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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Voters are turning against Brexit but the Lib Dems aren't benefiting

Labour's pro-Brexit stance is not preventing it from winning the support of Remainers. Will that change?

More than a year after the UK voted for Brexit, there has been little sign of buyer's remorse. The public, including around a third of Remainers, are largely of the view that the government should "get on with it".

But as real wages are squeezed (owing to the Brexit-linked inflationary spike) there are tentative signs that the mood is changing. In the event of a second referendum, an Opinium/Observer poll found, 47 per cent would vote Remain, compared to 44 per cent for Leave. Support for a repeat vote is also increasing. Forty one per cent of the public now favour a second referendum (with 48 per cent opposed), compared to 33 per cent last December. 

The Liberal Democrats have made halting Brexit their raison d'être. But as public opinion turns, there is no sign they are benefiting. Since the election, Vince Cable's party has yet to exceed single figures in the polls, scoring a lowly 6 per cent in the Opinium survey (down from 7.4 per cent at the election). 

What accounts for this disparity? After their near-extinction in 2015, the Lib Dems remain either toxic or irrelevant to many voters. Labour, by contrast, despite its pro-Brexit stance, has hoovered up Remainers (55 per cent back Jeremy Corbyn's party). 

In some cases, this reflects voters' other priorities. Remainers are prepared to support Labour on account of the party's stances on austerity, housing and education. Corbyn, meanwhile, is a eurosceptic whose internationalism and pro-migration reputation endear him to EU supporters. Other Remainers rewarded Labour MPs who voted against Article 50, rebelling against the leadership's stance. 

But the trend also partly reflects ignorance. By saying little on the subject of Brexit, Corbyn and Labour allowed Remainers to assume the best. Though there is little evidence that voters will abandon Corbyn over his EU stance, the potential exists.

For this reason, the proposal of a new party will continue to recur. By challenging Labour over Brexit, without the toxicity of Lib Dems, it would sharpen the choice before voters. Though it would not win an election, a new party could force Corbyn to soften his stance on Brexit or to offer a second referendum (mirroring Ukip's effect on the Conservatives).

The greatest problem for the project is that it lacks support where it counts: among MPs. For reasons of tribalism and strategy, there is no emergent "Gang of Four" ready to helm a new party. In the absence of a new convulsion, the UK may turn against Brexit without the anti-Brexiteers benefiting. 

George Eaton is political editor of the New Statesman.