How pay inequality has soared

Over the last 25 years, the top one per cent have seen their pay increase by a massive 117 per cent.

The Office for National Statistics released a report today detailing increases in real wages across the pay distribution. It chose to lead on the fact that real wages have, on average, increased by 62 per cent over the 25 years from 1986 to 2011 (an annual rate of increase of 1.9 per cent).

What is more interesting though is the pattern of increases in real wages across the pay distribution. The very lowest paid – those in the bottom one per cent of the pay distribution did a little better than the average, seeing their real wages increase by 70 per cent, in no small part due to the introduction of the national minimum wage. But the biggest gains are to be found among those with the highest pay. Someone at the 90th percentile of the pay distribution (i.e. just in the top 10 per cent or earners) saw their real pay increase by 81 per cent, while for the top one per cent real pay increased by a massive 117 per cent - over 3.1 per cent a year.

In fact, apart from the bottom seven per cent of the pay distribution, the further up the pay distribution a person is, the greater has been the increase in their real pay. Apart from the bottom seven per cent, pay inequality has increased, particularly at the very top of the scale.

The report also looks at what happened between 1986 and 1998 – before the introduction of the National Minimum Wage – and between 1998 and 2011. The contrast between the two periods is perhaps the most interesting finding of the report.

In the first period, real pay gains were larger the further up the pay scale you were, and those at the very top – especially the highest one per cent of earners did exceptionally well. Remember also that these figures are all for pay before tax and national insurance contributions. The cut in the top rate of tax from 60 per cent to 40 per cent in 1988 means that in after tax terms, the gap between the gains of those at the top and the rest of the distribution will have been even greater.

Between 1998 and 2011, however, the biggest gains in real pay went to those in the very bottom 2% of the pay distribution – those who benefited directly from the introduction of the national minimum wage. For much of the rest of the pay distribution, the increase in real pay over the period was much the same. Only the top few percent did better.

For 90 per cent of the pay distribution, wage inequality was unchanged between 1998 and 2011. But those at the very top of the pay scale still managed to secure bigger gains than everyone else.

This suggests any attempt to tackle inequality in pay needs to start by halting, and then reversing this tendency for pay at the very top to increase faster than pay for the rest of the workforce.

Tony Dolphin is chief economist at IPPR

The City of London sprawls out, as seen from the under construction 20 Fenchurch Street. Photograph: Getty Images.

Tony Dolphin is chief economist at IPPR

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Who will win in Stoke-on-Trent?

Labour are the favourites, but they could fall victim to a shock in the Midlands constituency.  

The resignation of Tristram Hunt as MP for Stoke-on-Central has triggered a by-election in the safe Labour seat of Stoke on Trent Central. That had Westminster speculating about the possibility of a victory for Ukip, which only intensified once Paul Nuttall, the party’s leader, was installed as the candidate.

If Nuttall’s message that the Labour Party has lost touch with its small-town and post-industrial heartlands is going to pay dividends at the ballot box, there can hardly be a better set of circumstances than this: the sitting MP has quit to take up a well-paid job in London, and although  the overwhelming majority of Labour MPs voted to block Brexit, the well-advertised divisions in that party over the vote should help Ukip.

But Labour started with a solid lead – it is always more useful to talk about percentages, not raw vote totals – of 16 points in 2015, with the two parties of the right effectively tied in second and third place. Just 33 votes separated Ukip in second from the third-placed Conservatives.

There was a possible – but narrow – path to victory for Ukip that involved swallowing up the Conservative vote, while Labour shed votes in three directions: to the Liberal Democrats, to Ukip, and to abstention.

But as I wrote at the start of the contest, Ukip were, in my view, overwritten in their chances of winning the seat. We talk a lot about Labour’s problem appealing to “aspirational” voters in Westminster, but less covered, and equally important, is Ukip’s aspiration problem.

For some people, a vote for Ukip is effectively a declaration that you live in a dump. You can have an interesting debate about whether it was particularly sympathetic of Ken Clarke to brand that party’s voters as “elderly male people who have had disappointing lives”, but that view is not just confined to pro-European Conservatives. A great number of people, in Stoke and elsewhere, who are sympathetic to Ukip’s positions on immigration, international development and the European Union also think that voting Ukip is for losers.

That always made making inroads into the Conservative vote harder than it looks. At the risk of looking very, very foolish in six days time, I found it difficult to imagine why Tory voters in Hanley would take the risk of voting Ukip. As I wrote when Nuttall announced his candidacy, the Conservatives were, in my view, a bigger threat to Labour than Ukip.

Under Theresa May, almost every move the party has made has been designed around making inroads into the Ukip vote and that part of the Labour vote that is sympathetic to Ukip. If the polls are to be believed, she’s succeeding nationally, though even on current polling, the Conservatives wouldn’t have enough to take Stoke on Trent Central.

Now Theresa May has made a visit to the constituency. Well, seeing as the government has a comfortable majority in the House of Commons, it’s not as if the Prime Minister needs to find time to visit the seat, particularly when there is another, easier battle down the road in the shape of the West Midlands mayoral election.

But one thing is certain: the Conservatives wouldn’t be sending May down if they thought that they were going to do worse than they did in 2015.

Parties can be wrong of course. The Conservatives knew that they had found a vulnerable spot in the last election as far as a Labour deal with the SNP was concerned. They thought that vulnerable spot was worth 15 to 20 seats. They gained 27 from the Liberal Democrats and a further eight from Labour.  Labour knew they would underperform public expectations and thought they’d end up with around 260 to 280 seats. They ended up with 232.

Nevertheless, Theresa May wouldn’t be coming down to Stoke if CCHQ thought that four days later, her party was going to finish fourth. And if the Conservatives don’t collapse, anyone betting on Ukip is liable to lose their shirt. 

Stephen Bush is special correspondent at the New Statesman. His daily briefing, Morning Call, provides a quick and essential guide to British politics.