Page last updated at 15:48 GMT, Tuesday, 16 December 2008

UK income gap 'same as in 1991'

By Martin Shankleman
Employment correspondent, BBC News

A man and a woman walking with a child
Labour has arguably curbed inequality but failed to reverse it

After 11 years of Labour government, the gap between the income of the richest and poorest households is unchanged, according to new figures.

Income distribution in the UK has not changed since 1991, the Office for National Statistics figures indicate.

Then as now, the top fifth of households have 42% of total disposable income, and the bottom fifth just 7%.

The lack of change is in spite of a raft of government policies aimed at narrowing the wealth gap in the UK.

Labour quietly embarked on a redistributive income policy after returning to power in 1997, with measures including tax credits for working families and pensioners, and increased income support payments for young mothers.

UK inequality

Inequality 'unchanged'

Ed Balls, while Gordon Brown's chief adviser, claimed in 2001 that Labour had adopted a "softly, softly" approach intended to redistribute "income and opportunity" towards the poorest people of Britain.

But the latest figures, issued by the ONS on Tuesday, suggest the effect of the policies has been at best minimal.

"You've had all these changes, but the overall effect is to end up exactly where you were, had these things not happened. You've kept income inequality at roughly the same place," said Louise Bamfield, senior research fellow at the Fabian Society.

However, she denied that meant the government had failed, because income inequality would have been much wider without the changes.

"It's like running up a down escalator," she said. "The government is trying to counter market forces. Pay at the very top has been racing away."

She said the top 1% of the population, about 500,000 people, had enjoyed "a very steep growth" in pay in recent years, fuelled large by huge bonuses paid to executives in the City.

Left behind

Meanwhile, household income at the very bottom of the league table has suffered, because the government's tax and pensions policies have failed to benefit the lowest earners, single adults who do not work.

"The top 1% has been shooting away, the bottom 1% has been falling behind, but for the rest, in between, we are seeing an evening out.

"The government might well be disappointed, but if it hadn't done these things, you have seen a much sharper increase in inequality," Ms Bamfield said.

The pay gap between rich and poor is higher in the UK than most EU countries. The UK was the ninth most unequal country out of 27 member states, as measured by the Gini coefficient, according to a survey in 2006.

It widened significantly under the government of Margaret Thatcher, which reduced the higher rate of income tax from 60% to 40% in 1988 and the standard rate from 30% to 25%.

During her term as prime minister, the amount of disposable income received by the top fifth of all households increased from 36% to 42%. That percentage is the same today, 18 years after she resigned.

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