Income inequality growing faster in UK than any other rich country, says OECD
Top 10% have incomes 12 times greater than bottom 10%, up from eight times greater in 1985, thinktank’s study reveals
Protesters against income inequality in London. The OECD said the share of the top 1% had increased from 7.1% in 1970 to 14.3% in 2005.
Income inequality among working-age people has risen faster in Britain than in any other rich nation since the mid-1970s owing to the rise of a financial services elite who through education and marriage have concentrated wealth into the hands of a tiny minority, according to a new report by the OECD.
Economists from the thinktank, which is funded by developed world taxpayers, say the annual average income in the UK of the top 10% in 2008 was just under £55,000, about 12 times higher than that of the bottom 10%, who had an average income of £4,700.
This is up from a ratio of eight to one in 1985 and significantly higher than the average income gap in developed nations of nine to one.
However, the report makes clear that even in countries viewed as „fairer“ – such as Germany, Denmark and Sweden – this pay gap between rich and poor is expanding: from five to one in the 1980s to six to one today. In the rising powers of Brazil, Russia, India and China the ratio is an alarming 50 to one.
The OECD warned about the rise of the top 1% in rich societies and the falling share of income going to poorer people.
This trend is especially pronounced in Britain, where the dramatic rise in inequality has been fuelled by the creation of a super-rich class. The share of the top 1% of income earners increased from 7.1% in 1970 to 14.3% in 2005.
Just prior to the global recession, the OECD says the very top of British society – the 0.1% of highest earners – accounted for a remarkable 5% of total pre-tax income, a level of wealth hoarding not seen since the second world war.
At the same time as accumulating great wealth, the rich have seen tax rates fall. The top marginal income tax rate saw a marked decline: dropping from 60% in the 1980s to 40% in the 2000s, before its recent increase to 50%.
The buildup of riches was partly economic: the higher-paid worked longer. Since the mid-1980s, annual hours of low-wage workers remained stable at around 1,050, while those of high-wage workers rose almost 10% to 2,450 hours.
But the concentration of resources in the highest rungs of Britain’s society was also a social phenomenon. Unlike in many other nations, the earnings gap between the wives of rich and poor husbands in Britain has grown from £3,900 in 1987 to £10,200 in 2004.
Although the OECD figures stop just before the recession, experts say the trend continued into the downturn. Paul Johnson of the Institute for Fiscal Studies said that in the UK „2009/10 incomes went up incredibly fast (at the top end) possibly because the new top rate of tax was coming in“.
Johnson pointed out that the growth in the City and bankers‘ bonuses had played a large part in creating this divide. „If you look at who is racing away then half the top 1% of high earners work in financial services.“
He said that Mark Stewart, a professor of economics at Warwick University, had published work showing that in the past 12 years „almost all the increase in inequality has come from financial services“.
Such disparities, the thinktank said, could not be blamed on globalisation but a trend in labour and social policies in rich nations that had helped the wealthy.
Although spending on public services in Britain had gone up in the past decade, at the same time benefits to the poor were worth less and taxes were less redistributive.
The effect has been a dramatic weakening in the state’s ability to spread wealth throughout society. From the mid-70s to mid-80s the tax-benefit system offset more than 50% of the rise in income inequality. It now manages just 20%.
It was a paradox, said the OECD, that such moves had not been grounded in popular support. Michael Förster, author of the OECD’s Divided We Stand report, said: „In almost all countries apart from the US and Japan more than 50% of people say that inequality is too high. In the UK it is 65% so I think everyone agrees it is a problem.“
To rebalance society „for the 99%“ the authors call for a series of measures focusing on „job creation“, „increased redistributive effects“ and „freely accessible and high-quality public services in education, health and family care“.
When it was pointed out that British government plans would instead lead to public sector job cuts of 710,000, more child poverty and a hike in university fees, the OECD’s authors said debt was an issue for governments but urged them „not to cut social investments“.
Monika Queisser, the head of OECD’s social policy division, said: „The OECD agreed that fiscal consolidation was important. We want to governments to see social expenditures as investment so we would want to see, say, early years [funding] rising.“