The House of Commons reported in 2020 that inequality in household incomes in the UK has remained at a roughly similar level since the early 1990s but is higher than during the 1960s and 1970s. While the share of income to the top 1% of individuals by household income increased during the 1990s and 2000s, there was some reduction in inequality among the rest of the population (based on incomes before housing costs), with the result that inequality overall was fairly stable during this period.
However, income equality in the UK has widened in the decade since the financial crisis. ONS figures from 2020 show that the income share of the richest 1% increased from 7% to 8.3% between 2011 and 2020, with income inequality increasing steadily to 36% (although this was lower than the 39% level reached during the 2008 downturn). The IFS showed this year that the COVID pandemic has also led to greater economic hardship for many groups, including some ethnic minorities, while poorer households saw the largest rises in deprivation due to the pandemic.
Leaving aside changes over time, income inequality in the UK remains high. The Equality Trust estimated that in 2018, the majority of households in the UK had disposable incomes below the mean income of £34,200, and that the poorest fifth of society had only 8% of the total income, whereas the top fifth had 40%. It also estimated that since 1980, the share of income earned by the top 1% in the UK had generally been rising, peaking at 13% in 2015, almost double the proportion in Belgium (7%) and higher than Australia (9%), Sweden (8%) and Norway (8%).
Wealth is even more unequally divided than income. It used to be even higher than it is now. Wealth inequality in the UK fell for much of the 20th century, with the proportion of wealth held by the richest 10% falling from more than 90% in the early decades of the century to around 50% by the 1980s. In 2016, the ONS calculated that the richest 10% of households held 44% of all wealth, while the poorest 50% of households held just 9% of wealth.
Wealth inequality has been growing again in the last decade. The Resolution Foundation estimated earlier this year that 5% of the total wealth held by the very richest households has been missed by official measures, and that the top 1% had almost £800bn more wealth than suggested by ONS figures, meaning that 23% of all household wealth in the UK is held by the richest 1% of the population (compared to 18% estimated by the ONS). RF estimated that total wealth inequality is around twice as high as income equality (with Gini coefficients of 0.63 and 0.34 respectively), and noted that 76-93% of wealth gains since the financial crisis have come through passive accumulation (e.g. changes in asset prices) rather than saving.
Impacts of COVID
A subsequent report by the Resolution Foundation estimated that wealth inequality during the COVID pandemic has increased further, with the richest 10% gaining £50,000 on average, and that while wealth had increased during lockdown due to a lack of spending opportunities and rising house prices, the benefits had been skewed to the richest by a ratio of more than 500 to 1, since the poorest households were more likely to have run down rather than increase their savings, and had not shared in the house price boom because they were less likely to own a home in the first place. The gap between wealth for an average household in the top decile and that in the fifth decile increased by 50 per cent (up to around £1.3 million) between 2006-08 and 2016-18, and increased by a further £40,000 during the pandemic. There are a range of other ways in which the pandemic has exacerbated wealth inequality, including:
- IPPR research finding that government interventions are exacerbating structural inequalities in the economy that are insulating creditors and asset-owners from the worst effects of the pandemic while driving many of the most financially vulnerable deeper into debt
- IFS research suggesting that workers whose livelihoods were most at risk during the pandemic already tended to have relatively low incomes, and were relatively likely to be in poverty, prior to the onset of the crisis
- Resolution Foundation research pointing out that for many low-income families the pandemic has been accompanied by falling savings rates and a growing use of high-cost consumer debt
- TUC research finding that over a million children of key workers (one in five) were living in poverty during the pandemic, rising to almost one in three in the north-east of England
- Health Foundation research showing that the chances of dying from COVID were nearly four times higher for working-age adults in the poorest areas than for those in the wealthiest areas
Wealth is also unevenly spread across the UK. According to the Equality Trust, the South East of England is the wealthiest of all regions with median household total wealth of £387,400, over twice the amount of wealth in households in the North West of England (£165,200). However, regional comparisons can often be misleading; an English Atlas of Inequality published in 2019, which looked at income distributions, deprivation ratios and spatial patterns of inequality, found that many of the poorest people do not live in the poorest parts of the country, but also that many places in England that are poor are also more economically equal than, for example, unequal cities like London that are home to large numbers of poor people but also have some of the best outcomes overall. Meanwhile, an excellent ONS data visualisation earlier this year compared regional differences in income and productivity across the UK and found that the areas where people have the highest income are not always those that contribute the most to the economy.
