits) has increased the gap between rich and poor.
8) But public services have become more redistributive. The UK has increasingly relied on public services (education, health) rather than cash transfers to limit inequality. Spending on such services is 15.4 per cent of GDP while spending on cash transfers is 10 per cent. The report notes that "these services reduce inequality more than almost anywhere else, and this impact has increased over the 2000s."
9) Self-employment increases inequality. About half of the increase in individual earnings inequality was caused by the growth in self-employment. The OECD's explanation is that in general the self-employed earn less than full-time workers.
10) Most voters believe inequality is a problem. Unlike Tony Blair, whose answer to inequality was to quip that he didn't go into politics to make David Beckham earn less, most voters believe that inequality is a problem. As Michael Förster, author of the report, said: "In almost all countries apart from the US and Japan more than 50% of people say that inequality is too high. In the UK it is 65% so I think everyone agrees it is a problem."
Ed Miliband, the first truly egalitarian Labour leader since John Smith, can take comfort from this.
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24 comments
When pushed, Wilkinson (University of Nottingham) and Pickett (University of York) dismiss Angus Deaton (Princeton University) as not competent to make judgement on the “social determinants of health”.
Deaton’s article was published in the Journal of Economic Literature [JEL], the most authoritative journal in economics for review articles. One of the purposes of this journal is to invite scholars that rest of the field consider one of the prime experts in a given field to summarize the view of profession.
Wilkinson and Pickett may not consider Deaton enough of an expert to discuss the relationship between income inequality and health, but the economic profession obviously did, in that Deaton was invited to write the overview article about “Health, inequality, and economic development” in the JEL.
Deaton’s article as of now has more than 5 times as many impact-factor weighted citations as Wilkinson and Pickett’s own review article. Wilkinson and Pickett may not consider Deaton an expert, but the scientific community clearly does.
@Onisillos Sekkides
How is your bold assertion covered in the last chapter? It seems more like you haven't you read it or worse still have completely misunderstood it.
@mittfh
You need criticisms that are more valid and verifiable than those you find on Amazon.
Like any large scale study the book is not beyond criticism but the overall methodologies and principles-for an examaniation of 'advanced' countries- is generally sound. The findings seem to hold true across the countries that they looked at.
@Fertra
If you're going to support your argument with claims from Saunders, make sure they aren't debunked in the very links you present. What is worrying from your comments-and many from those that seem to espouse right wing ideas-is how a very poor grasp of the concept of 'validity' is evident. Some reseacrh is more valid than others because they show how they came to the conclusions they do by leaving a paper trail for you to follow in the form of references. If you follow the references you can check the validity of the claims and the method for yourself. If you want to make a genuine criticism, rather than provide links from a academic of dubious authority, follow the references in the Spirit Level and criticise the authors on the validity and reliability of their methodology when you've weighed the evidence up for yourself.
Oh, I have, Jerry. And the cherry-picking of "The Spirit Level" is still cherry-picking, excluding alternative explanations and resulting in insufficient certainty to rely on for policy-making. It may give the likes of Eaton a path to gloss over the issue, but no amount of confirmation bias or ad hominem will change the position - the thesis is not a reliable scientific fact.
Is the hullaballoo about shooting the messenger rather than assimilating the message?
Chavs and Asbos, no one wants to employ!
A nicely digestible summary of some of the criticisms of "The Spirit Level" are here:
http://www.kiwiblog.co.nz/2011/09/debunking_the_spirit_level.html
For those not wishing to fork out for ephemeral rebuttals in the later edition, a nice summary is here:
http://www.equalitytrust.org.uk/saunders-response
The response to the key point of cherry-picking is particularly unconvincing - that if they hadn't, the "sharp distinction" they were aiming for would be lost. Alternative explanations for any of their apparent correlations are simply excluded.
Saunders furthers the discussion here: http://www.guardian.co.uk/commentisfree/2010/aug/26/response-spirit-leve...
and further responds here: http://www.cis.org.au/publications/cis-special-publications/article/3474...
Etc etc. There are various presentations and debates which I suspect will still be available to the interested.
I understand the appeal for lazy partisan journalists in being able to claim their position is 'scientific knowledge'. But The Spirit Level is motivated thesis, not scientific proof - to simply say "we know" is overstatement to the point of mystification.
