Popular discussion
of inequality or poverty in the UK is often confused because there
are many different measures of both. [1] Some facts are largely
immune to measurement issues, like the fact that UK inequality and
poverty increased significantly in the 1980s. Bourquin,
Brewer and Wernham provide a good discussion, and this
chart is taken from there.
So, for example, the
ratio of the post-tax income of the top 10% compared to the bottom
10% rose substantially in the second half of the 1980s (helped by
cuts to the top rate of tax), but has, if anything, fallen slightly
since then.
In the past I have
looked at the outer edges of the income distribution, and in
particular the share of income going to the top 1%. That’s an
income of around £200,000. Here is data from the World
Inequality Database, which unlike earlier is pre-tax.
For post-tax data see
the IFS here. (For more on the characteristics of the
1%, see here.)
I’ve included data
since WWII just to illustrate that the post-war period was marked by
a steady and significant decline in the 1% share, which was reversed
in the 1980s. The 1% share continued to rise in the 1990s and peaked
around the time of the Global Financial Crisis, falling back slightly
since then.
Wealth inequality
shows a similar story, but there are notable differences. The decline
in the 1% wealth share in the post-war period was very marked, reflecting in part very high inheritence taxes,. Wealth inequality rose in the 1980s, but
more modestly than incomes, and has been growing slowly but steadily
since. In addition over the last few decades the overall
level of wealth to income has increased substantially.
Recent trends in the
UK are very different to the US, where top incomes have exploded
dramatically. For example the top 1% wealth share in
the US has risen from a low of around 25% before 1980 to over 35%
today. The (pre-tax) 1% income share in the US had also risen
steadily since 1980, and is now approaching 20%. At the same time tax
rates for the very very rich have fallen dramatically.
Why should we care
about the very top of the income distribution? Sometimes it is
suggested that very high incomes do everyone else no harm, so why
worry about what a small percentage of individuals earn? This
argument is in my view simply wrong, for two main reasons. First, the
scale of inequality at the top is substantial. After tax, the top 1%
earn around 9% of all incomes. To put it crudely, that means that by
halving these top incomes we could increase everyone else’s income
by over 4%, which is a lot. This is the same as saying that if the
rise in the share of the 1% since the 1970s had not happened,
everyone else would now be over 4% better off. Advocates for the
wealthy would say that reducing top incomes would reduce the size of
the overall pie, but we have no clear evidence for that.
Secondly, extreme
levels of income and wealth tend to impact all of us through
politics. We just need to look
at the United States to see how this can completely
distort the political process in a way that favours the rich compared
to everyone else. One reason that post-tax inequality in the United
States has risen much more than in the UK, particularly among the
billionaire class, is
precisely because the wealthiest have so much
political power.
What about the other
end of the income distribution? The first chart shows a sharp rise in
poverty in the 1980s, and then a decline at the turn of the century
thanks in part to decisions made by the last Labour government. Since
then poverty has been relatively flat, but the chart doesn’t
include recent years, and doesn’t include housing costs. Here the
story is all about increasing costs in the last few years, as
calculations from the Resolution Foundation clearly show.
Source link
