thenextwave

UK income inequality increases again after falling

Posted in economics, poverty, reports, social, trends, work by thenextwavefutures on 18 May, 2007

The latest income inequality data for the UK suggests that over the last decade inequality has been pretty much unchanged. Analysis from the Office of National Statistics says the UK’s gini coefficient, which is an internationally accepted measure for meauring inequalities in household income, climbed in 2005/06 after falling between 2001 and 2005. The reason is more unequal distribution of earnings from employment and self-employment, rather than a result of changes in taxes and benefits payments. Some separate reseach in Wales, conducted by the Bevan Foundation and and the New Policy Institute, suggests, however, that ‘in-work poverty‘ is an increasing issue.

That National Statistics analysis suggests that the reduction in inequality up to 2005 was due to faster eanings growth at the bottom end of the income distribution, due largely to a combination of the minimum wage and tax credits (for households with children).

But the NSO also notes that income inequality still remains high by historical standards, because the big increase which took place in the second half of the 1980s has not been reversed. It also quotes research by the respected think-tank, the Institute for Fiscal Studies (IFS) has investigated some of the possible explanations for the higher level of inequality that has persisted since the late 1980s. They include an increase in the gap between wages for skilled and unskilled workers, perhaps because of technology change; the decline in trade union power; and falling participation in the labour market by male workers (who are higher paid on average than female workers).

Although George Osborne – the Conservaitve Shadow Chancellor – was quick to criticise, the results are pretty comparable with long-term results for social democratic redistribution policies in the face of market-driven economies. As I recall, only the Scandinavian economies, with their far higher tax levels, have managed better outcomes.

The Bevan Foundation stduy was published in October but has only just been summarised in a recent mailing to members.

It found that significant numbers of people were living in households below the poverty line (60% of median income) where one or more people worked full-time or part-time. The data it reports is pretty depressing.

Two or three points from the research seem salient:

  • “A household with average housing costs and no other source of external income will avoid poverty if all the adults in it work at least 30 hours a week. (For single parent households, tax credits mean that the adult needs to work only 16 hours a week).
  • At the same time, among ‘working households’ (i.e. those where someone is in work, whether low-paid or not) the risk of being in poverty is significant (at about 20% if one of the adults is not working, or of none of the adults works full-time. In other words, a combination of full-time work (by at least one person) and some part-time work is necessary to reduce the risk of poverty.
  • From interviews for the study, for people near the edge of in-work poverty, a few hours of extra work make a real difference to making ends meet.
  • Tax credits are important in making low paid work acceptable – but there is a lack of awareness of them, and people can miss out because they are working slightly too few hours. But – because of their position in the labour market – they have little control over their working hours.
  • Their aspirations are modest, a sense captured by the report’s title: “dreaming of £250 a week”.

Poverty amongst people in employment in Wales has increased with approximately 40% of households on low incomes including at least one person in paid work.

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