Saturday, January 25, 2020

Osborne’s Benefit Cuts Will Increase Income Inequality, Says Economist

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Planned cuts to social security benefits will ‘inevitably’ increase income inequality in the UK, a respected economist has warned.

In a blog for the Resolution Foundation think tank, Chief Economist Matthew Whittaker warns that with £12 billion in welfare cuts due in the coming years, an “increase in inequality appears inevitable”.

Mr Whittaker writes that with the introduction of a so-called National Living Wage, announced by George Osborne in the Autumn Spending Review, some of the lowest paid workers should see a “boost” in wages from April next year.

However, he adds that “because of the way such jobs are shared across households, this does not have a direct feed through to income growth”.

Mr Whittaker urged the Government “to focus not just on the strength of the economic recovery, but on the distribution of its gains too.”

“With £12 billion of benefit cuts due in the coming years – all of which will fall on working-age households – some increase in inequality appears inevitable”, he says.

He also highlighted how low-income households have experienced “difficulty paying for their accommodation in the past 12 months”, affecting around one-in-four families in the bottom income bracket (quintile).

Source: Resolution Foundation.
Source: Resolution Foundation.

A report published by the OECD (pdf) in February 2015 revealed how “the average income of the richest 10% is almost 10 times as large as for the poorest” households in the UK, with the OECD average being 9.5.

And this is before more recent welfare cuts are taken into account.

“The level of income inequality among the total population in the United Kingdom has been well above the OECD average in the last three decades”, the report says.

The report concluded: “Taxes and benefits reduce income inequality by a quarter in the UK. This is in line with the OECD average, but below other European countries such as France, Germany or the Nordics.”

“Changes in taxes and benefits combined have reduced household income on average in the UK since 2007.

“The reduction has not been as large as in Ireland, Portugal, Iceland and Spain, but on the other hand, in United States, Germany, Estonia and France, tax-benefit changes increased household incomes over the same period.”

Raiding the piggy bank.
Raiding the piggy bank.

Researchers noted that “UK fiscal consolidation was driven mainly by changes in benefits”, while in other countries “income tax changes played an important role”.

The UK was already among the ten worst countries for income inequality in 2014, with the bottom 10% of the population not seeing a real rise in income at all in the previous decade.

When inflation is taken into account, this effectively means that the poorest 10% were worse off in 2014 than ten years earlier.

The richest families in Britain now control around 31% of the nations wealth, with the poorest 10% controlling just over 1%.


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