Some of you reading this will be richer than others, while some will be happier.

Some will care more about those elements than others – and about whether life is fair.

But however you define what a richer or fairer life is, there is no escaping that a concern about inequality is one of the defining features of our times.

This week, a new study into the subject in Britain was launched, Inequalities in the 21st Century, the IFS Deaton review.

Backed by the Institute of Fiscal Studies and chaired by Sir Angus Deaton – the Nobel Laureate professor and not Angus Deayton, the former Have I Got News for You host – it is a wide-ranging five-year investigation into equality in wealth, opportunity and much more in modern-day Britain.

The aim is ‘not just to understand what drives inequality but what can and should be done about it’.

The UK is unequal by international standards, using the Gini coefficient measure of household income inequality, but not by much more that Switzerland in the middle of the chart

The UK is unequal by international standards, using the Gini coefficient measure of household income inequality, but not by much more that Switzerland in the middle of the chart

To launch the study an initial report was released with an interesting snapshot of where we stand and how things have changed in recent decades.

The UK is unequal by international standards, using the Gini coefficient measure of household income inequality, where 0 would be perfect income equality across all households and 1 would be all income going to just one household.

Britain’s figure is 0.35 and that doesn’t look good lined up against other major nations, however, it is only slightly higher than most countries that sit above the median, which is Switzerland at 0.3.

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And Britain’s current form isn’t too bad.

Our Gini coefficient is broadly level with where it was through much of the Blair and Brown era and better than where it stood when the Conservatives came into Coalition government in 2010.

Britain's Gini coefficient and its 90:10 ratio measures of inequality have been improving for some time

Britain’s Gini coefficient and its 90:10 ratio measures of inequality have been improving for some time 

Another measure is the 90:10 ratio, which compares the household income of someone 90% up the distribution to someone 10% of the way up.

This has being improving for almost 30 years, with the only thing bucking the trend being the early to mid-2000s period that was arrested by the financial crisis.

Dig a bit deeper, however, and you can see some of the high profile elements behind the headlines that trigger people’s concerns.

A further chart in the report shows the top 1%’s share of net household income since 1961 and this rose sharply from 3% in 1980 to peak at 9% before the financial crisis. It fell after that but has since risen back up to 8%.

That doesn’t sound like much of a rise but some people have to have got an awful lot richer to pull the proportion up in such a way.

Dig deeper and you will find that the percentage of income going to the top 1% of household earners has increased substantially since 1980

Dig deeper and you will find that the percentage of income going to the top 1% of household earners has increased substantially since 1980

ONS statistics show people need to earn about £166,000 to get into that top 1% and within that single percentile there will be some on an awful lot more.

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One of the statistics behind this gives a flavour of that: average CEO pay at FTSE 100 companies in 1998 was 47 times that of the average worker in 1998, by 2017 it had risen to 145 times the level.

Once you take taxes and benefits into account things get balanced out for most people (albeit not those executives), with the growth in average earnings for those between the 10th percentile and 93rd percentile at about 30% over the past 25 years.

Yet the report warns this equality can mask another inequality – where income comes from – stating: ‘Benefit income from the government may feel quite different, in terms of the dignity and security it brings, from income earned in the labour market’.

Once taxes and benefits are taken into account things are balanced out for most of the population in terms of growth over the past 25 years, shifting the position from the green line in the chart to the orange line

Once taxes and benefits are taken into account things are balanced out for most of the population in terms of growth over the past 25 years, shifting the position from the green line in the chart to the orange line

Over the next five years, the review will look into inequality in much more depth, considering not just earnings and wealth, but also education, opportunity, gender, race, geography, class and generation.

This is hugely important, as inequality is shaping our increasingly polarised politics.

The right, as shown by Donald Trump in the US and Nigel Farage and the Brexit Party in the UK, are targeting the economically disenfranchised, while the left, such as Bernie Sanders in the US and Jeremy Corbyn and John McDonnell in the UK, are pushing a message of socialism to give more to ’the many not the few’.

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Policies and new taxes are going to emerge from this pushing of the inequality button. The better the understanding we have of the true picture, the more likely we are to avoid knee-jerk reactions and their unintended consequences.

We already have enough dodgy policies and badly designed taxes, we don’t need more.

 



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