Table of contents
DOI: https://doi.org/10.58248/HS99
Overview
Economic inequality is often defined as the unequal spread of income and opportunity between different groups in society.[1] Historically, much of the focus has been on income inequality but the discussion of unequal opportunities has widened to include other economic inequalities.[2] Measures of economic inequality in the UK include:
- Income inequality. In 2021/22, 37% of UK total disposable household income went to the fifth of people with the highest household incomes compared to 8% of disposable household income that went to the lowest fifth of people.[3]
- Wealth inequality. Evidence from the Office for National Statistics shows that the wealth held by the top 10% of households in Great Britain was about five times greater than the bottom half of all households combined.[4]
- International inequalities: The Equality Trust records that the UK has high income inequality compared to other developed nations. Data from the OECD shows that in 2022, the UK had the ninth most unequal incomes among 38 OECD countries.[5]
- Regional inequalities: The Resolution Foundation and Centre for Economic Performance’s Economy 2030 Inquiry found that in 2019 income per person in the richest local authority of Kensington and Chelsea was £52,000 and 4.5 times the income per person in the poorest local authority of Nottingham at £11,700.[6]
- Intergenerational inequalities. Research published by the Institute for Fiscal Studies highlights that 36% of those born in the 1980s were homeowners by age 30 compared to 55% of those born in the 1970s and over 60% of those born in the 1960s and 1950s. This means that housing wealth is increasingly concentrated among older age groups.[7]
- Gender inequalities. The Office for National Statistics reports that the median gross hourly pay for full-time employees (excluding overtime) was 7% less for women than men in April 2024.[8] Data for 2018-2020 suggests a 35% pension gap in median private pension wealth between women and men.[9]
- Inequality among ethnic groups. Between 2020/21 and 2022/23, the highest median weekly incomes (after housing costs) went to people from Indian (£582), White (£570) and Chinese (£523) communities and the lowest went to people from Pakistani (£345) and Bangladeshi (£304) communities.[10] Data from 2016 to 2018 shows that median total wealth for a household headed by someone from the White British group was £314,000. This compares to £34,000 for a household headed by someone from the Black African group.[11]
- Inequality among disability status. Data from the Department for Work and Pensions finds that between 2020/21 and 2022/23, households with a disabled family member had a median income (after housing costs) of £478 compared to £602 for households with no disabled family member.[12]
The Institute for Fiscal Studies highlighted how income inequality has risen over time. In 1961, the top 1% of the population had a 3.66% share of household income (net of taxes and benefits). [13] By 2020, the share held by the top 1% had more than doubled to 7.78%.
There is growing policy interest in intersectional inequalities. This refers to the multiple and cross-cutting inequalities that may be experienced by people.[14] A Poverty and Inequality Commission that provides advice to Scottish Ministers notes that “many of those who are most likely to be in deepest poverty will experience overlapping discrimination and intersecting inequalities. We know that those experiencing intersections of ableism, racism and sexism are particularly at risk of poverty”.[15] Work is ongoing in developing measures of intersectional inequalities.
Finding trends in economic inequality depends on the availability of data (see key uncertainties/unknowns section below).
Challenges and opportunities
Economic inequality takes different forms, such as inequalities in income, wealth or productivity gaps in different regions. An initial question is why reducing economic inequality matters?
Free market think-tanks Adam Smith Institute and Institute of Economic Affairs propose that the main policy concern should be about addressing poverty rather than inequality.[16] From this perspective, tackling poverty focuses on ensuring everyone attains a minimum standard of living and has enough to live on whereas inequality highlights relative differences between people or groups.
Research shows that even when poverty is controlled for, the effects of inequalities on individuals are still present.[17] Inequalities can matter because they may restrict the opportunities available to people and these opportunities can impact upon outcomes. Arguments exist though for some economic inequalities. For example, income inequalities might be deemed acceptable if they arise from the free choices people make about paid employment and leisure.[18]
Over the past 15 years commentators such as the National Equality Panel and Resolution Foundation argue that levels of economic inequality in the UK are too high.[19] As economic inequality has different forms, one challenge is identifying which inequalities should be a priority for Government action. Some inequalities have decreased over time. For example, the gender pay gap for full-time employees has been falling since 1997.[20] Existing data also suggests some inequalities are greater than others. Inequalities in wealth are generally larger than inequalities in income.[21]
An Institute for Fiscal Studies review of inequality chaired by Noel laureate Professor Sir Angus Deaton noted that one challenge is to decide which inequalities demand priority. A follow-on question concerns which policies are best placed to reduce inequalities.[22]
Reforms to taxes and benefits are one policy tool for reducing inequality. But taxes and benefits can be shaped in a range of ways. Research published by the Centre for the Analysis of Taxation argues that the UK tax system treats income from work differently from income from assets and calls for reform of capital gains tax such as equalising capital gains tax rates and tax rates on income.[23] The research organisation the Autonomy Institute has called for proposals for universal basic income or minimum income guarantee as a way of reducing income gaps.[24]
The previous government’s levelling up agenda highlighted that persistent inequalities exist in different parts of the UK. The Economy 2030 Inquiry argued that there are opportunities to reduce these regional gaps. For example, closing productivity gaps (measures of productivity include output per hour or output per worker) between London and other large UK cities is important for reducing regional inequality.[25]
Key uncertainties/unknowns
The Institute for Fiscal Studies’s Deaton review stated that data on inequality is important to make informed policy choices.[26] There is more data on certain economic inequalities compared to others. For example, the Family Resources Survey, launched in 1992, is one of the main information sources for income inequality.[27] Data on wealth and assets has been collected more recently with the development of the biennial Wealth and Assets Survey from 2006.[28]
The charity Share Action and the race equality think-tank the Runneymede Trust Research call for mandatory ethnicity pay gap reporting for organisations with over 250 employees to get better data on the inequalities faced by minority ethnic communities within the labour market.[29] Some academics suggest that more information is needed on the range of policy tools to address economic inequalities.[30] This might include the effects of introducing different taxes on wealth as well as testing of basic income approaches.[31]
Key questions for Parliament
- What are the gaps in current data on economic inequalities and how might they be addressed?
