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Summary
- Leading economic thinktank data suggests that while geographical income inequalities are falling across regions overtime in Britain, the wealth inequalities are rising.
- At the same time, according to the UK government statistics, the disposable income inequality has remained stable during FY 2011 to FY 2020.
- The average pay changes for the British employees has shown a mixed trend during March to May 2020. While it has risen for the public sector staff, but it has dropped for construction, hospitality, and manufacturing.
- Experts suggest that the stamp duty holiday could increase the divide between the haves and have-nots. First time buyers may not be able to take advantage of the move, given the uncertain times.
The changes in the housing market of the country overtime have widened the wealth inequality across Britain during the past two decades, according to the Institute for Fiscal Studies (IFS).
IFS is a leading economic thinktank based out of London. It released a report on 3 August 2020 which has studied the trend on inequalities in the UK over the past few years.
Existing statistics on income inequality across Britain and the impact of coronavirus pandemic
One of the major agenda of the Johnson government has been to reduce the income inequality across various regions in the country. According to the latest government statistics, the income of the wealthiest 20 per cent people was almost six times higher than that of the poorest one-fifth of the population for the FY 2020.
Let us take a look at the trend of the income inequality over the past few years in the country. Government data suggests that it has been falling, though, at a very slow rate. Income inequality for original income (before any taxes or deductions), as measured by the Gini coefficient (a lower value indicates less inequality), has reduced from a figure of 51.4 per cent in FY 2011 to 49.7 per cent in FY 2020. This data was released by the Office of National Statistics (ONS) on 22 July 2020.
However, the Gini coefficient has remained stable for disposable incomes over the same period (from 2011 to 2020) at 34.6 per cent, indicating no change in the income inequality.
The main finding of the IFS report
The geographical inequalities have reduced across the Great Britain region, since the 2000s, exclaims the report.
However, London is still ahead of other regions in terms of income as well as wealth. In fact, the mean earnings in London are around 1.3 times the average earnings of Britain as a whole. Almost one third of employees in the country’s capital earn more than £50,000 every year.
As far as wealth indicators are concerned, the Londoners have become wealthier over time with the average home prices rising by 150 per cent during 2008 – 2018. The comparative figure for the North East of England was a mere 3 per cent.
If housing costs are included, poverty is the highest in London. The lowest well-off regions of the city are characterized by an absence of high-income population. The median household income has risen by merely 6 per cent in London since the 2000s (after incorporating the impact of housing costs), as compared to a figure of 13 per cent for the non-London region of Britain. The main reason is that high cost of homes has lowered the disposable income of people staying at London.
Would the stamp duty benefit increase wealth inequalities?
The already high property prices in London have once again bounced back, with the UK Treasury Chancellor Rishi Sunak’s announcement of giving a stamp duty holiday to all home buyers for properties priced below £500,000. This waiver is applicable to all buyers, whether its their first home purchase or not. It is valid from 8 July 2020 to 31 March 2021.
UK’s largest online property portal reported a rise in buyer enquiries by almost 100 per cent, just within few days after the announcement came in.
According to market experts, this move will benefit those the most who are already cash-rich, instead of those who are on rent and need to buy their first home urgently. The low-income households living on rented accommodation, and who might already be under the government’s furloughed scheme, may not be able to arrange finances to buy a new home, during these extremely uncertain times. Property investors and landlords are jumping in to buy residences, till this housing support scheme lasts. This is the reason why this move is expected to raise wealth inequalities across the country.
Also Read: A Third of UK’s Furloughed Employees Back to Work in The First Two Weeks of July
The impact of coronavirus crisis
The IFS report says that it is too early to specify the exact impact of the coronavirus crisis on income inequalities across Britain. At the same time, there is a fear that if the worst-affected sectors take a very long time to recover, then the geographical inequalities might just rise. For instance, some regions near the sea-shores which are dependent on tourism as their main source of income, might be worse affected in case the hospitality industry continues to remain in red.
On the sidelines, the latest government data released by the ONS on average weekly earnings in the UK, should be also be read closely. The average total pay of British employees slowed for the first time since Q2 2014 by 1.3 per cent (in real terms) for the period of March to May 2020, as compared to the same period one year back in 2019. Highest affected sectors were construction (with a 5.4 per cent drop in regular pay), hotels & restaurants (a 2.1 per cent fall), and manufacturing (a 1.6 per cent decline). On the other hand, the regular pay for employees of the public sector grew by 3.8 per cent for the same period. If such a trend continues, the pay disparity across sectors could rise, increasing the income inequality across the British industries.
Also Read: UK Manufacturers to Bring Work Home After Coronavirus Exposes Flaws in Global Trade
Finally, the devastating coronavirus pandemic spelled havoc on the UK’s economy and its basic growth variables. Though the short-term trends that can be seen till now, may or may not be indicative of a long-term course of things to follow, nevertheless, they are very important to study. The inequality trends before the virus struck the nation show that the geographical oncome inequalities seem to be reducing over the past two decades across Britain, according to the latest IFS report. Government data on income inequalities also suggest a positive trend (fall in Gini coefficient). However latest government statistics suggest a drift towards sectoral income inequalities (average pay changes data for March to May 2020). Moreover, it is being feared that the stamp duty holiday may also increase inequality between the have and have-nots.
