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‘The rich keep getting richer’. If you’ve been watching Channel 4 over recent weeks, you will likely have been subjected to unsubstantiated claims such as this. Viewers of last week’s ‘How Rich Are You?’ programme probably came away with the conclusion that the gap between rich and poor was ever-widening.

Before making a show littered with such claims, you’d think the producers would bother to check whether it is, in fact, true that inequality is ever-rising. And here’s the problem. Looking at official data, you find that, on almost every conventional measure, inequality has actually fallen since the financial crisis.

The UK statistics are clear. Between 2007-08 and 2012-13, the Gini coefficient – the most well-known measure of inequality for households – fell from 34.2 to 33.2. The share of total income attributed to the top 10 per cent of earners fell between 2007-08 and 2014-15, from 36 per cent to 34.5 per cent; for the top 1 per cent from 13.4 per cent to 12.6 per cent; and for the top 0.01 per cent from 5.2 per cent to 5 per cent. Thomas Piketty’s alternative dataset, which makes adjustments for under-reporting of top incomes, finds even more significant falls in the income shares of the top 10 per cent, 1 per cent and 0.1 per cent between 2007 and 2011.

Even examining wealth, ONS data show that the overall wealth shares of the wealthiest 10 per cent and 1 per cent remained flat between 2007 and 2011. It’s only when you get to the top 0.1 per cent that you find that the share of wealth has increased. This is most likely to do with inflated asset prices, including in housing – a consequence of both government policies (planning constraints) and the actions of central banks through QE.

Why then have we not seen the egalitarians rejoicing about how much ‘fairer’ a country we have become since 2007-08? Any sane person can see that inequality fell over this period because we all got poorer following the recession, but with the richest suffering disproportionately from a higher base. Clearly this is nothing to celebrate.

Yet this period highlights well the absurdity of the position that many egalitarians articulate. They could debate what drives inequality of income and wealth – splitting up what has caused current levels of inequality into ‘good’ causes (globalisation and innovation which enriches us all, but which may also lead to the rich doing especially well, along with the world’s very poorest, it should be said) and ‘bad’ causes (cronyism, lousy education systems, land use planning laws, family structures).

But instead egalitarians, such as The Spirit Level authors Richard Wilkinson and Kate Pickett, claim inequality in and of itself is the cause of a range of social ills – from worse health outcomes, to more violence, to more illiteracy. In fact, they admit they would be willing to trade economic growth for a more equal society, claiming this would lead to better social outcomes.

One might crudely say that the period after the financial crisis – with a stagnant economy and more equality – was a dry run for their agenda. For most people, this wasn’t a particularly happy time. Indeed, the idea that this greater equality will lead to improvements in the range of social outcomes outlined seems fanciful. Yet these are the sorts of contortions you get yourself into by placing more importance on the gap between rich and poor than improvements in living standards for all. It takes a weird moral outlook to desire an economy in which the poor are poorer, provided the rich are even less rich.

This article was originally published by City AM.

Ryan Bourne

Head of Public Policy and Director, Paragon Initiative

Ryan Bourne is Head of Public Policy at the IEA and Director of The Paragon Initiative. Ryan was educated at Magdalene College, Cambridge where he achieved a double-first in Economics at undergraduate level and later an MPhil qualification. Prior to joining the IEA, Ryan worked for a year at the economic consultancy firm Frontier Economics on competition and public policy issues. After leaving Frontier in 2010, Ryan joined the Centre for Policy Studies think tank in Westminster, first as an Economics Researcher and subsequently as Head of Economic Research. There, he was responsible for writing, editing and commissioning economic reports across a broad range of areas, as well as organisation of economic-themed events and roundtables. Ryan appears regularly in the national media, including writing for The Times, the Daily Telegraph, ConservativeHome and Spectator Coffee House, and appearing on broadcast, including BBC News, Newsnight, Sky News, Jeff Randall Live, Reuters and LBC radio. He is currently a weekly columnist for CityAM.

7 thoughts on “The financial crisis saw the UK become more equal. That was nothing to celebrate”

  1. Posted 18/11/2014 at 16:17 | Permalink

    Is the income of the top 10% in your article before or after tax avoidance ?

  2. Posted 18/11/2014 at 17:23 | Permalink

    How interesting.

    Since 2007 the poor are said to have lost £1600 pa due to the disparity between the growth of inflation and the flatlining of wages. Where I wonder has that £11200 gone, I wonder.

    House prices and the stock exchange have risen dramatically since 2007. I wonder where all that wealth has come from.

    But the statistics show there has been no transfer of wealth from the poor to the rich. Well, that’s all right then, isn’t it?

  3. Posted 19/11/2014 at 11:01 | Permalink

    waramess – I think you are confusing income and wealth. Wages have flatlined as has productivity. That is a loss of income for everybody concerned (though, of course, not those on benefits necessarily, including pensioners) and is very bad news compared with the alternative of productivity continuing to rise. Wealth – the stock – may have increaed (though whether artificially due to QE or not is for debate). Many middle class people may have suffered a fall in real incomes but seen their wealth increase (which, after stagnant share prices for many years if they have DC pensions may have been a relief).

  4. Posted 19/11/2014 at 15:54 | Permalink

    Philip
    I do understand where you are coming from but that does not hide the fact that asset inflation is not something that magically appears. It comes from another sector of society losing.

    The neat definition between wealth and income blurs when you consider one sector of society losing income through failing to keep pace with inflation and another sector of society gaining through inflating assets because, one mans assets are another mans income.

    Forget statistics because they are now so manipulated to what the politicians want you to believe: smell the coffee.

    There is no such thing as a free lunch, period. One mans gain is anothers loss, end of story

  5. Posted 19/11/2014 at 17:36 | Permalink

    that is only true if the rise in value of assets (especially shares) does not reflect higher productivity. If it does not, somebody else does lose (the people who have to buy assets at higher prices later). However, if QE does what it is supposed to do we also avoid what many feared which was a 1930s US-style catastrophe. I am not arguing about which of those things are true, merely trying to establish who gainers and losers might be. But there are not always losers when there are gainers.

  6. Posted 20/11/2014 at 16:39 | Permalink

    Philip, of course a rise in prices resulting from a productivity gain is a benefit but, if not a rise in productivity, instead an expansion of the money supply, then there are no benefits.

    A rise in house prices will result in a rise in rents which will fall on, lets call them the less well off.

    A rise in the stock market prices will result in malinvestment, particularly by lending banks. Just consider the transfer of wealth that has taken place by the many having to support the malinvestments of the banks last time.

    There is nothing benign about “wealth” brought about by the expansion of the money supply and it is a Monetarists delusion that it has avoided depression akin to 1930. It has done no more than deferred the depression.

    Milton Friedman was wrong. It was not the tight monetary policy of the Fed that caused the depression it was principally the transfer of wealth from the poor to the rich. And here we go again.

  7. Posted 21/11/2014 at 01:52 | Permalink

    An effective alternative to QE which is also fair is ‘Helicopter Money’

    Printing money for tax cuts, investment and distribution without increasing the deficit.

    QE is just theft by the rich, the banks and foreign ‘investors’

    These papers explain how Helicopter money works:

    http://willembuiter.com/helifinal.pdf

    http://www.economonitor.com/blog/2013/12/helicopter-drops-and-quantitative-easing-are-different/

    http://mainlymacro.blogspot.co.uk/2014/10/helicopter-money.html?m=1

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