Because more equal societies work better for everyone

A Moveable Beast: Why We Can't Be Complacent About High Inequality

Tuesday, 19 July, 2016

Today’s Living standards, poverty and inequality in the UK report from the IFS sheds light on how households on different incomes across the country have fared in recent years, putting these trends in historical context.

Let’s start with the good news. Strong employment growth is always something to celebrate, and the last four years have seen fewer workless households and more second earners, both of which have helped to improve incomes for poorer households.  Combined with the weak pay growth that has held down high-income households’ take-home pay, these factors have helped to protect against an expected rise in inequality during the recovery.

In fact, overall inequality is slightly lower than before the recession and around the same as it was in 1990. But before we get carried away, let’s consider what this means. We are now in exactly the same position as we were at the end of the dramatic rise of inequality through the 1980s, with no sustained effort to bring us back to some semblance of normality. Should we really cheer inaction?

Looking exclusively at the top 1% paints a similar picture.  The share of income captured by the richest 1% dropped slightly in the last year, but again a longer-term view reminds us not to be complacent: the share of income going to the top 1% rose from 5.7% in 1990 to nearly 8% in 2014/15.  

There are some other striking changes to families’ incomes that show how dysfunctional our economy and society has become. We all picture middle-income families as comfortable and secure, and compared to those making ends meet on lower incomes, of course, they are. But today’s analysis lends evidence to the notion of the ‘rich and the rest of us’, revealing that middle-income households are converging downwards, and becoming more similar to low-income households, with greater insecurity and more reliance on social security. Half of middle-income families with children now rent rather than own their homes, and low earnings growth means the proportion of their income coming from benefits has increased over the last 20 years from 22% to 30%, as the state tops up their low wages.

Meanwhile, poorer households have boosted the proportion of their incomes from employment over the last two decades, with wages now accounting for half rather than a third of household incomes. Again, this seems positive, with far fewer kids living in workless households (1 in 6, rather than a quarter twenty years ago). But the link between having a job and leaving poverty seems frustratingly weak. The fact that two-thirds of children in poverty have a working parent renders the assumption that ‘work pays’ less and less convincing.

The IFS warns that the future of inequality is now ‘impossible to predict’ because of Brexit. But some things are certain. The Government still has the ability to ensure our incomes don’t diverge even further and make us complete strangers to each other, with the rich living on a different planet to the rest of us. It has a range of tools at its disposal to deliver a fairer tax system to effectively redistribute so everyone can be assured of a decent life, and to shape our economy so it benefits us all. That means good jobs for people to go into, with routes for progression and structures that include workers’ voices. There have been recent encouraging comments from Theresa May, John McDonnell and Owen Smith on these issues.

Let’s use this rare political consensus and work to achieve changes for the future that will allow the IFS to report on the UK’s world-class living standards, our eradication of child poverty – and extreme inequality as a historical mistake never to be repeated.

Lucy Shaddock, Policy & Campaigns Officer

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