- Which economic inequalities should be the priority in the next Parliament?
- Which policies are best placed to reduce different inequalities?
- What will be the impact of the development of artificial intelligence and digital technology (such as financial technology or ‘FinTech’) on economic inequality in the future?
- What trade-offs exist between reducing economic inequality and other policy aims?
- What role do organisations play in creating and reproducing inequalities within society?[32]
- What coordination is needed between the UK Parliament and the devolved administrations in Scotland, Northern Ireland and Wales to reduce economic inequality across the UK?
References
[1] IZA World of Labor, What is economic inequality? 2024
[2] IFS Deaton Review, About the review
[3] Francis-Devine, B. Income Inequality in the UK. Commons Library Briefing Paper, 2024
[4] Office for National Statistics, Wealth in Great Britain Wave 5: 2014 to 2016, 2018
[5] The Equality Trust, The Scale of Economic Inequality in the UK, 2024
[6] Resolution Foundation, Ending Stagnation. A New Economic Strategy for Britain. 2023
[7] Wernham, T. and Brewer, M. Income and wealth inequality explained in 5 charts, 2022
[8] Office for National Statistics, Gender pay gap in the UK: 2024, 2024
[9] Department for Work and Pensions, The Gender Pensions Gap in Private Pensions, 2023
[10] Francis-Devine, B. Income Inequality in the UK. Commons Library Briefing Paper, 2024
[11] Office for National Statistics, Household wealth by ethnicity, Great Britain: April 2016 to March 2018, 2020
[12] Francis-Devine, B. Income Inequality in the UK. Commons Library Briefing Paper, 2024
[13] Wernham, T. and Brewer, M. Income and wealth inequality explained in 5 charts, 2022
[14] Scottish Government, Using intersectionality to understand structural inequality in Scotland: Evidence synthesis, 2022
[15] Poverty and Inequality Commission. Poverty and Inequality Commission Intersectionality strategy, 2023, at p1
[16] Adam Smith Institute, Inequality doesn’t matter: a primer, 2017
[17] Bapuji, H. Ertug, G. and Shaw, J.D. Organizations and societal economic inequality: A review and way forward, 2019
[18] Satz, D. and White, S. What is wrong with inequality? 2021
[19] National Equality Panel, An anatomy of economic inequality in the UK: Report of the National Equality Panel, 2010
[20] Francis-Devine, B. The Gender Pay Gap. Commons Library Briefing Paper 2024
[21] Resolution Foundation, Ending Stagnation. A New Economic Strategy for Britain. 2023
[22] IFS Deaton Review, About the review
[23] Advani, A., Lonsdale, A. and Summers, A. Reforming Capital Gains Tax: Revenue and Distributional Effects, Centre for the Analysis of Taxation, October 2024
[24] Gentilini, U., Grosh, M., Rigolini, J., Yemtsov, R. Exploring Universal Basic Income: A Guide to Navigating Concepts, Evidence, and Practices 2020
[25] Office for National Statistics, Productivity measures; Resolution Foundation, Ending Stagnation. A New Economic Strategy for Britain, 2023 at p14
[26] IFS Deaton Review, About the review
[27] Francis-Devine, B. Income Inequality in the UK. Commons Library Briefing Paper; UK Data Service, Family Resources Survey, 2024
[28] Wealth and Assets Survey Quality and Methodology Information
[29] Share Action and Runneymede Trust, Ethnicity pay gap reporting. A guide for Parliamentarians, September 2023
[30] See, for example, contributions to Oxford Open Economics, Dimensions of Inequality: The IFS Deaton Review, 2024
[31] For evidence on wealth taxes see Wealth Tax Commission, Evidence Papers 2020; for basic income see Holland, S., Westlake, D., Roberts, L., Vallis, D., Lloyd, H., Sanders, M., Mathur, V., Bezeczky, Z., Pickett, K., Johnson, M., Hick, R., Ablitt, J., Schroeder, E., Fahr, P. and Petrou, S. Basic income for care leavers in Wales pilot evaluation report. Cardiff: Welsh Government, GSR report number 12/2024
[32] Bapuji, H. Ertug, G. and Shaw, J.D. Organizations and societal economic inequality: A review and way forward, 2019
Photo by: Blake Wisz on Unsplash