About as convincing as saying Ed is a nice working-class lad...
The majority of the UKs welfare spending goes on the basic state pension, around £85bn in 2012/13.
The basic state pension is a universal benefit: it is not means tested.
Given that the rich live far longer than the poor, is there not a strong case that the welfare state, specifically the basic state pension, transfers wealth from the poor to the rich?
I.e. the UKs larger welfare programn is regressive.
"We know from The Spirit Level"
...which has been debunked it such detail, it's most honestly described as argument rather than knowledge.
"Ed Miliband, the first truly egalitarian Labour leader since John Smith"
A tax-avoiding rich kid is the new "egalitarian". Will the left ever stop kicking itself in the head like this?
Fair enough. Give that wang the last word.
@Ferta
Can you please provide us with the information that is the basis for the 'debunking' of The Spirit Level. If you can, provide information that hasn't been countered already in the updated edition. Thanks.
@Fertra The Spirit Level hasn't been debunked, its data have been cherry picked in an attempt to misrepresent its findings.
@Onisillos Sekkides
Could you please explain, with examples, how this is so?
"Ed Miliband, the first truly egalitarian Labour leader since John Smith..."
A good article just lost all credibility with that outlandish and unjustified statement. Institute for Fiscal Studies has highlighted the fact that the difference between Labour and Tory cuts is a meagre £5bn from a GDP of £1.6tn.
@Tony Collins
It lost some credibility. To say it lost all credibility is to deny the valid points raised by the article.
Why are Labour and Labour alike so timid?
Surely taxing wealth more - and earnings less - is the way forward.
Why not encourage wealth generation with less taxes then tax that wealth more when it's happened?
One at a time Scruton's Elbow / Fertra. You need to say why it has been debunked remember.
Yeah, Ferta-and Onisillos Sekkides- where's the evidence? Or have you made bold assertions without recourse to what it actually is?
Most people are just one job away from poverty. Decent paid employment is the only answer to inequality.
Re: The Spirit Level
Reading a selection of the less positive reviews of the book at Amazon, it appears as though (a) they excluded countries which didn't fit the trend, (b) while there was plenty of correlation with the factors examined, apparently they didn't adequately explain the causation (i.e. is there any evidence to show *why* inequality produces the results [causation], or is the correlation just casual), and (c) they omitted mention of the caveats from the various studies they quoted.
So while countries with high levels of inequality tend to do worse on a whole bunch of performance measures; is it just coincidence, does inequality somehow cause reduced performance; or is there a third factor at work?
My "bold assertion" is covered in the last chapter of the new edition. Surely you've all read the book before you criticised it? No? Tut tut
@george
Get the flags out as Indu agrees with you on the underlying issue. How often has that happened?
In our society there is a list of issues we probably agree on:
- wealth which is not earned
- abject poverty
- biggoted inverted snobbery
- leveling down
Wealth and rich people in itself is not damaging to society. What is damaging is wealth of all levels which is not earned justly. This leads to sloth, greed, corruption and distortion of society.
Take Ed Balls for example and the huge amount of money he earns from different sources or top company director pay.
But the most damaging is the leveling down in our society by self serving bigots (the "I dont have so you cant have" or the "I'm thick so you cant benefit from being clever" brigade) ). It stops ordinary decent working people getting ahead by denying them opportunities and capping what they can achieve.
Leveling down starts in state class rooms.
Look on the bright side, it could have been in E for Equality. But the messae is clear we have to do much much better.
surely the fact that so many people THINK that wealth and rich people (65% in the UK, according to the article) is damaging in itself, even if there are economic arguments to the contrary. It instantly builds the resentment and despair which led to the riots. Conspiracy theorists are having a field day and busily damaging society's cohesiveness as they do so. Simplistic and smug attitudes on the part of the wealthy and ludicrously high earners simply fuels this dysfunction bringing more and more people into it. Many on strike last Wednesday were saying they have never come out on strike before. If the rish could show a little more humility about their wealth that might at least help to stop this perceptual rot.
But far more problematic is what the rich actually do with their money. From the banks who won't lend it to the high earners who won't spend it, this is the real problem. There is a serious economic argument for raising benefits on the basis that at least the majority of that will be spent, and give the economy a much needed boost
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