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Income inequality in the UK

Published Tuesday, August 21, 2018

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

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In 2016/17, 41% of all disposable household income in the UK went to the 20% of people with the highest household incomes, while 8% went to the lowest-income 20% (based on disposable income before housing costs have been deducted).

A couple without children with an income below £248 per week, before housing costs, would have been in the 10% of people with the lowest household incomes in 2016/17. To be in the highest-income 10% would have required an income just under four times higher, of at least £962 per week. The statistics typically make adjustment for the number of people in the household, so these thresholds are higher for larger households.

Trends in 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. While the share of income going to the top 1% of individuals by household income increased during the 1990s and 2000s, there was some reduction in inequality among the rest of the population (based on incomes before housing costs) with the result that inequality overall was fairly stable during this period.

Income inequality is higher than it was in the 1960s and 1970s

Following the 2008 recession, there was a small fall in income inequality as higher income households saw a larger fall in income in real terms (i.e. after adjusting for inflation) 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 initially remained more stable.

Recent projections by the Institute for Fiscal Studies and by the Resolution Foundation suggest that levels of income inequality are likely to increase over the coming years into the early 2020s, in a scenario where government policy does not change.

Measuring inequality

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.

International comparisons

OECD figures suggest that the UK has among the highest levels of income inequality in the European Union (as measured by the Gini coefficient), although income inequality is lower than in the United States. Data published by Eurostat, the statistical office of the European Union, gives a more positive picture, indicating income inequality in the UK is lower than in several other EU countries although it is slightly higher than the EU average.

Commons Briefing papers CBP-7484

Author: Feargal McGuinness

Topic: Incomes and poverty

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