UK inequality has soared since 1975

5 Dec 11
Income inequality has risen faster in the UK since 1975 than in any other member of the Organisation for Economic Co-operation and Development, the economic think-tank revealed today.

By Nick Mann | 5 December 2011

Income inequality has risen faster in the UK since 1975 than in any other member of the Organisation for Economic Co-operation and Development, the economic think-tank revealed today.

In Divided we stand: why inequality keeps rising, the OECD said that the average annual income of the top 10% of working-age people in the UK in 2008 was almost £55,000 – almost 12 times more than the average income of the bottom 10%, £4,700. In 1985, the ratio was eight to one.

Inequality peaked in 2000, before falling, but began rising again in 2005 and is now well above the OECD average of nine to one, it added.

According to the OECD, the increase in inequality in the UK was partly driven by changes to the benefits system, such as lower payments and tighter eligibility conditions.

Taxes also became ‘less equalising’, the OECD said. The removal of higher-rate tax brackets and reduction in the basic tax rate reduced the redistributive effect of income taxes by around a half.

Increasing pay and longer working hours among high earners and an increase in self-employment – which generally involves lower pay – also had an impact.

The OECD found that the income gap had even risen in ‘traditionally egalitarian’ countries, such as Germany, Denmark and Sweden, where the ratio is now 6 to 1. The ratio in the US is now 14 to 1.

OECD secretary general Angel Gurria said a ‘comprehensive strategy’ was needed to ensure the benefits of economic growth fed down to the disadvantaged. He called for the review of tax systems to ensure wealthier individuals contribute their ‘fair share’ of the tax burden.

He also called for more to be done to invest in ‘human capital’ saying: ‘There is nothing inevitable about high and growing inequalities. Our report clearly indicates that upskilling of the workforce is by far the most powerful instrument to counter rising income inequality. The investment in people must begin in early childhood and be followed through into formal education and work.’

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