House of Commons Library

Income inequality in the UK

Published Thursday, November 24, 2016

This briefing paper looks at trends in income inequality in the UK over the last 50 years.

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This briefing paper presents statistics on income inequality. In the UK, inequality in household incomes has remained at a roughly similar level since the early 1990s, but is higher than during the 1960s and 1970s. Following the 2008 recession, there was a small reduction in income inequality (based on income before deducting housing costs) as higher income households saw a larger real terms fall in income than households at the bottom of the distribution. This can be explained by the sharp fall in real earnings after the recession, while benefits levels remained more stable.  

Measurement of income inequality is generally concerned with inequality in disposable incomes (after benefits and after direct taxes). The tax and benefit system acts to reduce inequality: disposable income is distributed more equally than income excluding benefits or before deducting taxes.

Various indicators may be used to track income inequality. For example, the Gini coefficient summarises income inequality into a single number between 0 and 100%. Other indicators discussed in this briefing paper include the ratio of incomes for individuals at different points on the household income distribution (how does the income of someone with a relatively high income compare to that of someone with a relatively low income?), and the share of total income going to different groups of households. By looking at these different indicators together, a more complete picture of income inequality is obtained.

OECD figures suggest income inequality in the UK is higher than in most European countries but is lower than in the United States, based on the Gini coefficient for equivalised disposable income (i.e. disposable income adjusted for differences in household size and composition). Data published by Eurostat gives a slightly different picture, indicating income inequality in the UK is lower than in some other EU countries but is still higher than the EU average.

Commons Briefing papers CBP-7484

Author: Feargal McGuinness

Topic: Incomes and poverty

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