Income inequality

“...and even the Resolution Foundation brought out a report this week saying we were on course for the biggest increase in inequality since Thatcher.”

Rebecca Long-Bailey, 2 February 2017

That’s what the Resolution Foundation forecast in a recent report, talking specifically about income inequality. Unfortunately, you can’t factcheck the future.

But you can look at the story you’re being told and decide if you think it’s reasonable.

The report assesses what things have driven changes in incomes and wages over recent years and looks at forecasts for where those things are headed up to 2020/21. It then makes a judgement about the implications for incomes and income inequality.

Its headline prediction is that income inequality might be set to rise by more than it has in any parliament since Margaret Thatcher was Prime Minister.

That’s based on a number of forecasts from the Office for Budget Responsibility. Those include slower growth in employment, earnings struggling to keep up with higher price inflation, tax cuts felt most by richer households and benefit cuts felt most by poorer households. It also suggests that auto-enrolment pension schemes will reduce the take-home pay of working-age households in the short term.

As the report itself adds, these are only projections.

It’s better to describe the claim as a bottom-line judgement about where the economy and public policy are likely to go, rather than a fact, and at a time when there’s plenty of uncertainty and debate about future of the economy the impact of leaving the EU, as the report acknowledges.

“Okay, but when you say 'on course', for the record, the statistics show the gap is narrowing”

David Dimbleby, 2 February 2017

That’s a fair summary of the general trend in inequality among disposable incomes over the past decade, although there’s lots of ways to look at inequality.

After increasing sharply in the 1980s, headline measures of disposable income inequality have fallen across most UK households in the last couple of decades (after taxes and benefits, and not accounting for housing costs).

That said, it matters at what point you measure household income and exactly which measure you use. It’s stayed roughly the same on some measures if you count incomes before tax and benefits or after housing costs.

And the overall movement has been the result of many of underlying trends. For example, a recent report from the Institute for Fiscal Studies concluded that although male earnings inequality had increased significantly in the last two decades, there had been a large fall in the proportion of people living in workless households, the earnings of men and women had become more equal, and pensioner incomes had grown faster than some parts of the working population. These are all meaningful changes in inequality in their own right.

The trend in inequality at the very top has been different to the trend across the bulk of the population. Although income inequality has generally fallen, the share of income that goes to the very richest households has continued to rise, and that’s been reflected in the public interest about the incomes of the top 1%.

Since the statistics vary from year to year, and the general downward trend is gradual, it’s hard to give a definitive judgement how any of these trends have changed under the coalition and the most recent Conservative government.