Is inequality increasing in Britain?

It is a tricky business to compare levels of inequality over time. Often sweeping generalisations are made based on casual perceptions or on proxy indicators, such as housing costs in relation to wage rates. Another proxy indicator of growing inequality is the rapid increase in the number of people fed by emergency food banks in recent years. By such instinctive measures inequality in Britain does indeed seem to be on the rise.

INCOME-INEQUALITyThe Office for National Statistics (ONS) reveals a growing wealth disparity in general as well as a widening north-south divide. Between 2006/08 and 2012 wealth in the southeast has been rising five times as fast as the national average (30% compared to 6%). The richest 1% now owns as much as the poorest 20%. Critics say the figures fail to capture wealth diverted to off-shore tax havens commenting that the true picture may well be even more skewed than indicated by these official statistics.

Even the political establishment is starting to express its concern with the distributional impact of government policy, as the recent voting down in the House of Lords of the Chancellor’s plans to cut tax credits demonstrates. According to leading Conservatives, such as former PM John Major, the degree of inequality in Britain has already reached almost untenable proportions.  In his estimation the gap between rich and poor in Britain today is not just a matter of degree, it has become a great social chasm.

In his opinion the fact that the life expectancy at birth of the poorest in the nation is some twenty years less than that of the most well-off amongst us is politically unacceptable. This social duality seems more representative of master-slave, feudal/colonial, societies than of modern day capitalist economies. These are the very things that capitalism was supposed to cure. What has gone wrong?

Some would argue that capitalism never did hold out the meritocratic solutions to opportunity and reward for all according to effort and intelligence that it promised. Others argue that the system has been corrupted by the plutocracy that has placed too much power in the hands of too few, undermining the very mechanisms of capitalism that we expected to be able to rely on for equity, efficiency and economic prosperity.

Income and wealth inequality are difficult to measure. Statisticians rely on an indicator called the Gini Coefficient, where 100% represents total inequality (one person has everything) and 0% total equality (everyone has the same). The coefficient is a crude figure, not capturing every aspect of individual economic welfare or of income disparities. By this measure the OECD calculates that income inequality in the UK, at 35%, is substantially above the average in OECD countries of 32%. In the USA, one of the most unequal countries, the coefficient is 40%, while in  Denmark, one of the the most equal, it is 25%. The Coefficient in the UK has remained stubbornly high between 2007 and 2012. More recent data, when it becomes available, may confirm the common perception of a worsening income distribution, mirroring the worsening wealth distribution. We shall have to wait and see. It seems clear that we are already witnessing increasingly squalid housing conditions in London, worsening security of employment and rising levels of child poverty.

Income is a flow and wealth is a stock. Typically, of course, wealth yields a return and generates income, so a more unequal distribution of wealth predicates a more unequal distribution of income. David Cameron’s claim that when it comes to recovering from the financial meltdown we are ‘all in it together’ cannot be substantiated, for then we might have been able to expect that those with the broadest shoulders would carry the greatest burden rather than the other way around. There is by now no denying that since the 2008 financial crisis the wealthiest among us have added many times over to their wealth while the wealth of the poor has shrunk.

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