Amazingly post recession UK is less unequal than any time over the last 25 years as per the Office for National Statistics(ONS). As measured via the Gini index an internationally recognised method.
This appears to be from wage stagnation but with benefits and tax credits rising by inflation helping protect the poorest.
The ONS has just announced that 2011/12 tax year the gaps between the poorest and richest has narrowed. And to close a gap that for 25 years has been widening this is big.
Using the Gini index Sweden is at 25%, US 40%, and the UK has improved from 33.7% to 32.3%. So we clearly have some way to go but its clear that over the next few years we’ll increasingly moved towards Swedish levels but the rate will dramatically slowdown with benefit restrictions coming into force.
I suspect during the next government 2015-20 indirect taxes such as VAT will be reduced. These disproportionately hit the poorest who currently pay around a third of their income on indirect taxation whereas as the richest fifth pay around 14% of income.
Direct taxation also disproportionately hits the poorest. Things like Council Tax. Clearly moving local taxation from asset based to income based would also help close the Gini index gap. Another correction for the next government.
Do you think we should aspire to be more US or Swedish?
Personally I’d go for the latter and the most cohesive society we can but creating better entrepreneurial support mechanisms.
“Using the Gini index Sweden is at 25%, US 40%, and the UK has improved from 33.7% to 32.3%. So we clearly have some way to go but its clear that over the next few years we’ll increasingly moved towards Swedish levels but the rate will dramatically slowdown with benefit restrictions coming into force.”
No. According to the IFS, inequality in the UK will rise again in the next few years:
“Consequently, income inequality fell substantially between 2007–08 and 2011–12, but is projected to rise again from 2011–12, almost (but not quite) reaching its pre-recession level by 2015–16.”
http://www.ifs.org.uk/pr/inequality_recession_june2013.pdf
Hi Chris,
i couldnt see any mention in the IFS press release about the effects relinking state pensions to income growth will have. Half of all government social spending is on the state pension so we know that will be pegged to grow.
The short term linking of much of the remaining state benefits to RPI -1% will be similar to the current trend for wages to not keep up with inflation.
Some people on benefit, estimated to be 660,000, in social housing are now allowed with universal benefits to rent spares rooms out. So those people could really boost their income tax free for the first bedroom.
So thep icture is much more subtle than I think thE IFS allows.