Wealth inequality in the UK is widening. John Humphrys asks, how has this affected our view of the poorest in society?
The evidence of growing inequality in Britain has been stacking up for years. This week, new figures on the widening gap in incomes among those at work have confirmed the trend. But another report published in the last few days – the British Social Attitudes Survey – suggests that although most of us don’t approve of it, only a minority want the government actually to do anything about it. So how much do we really care about inequality?
The new figures on the growing gap between the rich and the poor have come from the Paris-based Organisation for Economic Cooperation and Development. It reports that growing inequality is a phenomenon common to the advanced world. Even countries with long-standing reputations for promoting greater equality, like Denmark and Sweden, are gradually becoming more unequal. But in Britain inequality of income has been growing more quickly over the last thirty years or so than in almost any other advanced country. Only Israel and the United States are becoming more unequal at a faster rate.
Here the average income of the top 10% of earners (£55,000 a year) has risen to twelve times the average income of the bottom 10% (£4,700). But it’s what has happened to the top 1% that shows most clearly how income inequality has increased. In 1970 the top 1% of earners took home 7.1% of total earnings in the country; by 2005 they were taking 14.3%.
Things are not quite so unequal if the comparison made is not between earners but among everyone – that’s to say, if pensioners and children are included in the equation. But even then the top 10% commands ten times more income than the bottom 10%.
There are many reasons for this growing income inequality. One explanation for why the top 1% has raced ahead is the growth in advanced countries, and especially in Britain, of the financial services sector, where the great bulk of the top 1% work. The corollary of that has been the decline in manufacturing and with it the sort of middle-ranking manufacturing jobs that kept income inequalities less severe. There has also been a growth in self-employment and the self-employed tend to earn less than those in salaried work.
Another factor is feminism. Or, to put the point less provocatively, the expansion of education for women. The result of that is what is called 'social sorting'. Better educated (and therefore higher-earning) men now tend more to marry better educated (and therefore higher-earning) women, with the result that their overall household income is higher. Put in simple terms: doctors now tend to marry other doctors rather than nurses. At the other end of the income scale, low-earners now tend to marry each other more than they used to do.
These trends have been going on since the mid-1970s. In fact the OECD interestingly report that the greater part of this growing income inequality happened between the mid-1970s and 1990, though the speeding ahead of the top 1% has happened more recently.
In the past, governments have sought to counter these trends by redistributive tax and spend policies: levying much higher income tax rates on the high earners and using benefits to provide or top up the incomes of the lowest earners. But in the last twenty five years, the trend has been to cut the level of top rates of tax. This has been justified on the grounds that the disincentive effect of high marginal tax rates has been such as to make them self-defeating: the actual revenue raised from the high tax rates being small or even non-existent. When Margaret Thatcher’s Chancellor, Nigel Lawson, cut the top rate of income tax from 60% to 40%, the revenue raised from the group of people it affected actually rose. Even today, the top 1% of income tax payers contribute 27% of all revenue from income tax.
But while lower tax rates may prove beneficial to the Treasury in revenue terms, their effect is to allow the income gap to go on widening. And there seems to be no great enthusiasm among politicians for re-introducing higher rates for top earners. When New Labour fought the 1997 election, it pledged not to increase Lawson’s top rate of 40%. It was only the financial crisis of 2008 which led Labour’s last Chancellor, Alistair Darling, to raise it to 50% for top earners and only as a temporary measure. The current Coalition Government has retained it, but Conservative ministers give signals that they want to cut it as soon as they can, and even Liberal Democrat members of the Coalition tend to defend it on the political grounds of fairness during a period of austerity, implying that they too would be happy to see it go one day.
At the other end of the income scale, of course, governments can take measures to mitigate growing income inequality: they can be more generous with benefits. But the tendency is to do the opposite: for example, to uprate existing benefits in line with a less generous measure of inflation. For the sake of greater fairness and equality, should governments reverse this trend?
Here, this week’s British Social Attitudes Survey, published by the National Centre for Social Research, is instructive. It reports that 75% of British people think that the income gap is too large. But at the same time only 35% think that the Government should do more to redistribute income more fairly.
Even more alarmingly for the poor, the survey shows that opinion in Britain is hardening against them. Back in 1983, 35% of the public thought that social security benefits were too high; today the figure is 54%. In the mid-1990s, 15% thought that poverty was caused by laziness or a lack of willpower; today that’s the view of 26%. A remarkably high 63% attribute child poverty to parents who don’t want to work.
One of the striking things, according to those who conducted the survey, is that these results run counter to the usual pattern during hard economic times, when people have tended to feel greater sympathy towards those at the bottom end and a greater willingness to help them with higher benefits. Today there is markedly less enthusiasm for such collective help (at least through the state) and a greater belief that people must stand on their own feet. Does this mean we no longer care about inequality?
What’s your view?
- Are you surprised or not by the figures showing that the top 10% of earners take home, on average, twelve times what the bottom 10% earn?
- Do you think it matters?
- What about the top 1%: what is your attitude to the fact that people in this group command over 14% of total income, twice the share they enjoyed in 1970?
- Should the top 1% be taxed more heavily, or not?
- Should benefits to the bottom 10% be made more generous?
- And what is your forecast: do you think Britain will go on becoming a more unequal society and, if so, do you think it matters?
Let us know your views.
