Home Class Politics UK Income Inequality Is Profoundly Different

UK Income Inequality Is Profoundly Different

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The Office for National Statistics has just revised the calculation of the Gini Index. It’s higher than it was previously thought to be.

In a reassessment of the income gap between the country’s top earners and lowest-paid, the official report into the years between 2002 and 2018 found that inequality levels have remained relatively static since the turn of the millennium.

The new figures dispel arguments made by the Conservatives that the gap between rich and poor – on official measurements of income inequality – has narrowed since the party entered power in 2010, while also casting aside Labour claims that the divide has skyrocketed.

Hmm, OK, sorta something for everyone there then.

However, there’s something important to understand about income inequality in the UK as opposed to many to most other places:

Britain has one of the highest Gini scores for income inequality in the western world,

Well, yes, except it’s different.

London looms larger in the UK economy than the capital – or any other – city does in pretty much any other economy. The result of this is twofold.

Firstly, a large chunk of British income inequality is regional. Wages in London are very much higher than they are in Leicester or Llantrisant. Sure, we can call this inequality, we can eve worry about it if we wish. But the difference is large enough that ASHE – the detailed breakdown of wages by gender, race and so on – used to have black women as one of the highest paid groupings in the country. This not, in fact, being very useful. For what was being recorded was that black women were overwhelmingly in London but we were using a national comparison of wages.

Inequality in the US is very different. For example, the Gini Index by State is not out of line with the Gini Index of the nation as a whole. This simply is not true in the UK. Pull London out of the mix and the UK Gini falls substantially. Pull the SE out and it falls again. British inequality is much more – in comparison with other countries – about the capital city and environs than it is about the general gap in any specific part of the geography.

The second implication is that we’re not measuring the correct inequality. Sure, that Gini is measuring what it says on the tin but this geographic basis means that income isn’t the right thing to be measuring. Instead we need to be looking at consumption. For prices vary – considerably – over geography. It’s not entirely obvious that someone on £40 k in London is actually living better than someone on £20k in Llantrisant. Well, OK, the first doesn’t have to live in Wales but….

To gain a reasonable, logically reasonable, measure of inequality we need to look at consumption, because that is what actually matters. Given price differences across geography this will give us a very different picture. The UK’s Gini would fall substantially if we did this. Just by measuring it properly.

Which is, of course, why no one does this. Heaven forfend that Britain could not be wildly more unequal, eh?

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9 COMMENTS

  1. What information would you need to measure it based on consumption, or in a regional basis? Is that something that we could do?

  2. I think you could come to a reasonable approximation by subtracting regional housing costs from regional salaries. Stick some bands in there to compare likely house size to income and that should give a back of the fag packet indication.

  3. Do the Gini scores reflect the impact of taxes and the welfare state – i.e., are they post-tax and post-social welfare benefits?

    • For income – they don’t for wealth – then pretty much everywhere other than the US measures after taxes and benefits. But before the impact of government provided services.

  4. Calculations should assess total effects. If I buy a pizza per week, and a new tax is introduced which is then used to pay to supply me with the same pizza, the assessment should say I am no better or worse off, assuming the tax is 100% efficient so the additional tax exactly matches how much I was paying myself. While pizza is a frivolous example, healthcare and housing is not. Nor is public transport – if I pay tax which is used to subsidise a bus route which I benefit from then I lose less than if I was taxed to provide something I do not benefit from.

    But even of the figures were right, why should we care about inequality? Unless we want to encourage envy, of course. What harm is it to me if footballers are paid $10,000,000 or $20,000,000? What we should instead care about is how poor are the poorest in society. If we can make them richer we should just do so and not worry about inequality. Otherwise we risk following policies which result in everyone being a dirt-poor subsistence farmer.

  5. “Pull London out of the mix and the UK Gini falls substantially. Pull the SE out and it falls again. British inequality is much more – in comparison with other countries – about the capital city and environs”

    No real reason to assume that you’re wrong WRT to the US comparison, but this is interesting.

    https://www.statista.com/chart/11515/the-capitals-economic-power/

    Athens and Rome (probably) make sense, and it’s GDP not GINI.

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