An article in The Independent, written by Geoffrey Lean and Graham Ball on 21 July 1996, detailed how Britain had become the most unequal country in the Western world. The article claimed that the gap between the rich and the poor had been as great as in Nigeria, much worse than in Jamaica, Ghana or the Ivory Coast and twice as bad as in Sri Lanka or Ethiopia.
Furthermore, the poor in the UK lived on the same incomes as their equivalents in Hungary and Korea. Essentially, the richest fifth of Britons enjoyed incomes ten times as high as the poorest fifth. The poorest fifth also had an average per capita income that was 32 per cent lower than their equivalents in the US and 44 per cent lower than in the Netherlands.
This, Lean and Ball wrote, was no cause for celebration. They added: “Margaret Thatcher called on us to ‘glory’ in it. She, like Ronald Reagan, believed that if the rich got richer, everybody would benefit. Now many economists believe that inequality hinders growth.”
The latter statement is up for debate, according to think tank OECD, as it found in its 2015 report that income inequality among working-age people has risen faster in Britain than in any other rich nation since the mid-1970s.
Read more about inequality:
- Women have little faith the gender pay gap will be closed
- Unemployment generation facing “make or break point” for career aspects, says OECD
- Low pay shouldn’t mean low value: Why I’m one of the lucky ones
The OECD warned about the rise of the top one per cent in rich societies and the falling share of income going to poorer people. This trend, it claimed, was especially pronounced in Britain. The share of the top one per cent of income earners increased from 7.1 per cent in 1970 to 14.3 per cent in 2005.
At the same time, the rich have seen tax rates fall. The report suggested that the top marginal income tax rate had dropped from 60 per cent in the 1980s to 40 per cent in the 2000s, before its recent increase to 50 per cent. It noted that this was largely so because the higher-paid often worked longer. However, Britain stands out in that the earnings gap between wives and husbands in Britain had grown from £3,900 in 1987 to £10,200 in 2004.
Paul Johnson of the Institute for Fiscal Studies said the growth in London and bankers’ bonuses had played a large part in creating this divide. “If you look at who is racing away, then half the top one per cent of high earners work in financial services,” he said.
This was echoed by research done by Mark Stewart, a professor of economics at Warwick University, who found that “almost all the increase in inequality has come from financial services” in the past 12 years.
The report makes clear that several other countries have seen the pay gap between rich and poor expand as well.