Income inequality is high by historical and European standards

Household income grew by 0.7% per year between 2005 and 2020, down from an average of 2.3% per year from 1961 to 2005. While income growth for richer households slowed a lot after 2005, for the poorest households it hardly grew at all, at 0.1% per year. Inequality (measured by the Gini coefficient) increased by 13 percentage points from 1978 to 1992, and by another 2 percentage points from 1993 to 2020. All of the top ten most unequal years on record were in the 21st century.

Average incomes fell during the pandemic, although temporary benefits increases and lower exposure to falls in incomes from employment meant that the incomes of the poorest 20% of households actually rose by 3% in real terms. Since 2021 this decline in inequality is likely to have reversed, with large pay increases for high earners and the end of the £20 universal credit uplift. Low-income families had already been doing worse than others, with relative child poverty increasing from 27% in 2014 to 31% in 2020. Inflation is also higher for lower-income families, leading to increasing levels of material deprivation as the cost of living crisis worsens.

Income inequality in 2018 was higher than all other large European countries. This is driven by high earners earning even more, lower earners working fewer hours (despite earning more per hour thanks to the minimum wage) and housing costs increasing for poorer households. Low-income UK households are 22% poorer than similar households in France. If income inequality was reduced to similar levels as in countries such as France, Germany, Australia and Canada, the incomes of the poorest 20% would be increased by more than 20%.