Rising Inequality in the UK

February 29th, 2008 | economics -

Since 1997, inequality in the UK has fallen. According to an IFS report, the level of relative poverty has fallen during labour’s term in office. However, in 2006-07, there was the first increase in relative poverty since 1997.

The number of people living in relative poverty (defined as income 60% of median average incomes) stands at 12.8 million (after housing costs) This is approximately 21% of the population, down from 25% in 1997 (poverty and inequality in the UK 2007)

Factors that may have contributed to increased inequality in the UK in recent years

1. An increase in the number of people on benefits. Despite falling unemployment the number of people receiving state benefits is still around 5 million. There have been an increasing number of people on state benefits such as sickness and incapacity benefits. Arguably there is disguised unemployment. This means that many people have lower incomes.

2. Rising property values have reduced disposable incomes for many young people. Rising property values have made renting more expensive. Therefore, an increasing % of incomes has been spent on housing costs. There has also been an undeniable increase in wealth inequality, which often leads to income inequality.

3. There has been an increase in part time / temporary work. This work is not protected by trades unions and tends to be low paid.

4. The minimum wage is limited in its ability to reduce inequality. Many of those who benefit from the NMW are second income earners or students who are not particularly poor.

5. Increase in regressive indirect taxes. Taxes on alcohol, petrol and cigarettes have increased faster than inflation. Therefore, they have been taking a higher % of people’s disposable income. This has particularly affected groups such as the single unemployed.

6. Inflation for pensioners has been higher than the CPI rate. This is because pensioners spend a higher % of income on goods like council tax, fuel and food; these goods have been increasing faster than inflation, leaving pensioners relatively poorer.