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25 February 2020updated 09 Sep 2021 3:59pm

Why the UK’s inequality problem is even worse than thought

New data shows that the top 10 per cent earn an average of £97,600, almost £10,000 more than previously estimated. 

By George Eaton

There are few boasts that Conservative politicians enjoy making more than “income inequality has fallen”. It suggests that austerity, far from widening the gap between the rich and the poor, has reduced it, and it casts the Tories as “the party of the many”. 

In recent years, Boris Johnson, Theresa May and Philip Hammond have all declared that inequality is at its lowest level since 1986. Until today, their boast had some statistical support. But the Office for National Statistics, the source of this claim, has significantly revised its figures (as the Resolution Foundation and others have long urged it to). 

Based on tax data from HMRC, the ONS now estimates that the top 10 per cent of UK earners are almost £10,000 better off than previously thought, having earned an average of £97,600 in 2017-18 rather than £87,700 (the average full-time wage stands at £29,400). As a consequence, overall inequality is higher than initially estimated. The Gini coefficient, a scale on which 0 per cent is absolute equality and 100 per cent is pure inequality, averaged 34.8 per cent between 2007-08 and 2017-18, compared to a previous figure of 32.4 per cent. Far from having fallen since the end of the 1980s, inequality has been largely flat and rose in the most recent year. 

Though inequality has not risen above its pre-crash level, this partly reflects negative economic trends. The stagnation of average real earnings, which only recently returned to their 2008 peak, has served to limit overall inequality by narrowing the gap between middle and lower earners. Other measures more clearly demonstrate the cost of austerity. Relative child poverty has increased for four consecutive years and is now at its highest level since 2010, with 4.5 million children, or 33 per cent, classified as poor. 

The UK’s problem is less that inequality has risen but that it hasn’t fallen. The country is still living with the consequences of the 1980s when inequality surged as the earnings of the rich rose and tax rates were slashed (the top rate of income tax was reduced by the Thatcher government from 83 per cent in 1979 to 40 per cent in 1989). The Gini coefficient rose from 25 per cent in 1979 to 37 per cent by the end of the 1980s. 

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Inequality is more than merely an abstract concern. As works such as 2009’s The Spirit Level have shown, it is associated with a range of economic and social maladies, including financial crashes, crime, obesity, drug abuse, social immobility and educational failure. 

Even before today, in what has long been one of the developed world’s most unequal countries, the Conservatives’ boast that inequality had fallen was a hollow one. In the absence of transformative policy change, there is little reason to believe this will change. 

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