UK Inequality

According to the standardised data of the OECD, despite a fall in its Gini coefficient from 37% in 2007 to 36% in 2014, the UK is Europe’s most unequal country in terms of disposable income (apart from Estonia). 

Figures for 2014 (or the latest available) for the other major European countries were: France (29%), Germany (29%), Italy (32.5%), Poland (30%), and Spain (35%).

 Britain is also the most unequal English-speaking country within the OECD, except the United States.

 ONS data actually indicate a slight decrease in income inequality in recent years. The ONS figures attribute the marginal reduction of overall income inequality to a rise of incomes of the bottom quintile (the 20% of households with the lowest incomes), and a fall in incomes in the top quintile. According to the Institute for Fiscal Studies, the improvement in low incomes has been due mainly to the performance of the labour market, which experienced job growth from late 2013 onwards.

Yet the overall figures mask differences between social groups, especially pensioners and young people. The IFS notes that the median income of the over-60s rose by 11% between 2007-08 and 2014-15. This resulted from an 8% rise in pensioner benefits. But it also stems from real growth in private pensions and increases in employment of older people. In stark contrast, workers aged 22 to 30 have suffered most since the financial crisis: in 2014-15, their real median income was still 7% below the pre-recession level.

Most information about inequality concerns incomes, which are flows and easier to identify.

 Wealth inequalities, by contrast, are stocks, and harder to measure. Data are also difficult to come by, as wealth-holders are reticent about declaring their assets. Wealth inequality is, however, a burning issue, as it is far greater than income inequality. According to Rowena Crawford et al., the Gini coefficient of wealth in 2010-12 stood at 64% – nearly twice the income level. Using the latest wave of the Wealth and Assets Survey covering 2010-12, they go on to note that the poorest 1% of households had a net negative wealth of £12,000; the net median wealth was equal to £104,000; while the 95^th percentile owned £0.7 million and the top 1% £1.4 million.

In the UK, the question of wealth is particularly important in terms of its impact on housing costs. These tend to aggravate income inequalities as poorer people pay a greater share of their income towards housing. According to DWP data, housing costs have increased the income Gini coefficient by an average 4% since the mid-1990s.

The latest figures indicate that median equivalised net disposable income before housing costs in the UK was £481 per week in 2015/16. Taking the 60% threshold of median income as a measure of poverty, the poverty income was thus £288. Respective weekly amounts after housing costs were £413 and £248.

Accordingly, there were 10.4 million people living in relative poverty before housing costs in 2015/16, equal to 16% of the population. After housing costs, these figures rise to 12.8 million.

The Resolution Foundation study indicates that higher inflation following the devaluation of the pound will squeeze real incomes, especially for poorer households, while the IFS estimates that earnings growth will favour higher incomes. At the same time, low-income private renters are likely to be hit especially through to the early 2020s.