It's Confirmed: The Rich are Getting Richer, the Poor, Poorer

The rancid class system in the UK has long been subject of ridicule. Many people had thought with the arrival of the Labour Government in 1997, the days of vast income inequalities were going to come to an end. But after an enormous debt- and credit-fuelled boom for 11 years, the situation in the country has improved, but not by much, according to the OECD – the think tank for the richest developed countries. The country is still sharply divided between the masses and the classes – an ever-richer wealthy elite at the top benefiting the most from the boom years. The past days' scandal over British politicians dining on the yacht of a wealthy Russian oligarch wanted in the US for financial crimes, is just another graphic example of how systemic the corruption is.

OECD says gap between rich and poor in UK among widest in world The gap between rich and poor people in the UK is one of the widest in the developed world, a report has found.

By Jon Swaine

Last Updated: 8:08AM BST 21 October 2008

The divide in earnings widened by 20 per cent between 1985 and 2005, leaving the gap between the top and the bottom greater in the UK than in three-quarters of other developed nations.

The situation has been improving since 2000, researchers found, with the UK experiencing the largest drop in inequality among all developed nations.

While both the richest and poorest have been getting richer, the bottom has experienced a growth in earnings three times as large as the top, the report, by the Organisation for Economic Co-operation and Development (OECD), found.

However, the report does not include the earnings of the super-rich - a group it describes as "large and rising". It added that many people believe the equality gap has widened due to what it calls the "Hello magazine effect". Its authors said: "We read about the super-rich, who have been getting much richer and attracting enormous media attention as a result."

Unemployment is also a significant problem in the UK, the report found, with 16 per cent of all households with a working-age head found to be totally jobless. "Only Belgium, Germany and Hungary have more people in households where no one has a job," the authors said. However, the number of children living in workless households has fallen in recent years.

The researchers also discovered that the proportion of single-parent households in the UK has increased almost three times as fast as the OECD average, and now account for about 7 per cent of the total population.

However, the report found that poverty has fallen significantly in the UK, with income poverty – the number of households on less than half average income – falling from 10 per cent to 8 per cent between the mid-1990s and 2005. "For the first time since the 1980s, the poverty level is well below the OECD average," the authors said.

Meanwhile, the number of UK children living in poverty fell from 14 per cent to 10 per cent in the same period - "the second largest fall - behind Italy".

However, the rate of child poverty remains a cause for concern, standing above levels recorded in the 1970s and 1980s.

The BBC, which has received a great deal of political pressure from the governing Labour Party, took a different interpretation of the report than the Telegraph.

Rich and poor gap 'narrows' in UKSince 2000, income inequality in the UK has fallen, says the OECD

The gap between rich and poor in the UK has decreased since 2000, an international survey has concluded.

The Organisation for Economic Co-operation and Development (OECD) says the decline in inequality in Britain has been "remarkable".

The report's author told the BBC: "...the poor have been getting richer more rapidly than the rich since 2000."

But the report says the UK still has one of the highest levels of income inequality in the developed world.

The Paris-based OECD's 30 members make up the world's richest and most developed countries.

The OECD report, which covers a 20-year period up to 2005, found the wealth gap widened in the UK - as it did in most other developed countries - between the mid-80s and mid-90s.

In the UK, the gap between higher and lower incomes widened by 20% since 1985, it says.

'Hello' effect

But since 2000, measures of poverty and income inequality in the UK have fallen faster than in any other OECD country.

The gap between rich and poor is still greater in the UK than in three quarters of OECD countries.

BBC social affairs correspondent James Westhead said many people in the UK were not aware of being better off and the report blamed the so-called "Hello magazine effect", where the public would read about the super-rich getting richer and would feel worse off as result.

He also said the amount governments spend on taxation and redistributing wealth across developed countries and in the UK is higher than at any time in history.

The report also found:

• The number of people living alone or in single-parent households increased in the UK more rapidly than in all other countries - average household size in the UK declined from 2.4 to 2.1 between 1985 and 2005 (OECD average decline of 2.7 to 2.6)
• Income poverty - that is, a household with less than half the country's median income - fell from 10% to 8% in the UK between the mid-90s and 2005
• For the first time since the 1980s, the UK poverty level is well below the OECD average
• The number of children living in poverty fell from 14% to 10% between the mid-90s and 2005 - the second largest fall, behind Italy, during this period. But child poverty rates are still above levels recorded in the mid-70s and 80s
• There is less social mobility in the UK, US and Italy than in Australia, Canada and Denmark, with parents' earnings being a more reliable guide to a child's future earnings

Mark Pearson, who wrote the OECD report, told BBC Radio 4's Today the reduction in the UK wage gap since 2000 was "remarkable".

"To some extent this reflects the Blairite approach; that you do, almost, the redistribution by stealth," he said. " ...you don't advertise the fact that you've actually put an awful lot more resources into helping the least well off in society.

"Both ends of the distribution have been getting richer, but the poor actually have been getting richer more rapidly than the rich since the year 2000."

The main reasons behind fewer people living in poverty in the UK were higher employment - particularly among the low-skilled and mothers - and the redistribution of wealth, he also said.

However, Mr Pearson said that the narrowing of the wealth gap appeared to have "flattened off" in the years since 2005.

