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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Even before Brexit, immigrants are shunning the UK

The 49,000 fall in net migration will come at a cost.

Article 50 may not have been triggered yet but immigrants are already shunning the UK. The number of newcomers fell by 23,000 to 596,000 in the year to last September, with a sharp drop in migrants from the EU8 states (such as Poland and the Czech Republic). Some current residents are trying their luck elsewhere: emigration rose by 26,000 to 323,000. Consequently, net migration has fallen by 49,000 to 273,000, far above the government's target of "tens of thousands" but the lowest level since June 2014.

The causes of the UK's reduced attractiveness are not hard to discern. The pound’s depreciation (which makes British wages less competitive), the spectre of Brexit and a rise in hate crimes and xenophobia are likely to be the main deterrents (though numbers from Romania and Bulgaria remain healthy). Ministers have publicly welcomed the figures but many privately acknowledge that they come at a price. The OBR recently forecast that lower migration would cost £6bn a year by 2020-21. As well as reflecting weaker growth, reduced immigration is likely to reinforce it. Migrants pay far more in tax than they claim in benefits, with a net contribution of £7bn a year. An OBR study found that with zero net migration, public sector debt would rise to 145 per cent of GDP by 2062-63, while with high net migration it would fall to 73 per cent.

Earlier this week, David Davis revealed the government's economic anxieties when he told a press conference in Estonia: "In the hospitality sector, hotels and restaurants, in the social care sector, working in agriculture, it will take time. It will be years and years before we get British citizens to do those jobs. Don’t expect just because we’re changing who makes the decision on the policy, the door will suddenly shut - it won’t."

But Theresa May, whose efforts to meet the net migration target as Home Secretary were obstructed by the Treasury, is determined to achieve a lasting reduction in immigration. George Osborne, her erstwhile adversary, recently remarked: "The government has chosen – and I respect this decision – not to make the economy the priority." But in her subsequent interview with the New Statesman, May argued: "It is possible to achieve an outcome which is both a good result for the economy and is a good result for people who want us to control immigration – to be able to set our own rules on the immigration of people coming from the European Union. It is perfectly possible to find an arrangement and a partnership with the EU which does that."

Much depends on how "good" is defined. The British economy is resilient enough to endure a small reduction in immigration but a dramatic fall would severely affect growth. Not since 1997 has "net migration" been in the "tens of thousands". As Davis acknowledged, the UK has since become dependent on high immigration. Both the government and voters may only miss migrants when they're gone.

George Eaton is political editor of the New Statesman.