Inequality in the UK

Income inequality is a growing concern around the world with the gap between the richest and poorest in our society seemingly getting bigger by the year.

Eurostat the official data agency of the european union created a list of the ten richest and poorest areas in northern europe. When you look at the richest places you can see they're fairly evenly spread. Germany has three of the richest places within their borders but the UK has the richest area overall, central London. It might be said this is a good thing, It's good for the UK economy that the richest area in northern Europe is in the United Kingdom, after all London is a powerhouse for banking, professional services, insurance and a number of other industries. The problem however becomes a lot more striking when you look at the other side of the coin. Of the ten poorest places in northern Europe nine are in the UK, how is it possible the UK simultaneously houses the richest area in northern europe as well as 90 percent of the poorest areas. This is all down to income inequality.

A lot of brits assume that the UK is very similar to other European nations, for one they are all geographically close to the UK, they have similar economic approaches and many of them are fellow EU members (at least for now), however despite this, the UK is fundamentally different from these other countries. The poorest areas of the UK aren't just the poorest in the UK, they are the poorest areas in the entirety of northern Europe and by some margin. 

None of these other northern European countries exhibit the same level of disparity between rich and poor as the UK. As we've already discussed the richest area in the UK is central London with the average household disposable income around 24,000 pounds a year, this puts households in central London far above the UK average of 16,000 pounds a year and the average disposable income for households in the poorest area of the UK is lower still 13,000 pounds a year.

It's not unusual for there to be a gap between the richest and poorest in an economy it's evident in all countries but the imbalance in the UK is significant. 

The economic disparity in the UK is not just based on where you live in the country (we'll come back to the geographic inequalities) but even when you put locale aside, there are clear differences between the richest and poorest in the UK. 

Households and the bottom 10% of the UK population have an income of around 5,000 pounds a year while in comparison the top 10% has an income which is around 22 times higher approximately (110,000 pounds a year). This might not strike you as too strange, after all it's obvious that the richest will have more money than the poorest, however it becomes a little more alarming when you look at the people between the two extremes. 

You can observe a sharp increase in income especially when looking at the very highest earners, even when you compare the 80-90 to the 90-100th percentiles, you can see the disparity, the 80-90th percentile are only earning 57% of what the richest 10% are earning.

Hence it can be said , that even in a developed economy like the UK, even objectively well-off people have significantly less disposable income than the richest 10%. Moreover the deeper you look the clearer the gap becomes, the top 10% of earners disposable income looks like pocket change when you compare it with the top 1% of earners netting over 250,000 per year, which, coincidently appears equally small in comparison to the top 0.5 percent, who’s disposable income is over 900k per year. 

Income isn't the only important factor, overall wealth is also important. Income only measures the amount households earned within the last period while wealth considers all accumulated money and assets.

So just how big is the wealth gap between the richest and poorest by this measure? It's not a good sign for the distribution of wealth when the poorest 10% of British people have less than 0.5% of the total wealth. It's even worse news when the second poorest tenth also have less than naught point 5 percent of the total wealth. 

Things don't get much better when you include the bottom 50% of households, that's because the bottom 50% only account for 8.7% of the wealth in the UK. By contrast the top 10% hold 45 percent of the wealth.

Wealth is really hard to measure and often relies on either waiting until people die so we can look at the value of their estate, or asking them in wealth surveys. This means the data isn't completely reliable, it gives us a good indication, but it can't be wholly relied upon. Regardless of that, it's undeniable there is a big gap between the richest and poorest in the UK both when looking at wealth and income. 

We can debate whether this is a good or bad thing for the UK and if it's an issue that's getting worse, however it cannot be denied there is a lot of financial inequality in the UK. In fact when compared to other countries which are members of the organisation of Economic Cooperation and Development the UK is the seventh most unequal country. 

Geography clearly makes a big difference when it comes to income inequality not just between countries but also within countries. To illustrate the difference between UK regions even further let's look at some more data. 

Before we jump in here's a bit of background information the EU 15 is a term used to describe Austria Belgium Denmark Finland France Germany Greece Ireland Italy Luxembourg the Netherlands Portugal Spain Sweden and the United Kingdom. 

When you calculate the average GDP per capita for the group, Only London and the south east of england has a GDP per capita  higher than the EU 15 average. This means that 73% of the UK population live in areas where the GDP per capita is lower than the EU 15 average.

This means that London is doing far better economically than other areas of the EU 15. 

Considering the following graph it is clear the when comparing the rest of England's GDP per capita (while the result isn't bad it does fall about in line with the EU 15 s average) it dose show, London's Scotland's results are similar to England around the EU 15 average but still lagging behind London Northern Ireland and Wales are both consistently lower than the EU average and significantly lower than London's GDP per capita.

People often think of the UK as one of the strongest economies in the EU, and while the UK does succeed in many ways the average GDP per capita for the four countries making up the UK fall behind the EU 15 average.  

So what does that actually mean for people living in the poorer areas, it means they often don't experience the same economic benefits people might experience in other areas of the UK, and in addition they may feel disconnected from the UK overall.

The news might be saying that the UK's economy is doing well but they don't feel that it's impacting their lives and local economy. So why is this the case why does where you live have such a major impact on how much money you earn and your local economy, Simon's hillford deputy director for the center of economic reform says the UK has three major issues which lead to income inequality.

One : A lack of skills issues with infrastructure 

Studies have shown that income has a major impact on the education children receive, the social market foundation compared the results of children who received free school meals to those who didn’t, they found that 33% of those receiving free school meals achieved five or more A star to C grades at GCSE, while 61% of their more well-off classmates attained five or more A star to C grades. 

When you compare the students attainment by region to the income by region it appears there is a correlation between a region's income and the attainment in a given area. 

The issue continues into further education with 21% of pupils entitled to free school meals going to university compared to 85% of pupils who attended private schools. Generally children from richer areas have been shown to do much better academically which goes on to fuel the next generation of inequality. 

Two : Affordable housing 

The housing market used to act as an escalator to help people grow their wealth, however as a result of the housing crisis in the UK more and more people aren't able to afford to buy their own homes. 

The average first home in the UK requires a mortgage deposit of 35k, renter's do not have the required funds to pay a deposit that high, and as such they aren't able to get on the housing ladder and are unable to begin accumulating wealth.

Three : The centralisation of power in London.

These two factors are combined with the issues created by the centralisation of power in London. A huge number of large companies primarily operate out of London and as such a lot of talent and business is drawn to the capital pulling people away from other areas of the UK. 

Other factors.

These three reasons are not the only factors that give rise to this inequality, the UK tax code is the longest in the world, over 10 million words in length. The rich tend to be more likely to employ people to find loopholes in the tax code to save money . 

Moreover the UK's income tax laws only tax certain kinds of income and largely do not tax wealth earned from real estate or company growth. This means those who are already wealthy often aren't taxed on the money they make when their wealth grows. 

While it seems relatively easy for those at the top to get richer Simon Tilford comments that brexit risks aggravating most if not all of these problems, with Britain's already startling regional imbalances are likely to worsen further leaving much of the country's population in areas considerably poorer than the EU average.