Scottish Independence: What should we really be afraid of? Inequality I

In the previous issues, I’ve looked at how the UK has mismanaged oil revenues in the past 30 years, created a volatile economy that broke during the financial crisis of 2007/8 and failed to make the appropriate changes in order to prevent similar situations again.  Indeed, there is so much concern that we might face another crisis that the top 8 UK banks will receive stress tests to see if they can survive another.  But despite this, the UK economy has grown back to its position prior to the financial crash and is currently the 21st wealthiest country by GDP on the planet. According to “trickle-down” economics, this should mean that the wealth of the wealthiest benefits everyone as the richest spend their cash, in turn creating demand and jobs for the rest of the country.  In this post, I’ll take a quick look at how this wealth is divided amongst the people of the UK and regionally across the UK, in order to see whether being such a rich country really does benefit everybody.

Why is measuring income equality important? Most obviously, it is a measure of the fairness of society.  A fair society wouldn’t see some people earn vast sums of money while others struggle to make ends meet.  But importantly, nations with high inequality have, among other things, been shown to have poorer educational performance and lower happiness  of the people, while more equal societies score higher on the Global Peace Index and give more in overseas aid. So the level of wealth inequality can be an index of more than just how fair incomes are distibuted.  In general, the wealth in the world seems disproportionately distributed, with just 85 people owning as much as the 3.5bn poorest people on the planet.  But some countries are worse than others.  For instance, in the US the wealthiest 1% have taken a 95% share of the post-financial crisis growth since 2009, while the bottom 90% actually became poorer.

So how does the UK fare and what should the benchmark of equality be?  Well, in a democracy it would be hoped that the people decide roughly what is fair and the government should do what it can to meet this ideal within the constraints of the global market. In this rather elegant video we can see the rather sobering disparity between what people think is fair, what people think is currently the case and what is actually true in the UK, which is that the richest 1% have as much as the poorest 60% combined.

A recent report from Oxfam has found that just 5 families own as much wealth (£26.2bn) as the poorest 12.6 million people in the UK (£26.1bn).  That’s 5 families owning more wealth than the poorest 20% of the UK’s total population.  In real terms, the wealthiest 0.1% have seen their incomes grow 4 times more quickly than the least wealthy 90% of the population, around £24000 per year compared to £3-£4 (follow this link to the Institute of Fiscal Studies calculator find out where your household falls).  And while it is true that inequality jumped after the 2008 financial crash as a result of austerity cuts, which disproportionately affect those with lower incomes, inequality has steadily been growing for at least 30 years.  What’s more, we are not even typical of our European neighbours, with the UK being ranked 7th worst of all the EU members states according to the GINI coefficient, the most widely used measure of income inequality (to find out more about the GINI coefficient see this nice explanation).

Gini_EU

Within the UK, the young and poor have suffered the brunt of this recent increase in inequality, with poverty among 18-25 year olds rising by 1% per year after the recession.  Only young people in Estonia, Spain and Turkey were worse off. Further, there are regional divides in income inequality, with England being the most unequal (London being the most so).

regional_income_divide

Most worrying was a conclusion found in a report from the independent National Equality Pane, set up by Harriet Harman, to investigate the relationship between distributions of various kinds of economic outcome and people’s characteristics and circumstances.  With regards to income inequality it found that:

“…recent trends are similar, whichever outcome is examined, despite the constitutional commitments to equality in devolution legislation, partly because policies most affecting distribution are UK-wide.”

So, regardless of how the devolved parliaments of the UK try to tackle inequality, it is mostly affected by the policy practices of the UK national government, making regional action ineffective at countering the national trend.

So there we have it.  Despite being one of the wealthiest countries in the world the UK has seen income inequality grow continually for over 30 years, making it one of the most unequal countries in the EU and of all developed nations.  It is the young who have suffered the most as a group in recent years and at a regional level London has the largest divide.  As the UK government has retained those powers that are most useful in tackling income inequality, the attempts of the devolved governments to address the issue regionally have been ineffective and will continue to be so, while the UK government itself has allowed inequality to grow unfettered for decades, with little sign that the upwards trend will change.  What are the ramifications of such a large divide in income inequality and how does the regional variance affect different parts of the UK?  I’ll cover this in the next post of the series where I will examine claims that inequality costs the UK as much as £38bn per year, that record numbers of people are turning to having to resort to foodbanks in a 1st world country, that the UK has the lowest quality of life in Europe and what might be the fundamental causes behind such inequalities.

 

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