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An Insight into Income and Wealth Inequality in the UK

An Insight into Income and Wealth Inequality in the UK

Income inequality is one of the biggest dividers in the UK. With us being ranked 7th out of 30 of the most developed countries. In particular income inequality in the UK not only divides among class but equally other factors such as race bare significance in individuals’ economic standings. Recently the Office for National Statistics (ONS) revealed that white households in the UK have incomes 63% higher than black households, and even after taxes and benefits are nearly a fifth better off, according to official figures.

The ONS also found that the gap has widened over the past two years partly due to the benefits freeze. This doesn’t even account for the potential rise we are likely to see as a result of the Covid-19 pandemic. The results also dispel myths presented by the tory government that the gaps between the rich and poor have narrowed since they came into power in 2010. As things stand currently with the recession formally recognised in August after two terms of consecutive negative growth. It really is difficult to see the situation improving. The UK's slump is one of the biggest among advanced economies, according to preliminary estimates. The economy is more than a fifth smaller than it was at the end of last year. This fall is not as bad as the 22.7% decline in Spain, but about twice the size of contractions in Germany and the US.

Equally, we shouldn’t just pay attention to income inequality as a vast amount of the inequality we see in the UK today is through wealth rather than incomes. This wealth usually manifests through means such as housing, assets, private pensions or financial wealth such as savings.

Why should we care about income inequality?

One reason the UK should address its income inequality problem is due to its association with lower economic growth. While the 1% have the majority of income/wealth in the UK. It is the spending and consumption habits of the other 99% that contribute to economic growth. Without these individuals having disposable income the economy comes to a standstill with businesses failing and the governments excess spending leading to significant deficits and an increased national debt.

Most importantly there are the moral arguments, inequality in society leads to relative poverty. As a result of this we see the working classes struggle the most, whether this be through unemployment or social problems as a result of their frustration. Thus, fixing inequality is inherently of benefit to the government before these initial problems spiral into deeper societal divides.

Ways to fix inequality

Over the last two decades we have seen a vast amount of policies introduced to try and combat growing inequalities, yet none have seemed to minimise the ever-growing gap. We saw Tony Blair introduce the minimum wage as a means of providing low paid often working-class individuals with a base income of support. But this proves fruitless when you look at the type of work that a vast amount of these workers has, over the last decade we have seen a rise in unstable work through 0-hour contracts and flexible contracts. Along with this business’ will always prioritise profits so by having to pay a minimum wage it either impacts prices or the amount of jobs available both having impacts on the poorest in society. Therefore, the only conceivable way I can see inequality being reduced significantly is not through liberal economic policies but instead using redistribution of wealth and income.

We saw this desire for a more equal society reflected in Labours 2019 manifesto and I hope its something Keir Starmer prioritises in future economic policy.

Growing inequality is not just bad economics, it is bad public policy and governance, too. We clearly have a lot to gain as society by combating this trend and strengthening our working class.

Megan Cole

7 Sept 2020

Image by OkClipart