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Lots and less: how do we solve income inequality?

Income inequality has hit critical levels in the UK; never before has the disparity between top and bottom earners been so great. Here, four key organisations outline their vision for a more equal Britain

Income inequality has hit critical levels in the UK; never before has the disparity between top and bottom earners been so great. Here, four key organisations outline their vision for a more equal Britain

It has a shining worldwide reputation for its healthcare system, boasts a strong education level globally and is home to one of the world’s largest financial centres, but when it comes to income equality, the UK ranks woefully low on the league tables.

Consider this: the richest 10% of households in the UK own 850 times the wealth of the poorest 10%. This means that when it comes to Organisation for Economic Co-operation and Development (OECD) charts, the UK has the seventh most unequal distribution of income across 34 developed countries – only Turkey and Portugal are more unequal within Europe.

It wasn’t always like this, though. As you might expect, the UK became a much more equal nation during its post-war years. Between 1938 and 1979, the share of income taken by the top 10% of the population fell, while the amount going to the bottom 10% rose slightly. During the 1980s, however, this trend reversed sharply, and despite some gentle peaks and troughs during the nineties and noughties, the situation now is more extreme than ever before. Currently, the average income of the top 10% is £79,196, after tax. For the remaining 90%, it’s £12,969.

This inequality doesn’t only affect the bank balances of UK workers, but their overall wellbeing, too. A report from the Institute of Health Equity reveals that while eight people per second are seen by the NHS, not enough focus is given to the social and economic issues affecting poor health. As such, inequality costs the UK up to £33bn per year in productivity and lost taxes, and up to £32bn in welfare payments. Addressing these issues could save the NHS £5.5bn – certainly not an insignificant amount.

But redressing the balance of income in the UK is no mean feat. The economy we live in and depend upon has come, perversely, to rely on these disparities in order to keep ticking over. As such, there is no quick fix for restoring wealth equality. But there are starting points. Here, key thinkers and organisations in this area explain their solution to the problem.


Ben Dyson (c) Positive MoneyChange the money system
Ben Dyson, Positive Money

One factor driving inequality is the nature of the money we use. Most money is not created by the government or Bank of England, as most of us would assume. Instead, it’s created by high street banks, electronically, when they make loans. Every new loan creates new money and new debt.

This increases inequality, firstly, because much of the money that banks create goes into pushing up house prices. If you own a property or you’ve got an income big enough to qualify for a mortgage, then you’ll get wealthier as house prices are artificially inflated. If not, you’ll see the cost of housing rising out of reach, and your salary will be spent paying off the mortgage of your buy-to-let landlord.

Secondly, because 97% of the money in the UK is created by banks when someone borrows, someone must pay interest on nearly every pound that exists. Because the bottom 90% of the UK pays more interest to banks than they ever receive from them, this means that income and wealth is redistributed to the richest 10% of households.

To tackle this inequality (and a number of other problems) we should remove the power of banks to create money as debt, and return this power to a transparent and accountable body working in the public interest. This would help to stop banks from artificially pushing up house prices. And with new money being created free of debt (rather than when people go further into debt), the total level of debt in the economy would start to fall, which would stop the redistribution of income from everybody else to the wealthiest 10%.


David Jenkins High ResCreate unconditional income
David Jenkins, Basic Income UK

Unconditional basic income (UBI) is a form of social welfare that would regularly provide each citizen with an income, irrespective of whether that citizen has work or is looking for work.

Funding UBI is easy. There would be the savings from simplifying social security and the abolition of current workfare programmes. Land value taxes, luxury consumption tax, closing of corporate loopholes and a higher top rate of income tax would all add some billions to the pot. But all this detail is up for grabs. Thirty years of research has produced a plethora of schemes and ways to pay for them.

Why would we want UBI? The most prolific objections to UBI suggest that if there are no enforced obligations, our human nature condemns us to selfish indifference and idle stupor. Since these have been disproved by decades of research, I will instead focus on UBI’s emancipatory potential.

A lot of work is just plain boring, downright degrading or physically damaging to ourselves, other people, other species. When people have UBI, they can refuse such work: no longer will the better part of their lives be spent dealing with it; no longer will people be forced to collude with the destruction of our planet. Necessary work can be shared out, delegated to technology or, if deemed not worth doing, just forgotten. With time released from the grips of tedium, individuals will be free to help others in their own way, get creative with their time and energies, spend more time with their children and/or volunteer within their communities.

Although the recent European Citizens’ Initiative for an Unconditional Basic Income closed 14 January, you can still sign the Our Chance to End Povery petition on Avaaz.


DuncanExleyPhotoWhiteBackgroundOverhaul council tax
Duncan Exley, The Equality Trust

Wealth inequality has become something of a buzzword among commentators and politicians in recent weeks. The temptation is to view this as a passing fad, the usual verbal flotsam frothed up as we edge nearer to an election. But inequality is a real issue, with real consequences.

More unequal societies can expect lower life expectancy, higher rates of crime and poorer educational outcomes, and inequality is being increasingly forwarded as a cause of slow economic growth and high economic volatility. Inequality is also an issue of growing concern to the electorate. According to the last British Social Attitudes Survey, over 80% of people now believe the gap between the rich and the poor is too high.

Proposals to reduce wealth inequality are vast and varied, and it is likely that no single policy could provide a silver bullet solution. But of those being proposed, the most effective could well be one of the least glamorous.

Council tax is a regressive form of taxation that disproportionately affects the poorest in society. In its current guise it allows the fabulously wealthy to pay relatively little compared to the rest of us. Council tax should be re-evaluated and more bands added to better target the rent-seeking ‘super-rich’. Such a simple measure would help to redress the huge growth in wealth inequality driven by property ownership.

It may not have the populist appeal of a 50p tax rate or minimum wage rise, but fixing council tax could have a profound effect on inequality in the UK.


Faiza Shaheen (c) New Economics FoundationTax wealth
Faiza Shaheen, new economics foundation (nef)

Current levels of economic inequality are raising concern in some unlikely places – including among the Davos elite, the OECD and even the International Monetary Fund (IMF). The shadow chancellor, Ed Balls, recently announced that if elected, Labour would increase the top rate of income tax – this, some argue, would go some way to addressing income inequality. The problem is, while high, levels of income inequality pale in comparison to wealth inequality. As such, a wealth tax would do much more to halt growing disparities.

Recent research shows that the richest 10% of households own 850 times the total wealth of the bottom tenth. The top 1% own assets worth £2.8m or more, compared to an average debt of £3,600 among the poorest 1% of households. Perhaps most striking are recent findings published by Oxfam showing that the 85 richest individuals in the world have as much wealth as the entire bottom half of the world population.

Inequality of this scale has multiple consequences – weakening our economy, democracy and society. The transfer of wealth between generations further undermines social mobility. Of the total £75bn of inheritance in 2008/10, £56bn went to one fifth of inheritors – the rich just get richer and, despite what some say, there is no evidence that this wealth trickles down.

Luckily, wealth inequality of these levels need not be a must. The first action is to close the loopholes in our tax system that allows wealth at the top to flood out to tax havens. The second is to introduce a wealth tax – a land value tax could be particularly effective as it is hard to avoid and tackles the over-housed. The issue is one of political will, not a lack of ideas.