The Social Metrics Commission’s 2020 report on measuring poverty found that 14.4 million people in the UK are living in poverty, of which 4.5 million are children (33% of all children), 8.5 million are working-age adults (22% of all working-age adults) and 1.3 million are pension-age adults (11% of all pension-age adults). It found that, while overall poverty rates have changed little since 2000 (at 22%) and poverty rates for some groups (including pensioners) have fallen, the numbers living in ‘deep poverty’ (more than 50% below the poverty line) has increased from 5% of the population in 2000 to 7% (4.5 million people). Another 11% (7.1 million people) are in ‘persistent poverty’, a similar proportion to 20 years ago. Poverty rates vary widely by region, with the highest rates in London (29%) and the lowest in the South West, South East, and East of England (18%).
The IPPR focused on the increasing poverty among people in work, finding an increase in relative poverty among this group from 13% in 1996 to 17.4% in 2020, driven by a combination of low wages and spiralling living costs (in particular housing and childcare), alongside a social security system that has failed to keep up with rental costs. It highlighted that housing costs for private tenants have jumped by almost 50% above the general rate of inflation over the last 25 years, and that the increase in poverty rates was most acute in London, Wales and the north of England.
The Trussell Trust’s report The State of Hunger revealed the extreme poverty faced by people at food banks going into the pandemic, with just £248 a month on average to survive on after housing costs. That money needs to cover energy and water costs, council tax, food, and other essentials.
The Joseph Rowntree Foundation’s 2020/21 report on UK poverty found that the impact of the COVID pandemic on the poorest in society has been severe, with the brunt of the economic and health impacts born by part-time and low-paid workers, ethnic minority households, lone parents, private and social renters, and people living in areas with already higher levels of unemployment and deprivation. It predicted that the removal of the furlough scheme and of the temporary uplift to universal credit (see welfare briefing) would increase poverty levels significantly.
Being poor also increases the costs that people pay for essential goods and services. The so-called poverty premium means that essentials such as energy, loans and insurance cost the average low income household an extra £490 per year (and at least £780 per year for more than 10% of them). Research commissioned by Fair By Design found that people with certain protected characteristics are more likely to be paying a poverty premium, even when compared with low income households as a whole, suggesting that the UK marketplace is discriminating against groups of people, albeit indirectly.
Economic inequality is particularly pronounced when it comes to ethnic minorities. The EHRC 2018 report Is Britain Fairer? found that Black African, Bangladeshi and Pakistani people are still the most likely to live in poverty and deprivation, despite the fact that, as the Institute for Fiscal Studies points out, poverty rates for people from Bangladeshi and Pakistani backgrounds fell from 61% to 49% prior to 2010 (whereas the relative poverty rate for black people, at 40%, has not changed for decades). The Runnymede Trust estimated that Black African and Bangladeshi households have 10 times less wealth than White households, that levels of savings and assets are significantly lower for all ethnic minority groups than among White households, and that ethnic minority households are disproportionately impacted by the benefit cap, partly due to higher housing costs in England’s large cities (especially London) where these groups are more likely to reside. The Cabinet Office Race Disparity Audit in 2018 noted that 1 in 4 children in Asian households and 1 in 5 children in Black households were in persistent poverty, compared to 1 in 10 children in White households, and that Pakistani and Bangladeshi people were the most likely of all ethnic groups to live in the most deprived neighbourhoods. The Social Metrics Commission’s 2020 report provided similar estimates (while also noting that 80% of those in persistent poverty live in families with a head of household who is White).
Economic inequality also has a class aspect, needless to say. A recent report by Autonomy summarised recent research on class and economics, including the argument that we cannot understand class in the UK today without taking asset ownership into account, rather than simply analysing class membership based on occupation (and income), on the basis that “asset inequalities are first and foremost an issue of class, not age”, and that while income inequality is still important, “a ‘middle class’ job is no longer the gateway to a ‘middle class’ lifestyle”.
Economic inequality also has a disproportionate impact on women. A recent briefing by six women’s organisations on the impact of the pandemic on young women on low incomes found that only one in three furloughed low-income young women had their salary topped up by their employer compared to almost half of their male counterparts, and twice as many low-income young women as men said that the pandemic had made their financial situation worse. The House of Commons Women and Equalities Committee published a report on the gendered economic impact of COVID in January 2021 that also found a range of disparities in the impact of the pandemic on men and women. This builds on reams of earlier research, for example from the LSE Commission on Gender, Inequality and Power, on the adverse impact of austerity policies on women. And ethnic minority women suffer the combined disadvantage of the ‘intersectional’ impacts of race and gender. (The gender pay gap is covered in the ‘work’ briefing.)