"Now we are entering a recession, which may increase inequality and poverty again," he warned.

'Fairer society'

Paul Dornan, head of policy and research at the Child Poverty Action Group, said the report shows that government can make a difference and there is nothing "inevitable" about high levels of poverty and inequality.

"The report may not be a good indication of where we are now," he said.

"It covers the period from 2000-2005 when child poverty was falling but after 2005, child poverty rose again.

"The government was investing in family incomes, tax credits and benefits, and employment rates were rising, and that reduced child poverty."

Work and Pensions Secretary James Purnell said the government had achieved a "more equal and fairer society" by redistributing taxes to benefit hard-working families.

"... we have seen a real change for the better in reducing inequality.

"There is a common and understandable criticism that too often parents' earnings determine their children's earnings.

"But what this shows is that we have one of the lowest levels of people in the poorest fifth, meaning that with most parents in a higher income bracket so their kids follow suit."

Income inequality and poverty rising in most OECD countries 

The gap between rich and poor has grown in more than three-quarters of OECD countries over the past two decades, according to a new OECD report. 

OECD’s Growing Unequal? finds that the economic growth of recent decades has benefitted the rich more than the poor. In some countries, such as Canada, Finland, Germany, Italy, Norway and the United States, the gap also increased between the rich and the middle-class.

 Countries with a wide distribution of income tend to have more widespread income poverty. Also, social mobility is lower in countries with high inequality, such as Italy, the United Kingdom and the United States, and higher in the Nordic countries where income is distributed more evenly. 

Launching the report in Paris, OECD Secretary-General Angel Gurría warned of the dangers posed by inequality and the need for governments to tackle it. “Growing inequality is divisive. It polarises societies, it divides regions within countries, and it carves up the world between rich and poor. Greater income inequality stifles upward mobility between generations, making it harder for talented and hard-working people to get the rewards they deserve. Ignoring increasing inequality is not an option.”

 A key driver of income inequality has been the number of low-skilled and poorly educated who are out of work. More people living alone or in single-parent households has also contributed. 

Some groups in society have done better than others. Those around retirement age have seen the biggest increases in incomes over the past 20 years, and pensioner poverty has fallen in many countries.  In contrast, child poverty has increased. (The OECD defines poor as someone living in a household with less than half the median income, adjusted for family size). 

Children and young adults are now 25% more likely to be poor than the population as a whole.  Single-parent households are three times as likely to be poor than the population average. And yet OECD countries spend 3 times more on family policies than they did 20 years ago.

 

In developed countries, governments have been taxing more and spending more on social benefits to offset the trend towards more inequality. Without this spending, the report says, the rise in inequality would have been even more rapid. 

But new ways of tackling this issue need to be found, Mr Gurría said. “Although the role of the tax and benefit system in redistributing incomes and in curbing poverty remains important in many OECD countries, our data confirms that its effectiveness has gone down in the past ten years.  Trying to patch the gaps in income distribution solely through more social spending is like treating the symptoms instead of the disease.” 

“The largest part of the increase in inequality comes from changes in the labour markets. This is where governments must act. Low-skilled workers are having ever-greater problems in finding jobs. Increasing employment is the best way of reducing poverty,” he said.  

Better education is also a powerful way to achieve growth which benefits all, not just the elites, the report finds. In the short-term, countries have to do better at getting people into work and giving them in-work benefits to provide working families with a boost in income, rather than relying on unemployment, disability and early retirement benefits. 

 

Key Findings of Growing Unequal

 

Why is the gap between rich and poor growing?

In most countries the gap is growing  because rich households have done significantly better than middle-class and poor households. Changes in the structure of the population and in the labour market over the past 20 years have contributed greatly to this rise in inequality.

·         Wages have been improving for those people who were already well paid.

·         Employment rates have been dropping among less-educated people.

·         And, there are more single-adult and single-family households. 

 

Who is most affected?

Statisticians and economists assess poverty in relation to average incomes. Typically, they take the poverty line to be equivalent to one-half of the median income in a given country.  

·         Since 1980, poverty among the elderly has fallen in OECD countries.

·         By contrast, poverty among young adults and families with children has increased.

·         On average, one child out of every eight living in an OECD country in 2005 was living in poverty.

 

What does this mean for future generations?

Social mobility is generally higher in countries where income inequalities are relatively low. In countries with high income inequalities, by contrast, mobility tends to be lower.

·         Children living in countries where there is large gap between rich and poor are less likely to improve on the education and income attainments of their parents than children living in countries with low income inequality.

·         Countries like Denmark and Australia have higher social mobility, while the United States, United Kingdom and Italy have lower mobility.

 

What can be done?

In some cases, government policies of taxation and redistribution of income have helped to counteract widening inequalities, but this cannot be their only response.  Governments must also improve their policies in other areas.

·         Education policies should aim to equip people with the skills they need in today’s labour market.

·         Active employment policies are needed to help unemployed people find work.

·         Access to paid employment is key to reducing the risk of poverty, but getting a job does not necessarily mean you are in the clear. Growing Unequal? found that over half of all households in poverty have at least some income from work. 

·         Welfare-in-work policies can help hard-pressed working families to have a decent standard of living by supplementing their incomes.

 

Report link: www.oecd.org/els/social/inequality.