Why inequality has fallen and why it's set to rise from now on

The gap between the rich and the poor has narrowed as real earnings have fallen but the coalition's welfare cuts mean it is set to widen from now on.

The most notable finding from the ONS's annual report on "the effects of of taxes and benefits on household income" is that income inequality fell betwen 2010-11 and 2011-12 to its lowest level since 1986. It notes: 

The Gini coefficient for disposable income in 2011/12 was 32.3%, a fall from its 2010/11 value of 33.7%, and the lowest level since 1986. This fall in income inequality is partly due to earnings (including income from self-employment) falling towards the top of the income distribution but increasing for the poorest fifth of households.

This is not as surprising as some suggest; it's normal in times of economic stagnation for inequality to fall as middle class earnings decline and the automatic stabilisers protect the incomes of the poorest. The decision of the rich to delay earnings until 2012-13 in order to benefit from the cut in the 50p tax rate is also likely to be a factor. But it's still a finding the Tories will hail as they seek to prove that "we're all in this together". 

They would be wise, however, to resist the temptation to do so. Owing to the coalition's welfare cuts, many of which only took effect this year, inequality is forecast to significantly increase between now and 2015-16. In particular, George Osborne's decision to cap benefit increases at 1 per cent for at least three years (an unprecedented real-terms cut) means the poorest will see a sharp fall in their incomes. The IFS expects inequality "to rise again from 2011–12, almost (but not quite) reaching its pre-recession level by 2015–16." 

While the Tories can take little credit for the fall in inequality (which is largely due the decline in real earnings), they will deserve the blame for the rise.

George Osborne delivers his Mansion House speech on June 19, 2013 in London. Photograph: Getty Images.

George Eaton is political editor of the New Statesman.

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Lord Sainsbury pulls funding from Progress and other political causes

The longstanding Labour donor will no longer fund party political causes. 

Centrist Labour MPs face a funding gap for their ideas after the longstanding Labour donor Lord Sainsbury announced he will stop financing party political causes.

Sainsbury, who served as a New Labour minister and also donated to the Liberal Democrats, is instead concentrating on charitable causes. 

Lord Sainsbury funded the centrist organisation Progress, dubbed the “original Blairite pressure group”, which was founded in mid Nineties and provided the intellectual underpinnings of New Labour.

The former supermarket boss is understood to still fund Policy Network, an international thinktank headed by New Labour veteran Peter Mandelson.

He has also funded the Remain campaign group Britain Stronger in Europe. The latter reinvented itself as Open Britain after the Leave vote, and has campaigned for a softer Brexit. Its supporters include former Lib Dem leader Nick Clegg and Labour's Chuka Umunna, and it now relies on grassroots funding.

Sainsbury said he wished to “hand the baton on to a new generation of donors” who supported progressive politics. 

Progress director Richard Angell said: “Progress is extremely grateful to Lord Sainsbury for the funding he has provided for over two decades. We always knew it would not last forever.”

The organisation has raised a third of its funding target from other donors, but is now appealing for financial support from Labour supporters. Its aims include “stopping a hard-left take over” of the Labour party and “renewing the ideas of the centre-left”. 

Julia Rampen is the digital news editor of the New Statesman (previously editor of The Staggers, The New Statesman's online rolling politics blog). She has also been deputy editor at Mirror Money Online and has worked as a financial journalist for several trade magazines. 

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