Disabled people also suffer from economic inequality more than the wider population. The Social Metrics Commission’s 2020 report estimated that half of all people in poverty live in a family that includes a disabled person, with four million people in poverty are themselves disabled and another 3.2 million living in a family that includes someone else who is disabled. As pointed out in the ‘welfare’ briefing, the Trussell Trust found that 62% of working-age people referred to food banks in early 2020 were disabled, and also that 23% of households with a disability lost more than a quarter of their income on repaying debt or loans, compared to 14% of households not affected by disability.
Child poverty is rising, unlike many other forms of poverty in the UK (such as pensioner poverty). The Social Metrics Commission’s 2020 report estimated that poverty rates are highest amongst families with children (26% for couples with children, compared to 11% for couples without children, and 48% for single parents). The Institute for Fiscal Studies pointed out that relative child poverty in 2019–20 was 4 percentage points higher than in 2011–12 (a rise of 700,000 children). The New Policy Institute found that the rise in child poverty over the last six years (back above three million for the first time in 20 years) has all but wiped out all the progress made since the late 1990s, when government action against child poverty began, and that although it took 12 years to reduce child poverty by a million, it has taken only six years to reverse it; child poverty is growing by 150,000 per year, as fast as it did when it rose from around two million in the early 1980s to three and a half million in the early 1990s. A recent report by Loughborough University estimated that child poverty costs Britain £38bn per year. The House of Commons work and pensions select committee has just called for the government to draw up a new cross-departmental plan to tackle child poverty (there has not been one since 2017). Labour has pledged to establish a new child poverty reduction unit inside Number 10.
Wealth inequality also has a strong intergenerational aspect. The Institute for Fiscal Studies has shown that inheritances will be larger compared with lifetime incomes for younger generations than for their predecessors, and are therefore more important in increasing inequalities between those with richer and poorer parents, reducing social mobility. The unequal distribution of wealth today will flow down to future generations very unevenly, with impacts on living standards today (since people anticipating a future inheritance may decide to save less). The IFS has also investigated why wealthy parents have wealthy children, and found that the persistence of wealth across generations in the UK is comparable to that in the US but greater than that in Scandinavian countries, that those with the wealthiest 20% of parents have six times more wealth than those with the poorest 20 of parents, and that around half of the intergenerational persistence in wealth is not accounted for by the persistence of earnings and education (but is instead related to other factors, such as higher levels of saving, direct transfers of wealth and the resulting ability of wealthy children to get onto the housing ladder sooner). The OECD estimates that the share of inheritances in private wealth may soon return the high levels of the early 1900s, while the Office for Tax Simplification has found that tax reliefs for business and agricultural assets “predominantly benefit the wealthiest households, significantly reducing the effective tax burden on some of the largest estates”. The FT has written about how many young people now feel that the social contract has broken down.
Causes of inequality
There are of course many different causes of economic inequality, all of which are to some extent inter-related (and most of which link to our other focus issues), including low pay and insecure work, inequality of opportunities to access the best education and jobs, increasingly unaffordable housing, unequal land ownership (with less than 1% of the population owning 50% of the land), an insufficiently progressive and effective tax system, deregulation and the decline of trade unions, the increasing cost of living (including childcare, food and energy), an inadequate and punitive welfare system, structural discrimination on the basis of race, gender, disability, religion and sexuality, increasing returns to wealth rather than labour and the disproportionate economic power of rentiers and the finance industry, the self-reinforcing concentration of wealth in society, and so on.
Public attitudes to economic inequality have been well studied in recent years (much more so than attitudes to other forms of inequality). The IFS Deaton Review of inequality has found that attitudes to inequality depend more on people’s perceptions than on the reality of how unequal society actually is, and that while most people want to see inequalities reduced, they do not always support more government action to address them. People see inequalities caused by merit or effort as fairer than those that arise due to luck, but they divide into two groups on the question of how most inequalities have arisen (individualists, who see outcomes as determined by individual efforts, and structuralists, who believe in systemic structures that create and perpetuate inequalities, as well as a third group who sit somewhere in the middle). The research found that most people were more worried by inequalities between different regions of the country than by other forms of inequality, and that COVID was increasing support for state intervention to tackle inequality, especially if it was not overly framed in terms of redistribution and instead focused on universal solutions and also on helping those in greatest need. (There is a large literature on how best to ‘frame’ poverty and economic inequality so as to maximise public support for change: how to talk about poverty, not talking about poverty, rethinking poverty, framing the economy, talking about poverty, the economy is rigged.)