Uneven reports on inequality

Published on Wages & Income

Jeremy says it is racing away. Theresa says it is falling. They can’t both be right, and in fact they’re both wrong. But that doesn’t mean we don’t have an inequality problem

British inequality is like bad music: It’s all about the 1980s

The gap between the rich and poor hasn’t moved that much in the last 25 years. In the 1980s, however, a chasm opened up—and it’s a chasm that remains. The increase between 1979 and 1990 was around 10 points on the summary “Gini” measure, a huge shift on a scale that goes from 0 (where everyone has exactly the same) to 100 (where one person has everything, and everyone else nothing). Britain’s income gap, which had previously been typical for northern Europe, came to look more like America’s. The 80s gave Britain its real inequality problem—not that it is always rising, but that it is simply too high.

The very rich again raced ahead in the noughties: But the crisis hit them hard

If the overall story of recent decades has been one of stability, there have been chapters of change within it. In the years immediately before the financial crisis the very richest saw their incomes racing ahead of everyone else: it was a good decade to be a banker. But after the 2008 crisis, top pay was hit hard, and the state added to the squeeze with a run of tax rises, many of them announced at the fag-end of Gordon Brown’s government. Every-one had a bad crisis, but the highest earners were hardest hit.

Looking ahead: Back to the 1980s—without the feel-good factor

Just because inequality has been pretty flat since the 1980s, that doesn’t mean it’s going to stay that way. Before George Osborne left No 11 (and started editing newspapers) he set out £12bn in benefit cuts to be phased in over the next few years, together with tax cuts that boost the better-off. The upshot—captured in the chart—is that incomes could soon be evolving with a 1980s skew, pushing inequality materially up for the first time since Margaret Thatcher was in No 10. The twist is that rising inflation and sluggish wage rises will squeeze everybody’s pay compared to then. So this might feel like the 80s without the yuppies.

This post originally appeared in Prospect Magazine.