Wealth inequality in the UK may be too high, but it is falling, not rising

Since the financial crisis, the incomes of the poorest fifth of households in the UK has risen by over 13% in real terms and that of the best paid fifth has fallen 3.4%.

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The gap between rich and poor is narrowing
(Image credit: This content is subject to copyright.)

I wrote here earlier this week about what we reckon Jeremy Corbyn should be lobbying for if he really wants to have a go at reducing income inequality. But I do think that it is worth us pointing out here (again) that income inequality in the UK has not been rising for years.

You might think it is too high but it is falling, not rising. As the ONS pointed out recently, last year, inequality in the UK as measured by the Gini coefficient fell to its lowest since 1986.

Since the financial crisis, the incomes of the poorest fifth of households in the UK has risen by over 13% in real terms and that of the best paid fifth has fallen 3.4%. Yes, the poorest have gained the most and the richest lost the most not the other way around.

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There are problems within this seeming success. The first is that a lot of it is about pensions: the triple lock has meant that the real gains have gone to pensioners rather than to working people.

And the second is that the changes are mostly about redistribution via the welfare state. Taxing the top more. Taxing the working poor less (the rise in the personal allowance) and handing out lots of benefits along the way.

It's good that this works. But it would be much better if it didn't have to if wages were rising faster at the bottom for example and if there was less excess at the very top too.

However, for that we are going to need to encourage capitalism to do its job better, rather than just demanding, Corbyn style, the continual divvying up of a static cake.

That means serious productivity gains on one hand and some serious shareholder action on the other (see the orginal article!).

Merryn Somerset Webb

Merryn Somerset Webb started her career in Tokyo at public broadcaster NHK before becoming a Japanese equity broker at what was then Warburgs. She went on to work at SBC and UBS without moving from her desk in Kamiyacho (it was the age of mergers).

After five years in Japan she returned to work in the UK at Paribas. This soon became BNP Paribas. Again, no desk move was required. On leaving the City, Merryn helped The Week magazine with its City pages before becoming the launch editor of MoneyWeek in 2000 and taking on columns first in the Sunday Times and then in 2009 in the Financial Times

Twenty years on, MoneyWeek is the best-selling financial magazine in the UK. Merryn was its Editor in Chief until 2022. She is now a senior columnist at Bloomberg and host of the Merryn Talks Money podcast -  but still writes for Moneyweek monthly. 

Merryn is also is a non executive director of two investment trusts – BlackRock Throgmorton, and the Murray Income Investment Trust.