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14 May 2014

Labour’s new earnings data undermines Osborne’s boast on inequality

The share of post-tax income received by the top 1 per cent has risen, while falling for the bottom 90 per cent.

By George Eaton

One of the most surprising boasts in George Osborne’s last Budget was his declaration that “under this government income inequality is at its lowest level for 28 years” (indeed, it prompted cries of disbelief from the Labour benches). Surprising because it’s rare for Conservatives to be preoccupied with the gap between the rich and the poor and because austerity is generally held to have widened it. 

But the trend isn’t as unusual 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. What Osborne didn’t mention, however, is that the figures he cited date from 2011-12 and inequality is thought to have risen since as the government’s welfare cuts take full effect and high-earners reap the benefits of the abolition of the 50p tax rate. 

New data released by Labour today suggests that is precisely what has happened. Over the last year, the share of post-tax income received by the top one per cent of earners – 300,000 people – has risen from 8.2 per cent (in 2012/13) to 9.8 per cent (in 2013/14), while the share taken by the bottom 90 per cent has fallen from 71.3 per cent to 70.4 per cent. 

In Labour’s economic battle with the Tories, this is potent ammunition. It is empirical proof of the party’s assertion that the recovery is benefiting a few at the expense of the many (one David Axelrod will hone when he holds his first meeting with Ed Miliband and other senior Labour figures today). As the coalition prepares to hail new figures showing average wages (inflated by high pay at the top) outstripping inflation, expect Labour to put this message centre stage. 

The challenge for Ed Miliband, who rightly regards inequality as the defining issue in politics today, will be convincing voters that he has both the will and the means to halt the widening chasm between rich and poor.

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