United Kingdom

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Overview of Trends of Economic Inequality in the UK

 

Has the dispersion of earnings been increasing in recent decades?Yes, the top decile of earnings has increased from 165 per cent of median in 1978 to 197 per cent in 2013.
Has overall inequality increased in recent years?Yes, the Gini coefficient for equivalised disposable income is now around 10 percentage points higher than in 1980, but most of the increase took place in the 1980s.
Have there been periods when overall inequality fell for a sustained period?Yes, during the Second World War and in late-1960s and 1970s.
Has poverty been falling or rising in recent decades?Relative poverty rate in 1990 twice that in 1977; However, overall the poverty rate has been falling since the 1990s.
Has there been a U-pattern for top income shares over time?Yes, top gross income shares fell from 1914 to the 1970s; since 1979 have more than doubled.
Has the distribution of wealth followed the same pattern as income?Downward trend in top wealth shares from 1923 to end of 1980s; now levelled off.
Additional noteworthy featuresIncrease in income inequality and poverty in the 1980s proportionately much larger than increase in earnings dispersion. The top shares series have a break in 1990 (change in tax units from family to individual basis). The top income shares estimates for 2009-10 were affected by a significant bringing forward in that year in advance of the introduction of the 50 per cent top tax rate; the shares for the following years were correspondingly reduced.

Sources and References

Sources for the historical data series:

Overall inequality: Gini coefficient of after tax income, not equivalised, among tax units (“Blue Book series”) from Atkinson and Micklewright, 1992, Table BI1 (figure for 1938 from Royal Commission on the Distribution of Income and Wealth, 1979, page 23); Gini coefficient of equivalised (modified OECD scale) disposable household income for all persons in the United Kingdom (Great Britain up to 2001/2) from the website of the Institute for Fiscal Studies; the data are from the Family Expenditure Survey from 1961 up to financial year 1993/4 (calendar years up to 1992), thereafter from the Family Resources Survey.

Top income shares: Share of top 0.1 per cent and top 1 per cent in total gross income from WTID. UK experienced a change in the tax base as the taxation system moved from family to individual base in 1990.

Poverty: Percentage of individuals in households with equivalised (modified OECD-scale) disposable income below 60 per cent of the median in the United Kingdom (Great Britain up to 2001/2) from the website of the Institute for Fiscal Studies (before housing costs series); the data are from the Family Expenditure Survey from 1961 up to financial year 1993/4 (calendar years up to 1992), thereafter from the Family Resources Survey.

Individual earnings: Earnings data from Annual Survey of Hours and Earnings, covering all full-time workers on adult rates whose pay for the survey period was not affected by absence, linked backwards to take account of changes in methodology in 2006 and 2004, linked backwards in 2000 to the data from the New Earnings Survey (NES) from Atkinson (2008, Table S.8), taking the series back to 1968 (when the NES began), linked backwards to the income tax data (Schedule E earnings) from Atkinson (2008, Table S.7).

Wealth: Share of top 1 per cent of individuals in total personal wealth, data up to 1975 from Atkinson, Gordon and Harrison (1989, Table 1) with adjustment for break in series in 1960, using coefficient from Table 3, covering Great Britain (England and Wales before 1938), data from 1976 from the HMRC website, Statistics on personal wealth, Table 13.5 (no estimates are made for 2004 or 2006).

References:

  • Atkinson, A B, 2008, The changing distribution of earnings in OECD countries, Oxford University Press, Oxford.
  • Atkinson, A B, Gordon, J P F and Harrison, A J, 1989, “Trends in the shares of top wealth- holders in Britain, 1923-1981”, Oxford Bulletin of Economics and Statistics, vol 51: 315- 332.
  • Atkinson, A B and Micklewright, J, 1992, Economic transformation in Eastern Europe and the distribution of income, Cambridge University Press, Cambridge.
  • Royal Commission on the Distribution of Income and Wealth, 1979, Report No. 7, Fourth report on the Standing Reference, Cmnd.7595, HMSO, London.