Why the Tories are wrong to boast that inequality has fallen

The gap between the rich and the poor is little changed, and austerity’s costs are clear. 

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There are few boasts that Conservative politicians enjoy making more than “income inequality has fallen”. It suggests that austerity, far from the widening the gap between the rich and the poor, has reduced it, and it casts the Tories, not Labour, as the party “for the many”.

Theresa May and Philip Hammond have both proudly announced that inequality is at its “lowest level in 30 years”. Their claim is not unfounded. Data from the Office for National Statistics does indeed show that in 2015-16 (the most recent year recorded) inequality stood at its lowest level since 1986.

But this is far from the full story. An alternative measure used by the Department for Work and Pensions suggests that inequality is higher than in the mid-1990s and that is has been largely flat since 2010. Unlike the ONS, which relies on an annual survey of around 5,000 households, the DWP also uses data from tax returns, which typically provide a more accurate picture of the top 1 per cent’s earnings (rich households often understate their income).

Crucially, however, even the ONS measure is not cause for celebration. Britain’s problem is not that inequality has risen but that it hasn’t fallen enough. The country is still living with the consequences of the 1980s when inequality surged as the earnings of the rich rose and their taxes fell. The Gini coefficient, a scale on which zero is absolute equality and one is pure inequality, rose from 0.25 in 1979 to 0.37 by the end of the 1980s (it is currently 0.32 on the ONS measure and 0.34 on the DWP’s).

This is not merely an abstract concern. As works such as 2009’s The Spirit Level have shown, inequality is associated with a range of economic and social maladies, including financial instability, crime, obesity, drug abuse, social immobility and educational failure.

The non-rise in inequality also reflects more negative trends. As the Bank of England governor, Mark Carney, recently observed: “Real income growth has not been as weak in the UK since the middle of the 19th century.” The stagnation of average earnings, which are not forecast to return to their pre-crisis peak of 2007 until 2025, has served to limit overall inequality by narrowing the gap between the middle and the bottom.

Other measures more clearly demonstrate the cost of austerity. Relative child poverty has increased for three consecutive years and is now at its highest level since 2010 (with 4.1 million children, or 30 per cent, classified as poor). By 2021, once welfare cuts have been imposed in full, an extra 1.5 million children are forecast to have been pushed into poverty since 2010.

Austerity’s social costs are visible to all in homelessness (up 169 per cent since 2010), rising crime, overburdened schools and hospitals, unrepaired roads, uncollected bins and closed libraries and children’s centres. Wealth inequality has also widened as UK property ownership has fallen to 63.5 per cent, the lowest level since 1987 and the fourth-lowest in the EU. The Conservatives are struggling to sell capitalism to voters with no capital.

The Toires’ boast that inequality has fallen is, then, a hollow one. Rather than illuminating the state of Britain, this cherry-picked stat merely conceals it.

George Eaton is political editor of the New Statesman.