Merryn's Blog

Income inequality is a problem - but don't expect a revolution

Everybody agrees that rising income inequality will lead to a backlash. But the problem is, says Merryn Somerset Webb - income inequality is actually falling.

There was an unofficial theme running through the Edinburgh Festival this year. It came up in practically every event I went to or discussed with anyone else.

Joseph Stiglitz focused on it in his talk. So did Danny Dorling in his and John Lanchester in his. So much did the subject seep into the week that even when I went to see a sweet student play on politics and love, the main thing that jumped out at me was the headline on the copy of The Socialist the main male character carried everywhere. "Fight elitism and austerity," it said. So that is that.

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The idea that inequality is both rising and very dangerous has become consensus. Everyone agrees. So much so that according to Lanchester, author of Capital and Whoops, we are nearing an "inflection point".

There will soon be enough "rage" around the issue that we are about to see a huge political shift away from our current system and its endless pandering to the rich. It will be like 1979 just in the other direction.

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This, I think, is absolute nonsense. We've written a lot about inequality. We have raged against rising wealth inequality (caused by quantitative easing (QE) and super-low interest rates) and we have endlessly campaigned against the corporate talent myth, against the oligopolistic powers that allow banks to make the regular superprofits that finance their bonus payments and for institutional investors to take a stand on corporate pay.

But that doesn't mean that we are prepared to go along with the idea that income inequality is growing at the speed or indeed, is the revolution-inspiring problem - the festival-goers like to think. Here's why.

All the numbers you read on income inequality look at pre-tax and pre-benefit income. But we have a redistributing welfare state that makes those numbers by the by.

What we actually want to look at is post-tax and post-benefit income what you have every month after you have paid your taxes and then collected your child benefit, housing benefit, tax credits, refund for child care vouchers and so on.

In the UK, the top two quintiles of earners pay more in tax than they get in benefits and the bottom three get more in benefits than they pay in tax.On this basis, income inequality in the UK is actually narrowing rather than widening.

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Look at the latest report out from the Office for National Statisticsonly a month ago and this is very, very clear: since 2007/8 the richest fifth of households have seen their income fall by 5.2%. That of the poorest fifth by contrast has risen 3.5%.

That's not to say there isn't a big gap between them. Of course there is. But it isn't rising. It is falling, just as it has been for the last six years. And that's a fact.

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