ABERDARE , UNITED KINGDOM - MARCH 08: A man passes a Porshe sports car parked outside a licensed premises in Aberdare on March 8, 2016 in Rhondda Cynon Taf, Wales. The West Wales and the Valleys region, which covers 15 local authority areas, has been identified as the poorest region in the whole of north Western Europe, with large swathes of Wales poorer than parts of Bulgaria, Romania and Poland and four-and-a-half times less prosperous than central London, highlighting the fact that the UK now has Europe's highest inequality of wealth within the European Union. To address this, from 2014 to 2020, Wales will benefit from around £1.8bn EU European Structural Funds investment which comprises funding from two separate European Structural Funds: the European Regional Development Fund (ERDF) and the European Social Fund (ESF). The ERDF funds are used for a range of things including urban development, research and innovation, competitiveness, use of renewable energy and energy efficiency, connectivity and urban development. The ESF funds are to be directed to tackling poverty through more sustainable employment, increasing skills and tackling youth unemployment in the region. (Photo by Matt Cardy/Getty Images)

fact_108x60“The independent statistics confirm that, under this Prime Minister, child poverty is down, pensioner poverty is down, inequality is down, and the gender pay gap has never been smaller.”
George Osborne, 16 March 2015

The background

George Osborne included this wide-ranging defence of coalition and Conservative policy in his Budget speech this week.

The most surprising claim here is the suggestion that inequality has fallen under David Cameron.

It’s surprising, because Labour and other critics like to suggest the opposite.

On Wednesday Jeremy Corbyn said the Chancellor had “failed to tackle inequality” and has previously spoken about a “policy of growing inequality”.

Has inequality really fallen under this Prime Minister?

The analysis

There are a number of ways we can measure the gap between rich and poor in Britain. Most of the official statistics do not support the view that inequality has got worse since David Cameron came to power in 2010.

Income inequality

The Gini index (or coefficient) is probably the best known measure of how income is distributed unequally in Britain, although it has its critics.

It is expressed as a number between 0 and 1 or 100 per cent, where 0 represents a perfectly equal society, and 1 or 100 represents total inequality: one person makes all the money.

Experimental ONS statistics put the Gini coefficient for disposable income in 2014/15 at 32, down from 32.4 last year and from 33.7 in 2010/11. In fact, the latest figure is the lowest since 1986.

There are alternative measures of income inequality available, like the Palma ratio (between the richest 10 per cent and poorest 40 per cent of households), 80/20 and 90/10 ratios.

On all these, the ONS estimates for 2014/15 are slightly lower than for 2010/11:

18_ons_inequality

This doesn’t mean income inequality is not a problem in the United Kingdom: international comparisons suggest this country is less equal than the average OECD nation.

And inequality remains much higher now than it was in the 1970s and 1980s, as the ONS graph above shows.

But there is no evidence in the official statistics of the situation getting worse on David Cameron’s watch.

Wealth inequality

…is a different animal. Now we are talking about the gap in total wealth – property, financial assets, pension pots etc – owned by the richest and poorest.

It’s just about possible to claim that wealth inequality has got worse since 2010, but only by a tiny margin.

In 2008-10, the wealthiest 10 per cent owned about 44 per cent of all household wealth, and the bottom half owned about 10 per cent.

In 2012-2014, the gap widened very slightly. Now the top 10 per cent have 45 per cent and the poorer half have 9 per cent.

The Gini index for wealth has crept up slightly too, from 61 to 63 per cent, over the same period. But overall, the picture looks pretty flat:

Again, this isn’t an argument for complacency. Household wealth in Britain is distributed much more unequally than income.

On the other hand, now some international comparisons flatter the UK: wealth inequality is below average, according to Credit Suisse International.

Poverty

Poverty can be measured in absolute terms (do I have enough to live on?) and in relative terms (how much do I have compared to other people?). To complicate things even more, both can be calculated before or after housing costs.

Some people would say relative poverty is really a measure of inequality.

The latest statistics are a mixed bag. It’s possible for Mr Osborne to say that pensioner poverty and child poverty are “down” and equally possible for Labour to argue that child poverty has gone up – both sides can pull out one measure from the range available to justify their argument.

In terms of the whole population, relative poverty has either stayed flat or gone down very slightly since 2010/11, depending on whether you factor in housing costs (that’s “AHC” and “BHC” in this graph):

18_hbai_fc

The verdict

Despite the rhetoric from the opposition benches, the official statistics do not support the view that income inequality has worsened since David Cameron became Prime Minister.

Indeed, the Gini index – perhaps, rightly or wrongly, the most commonly used measure of income inequality – is now at its lowest since the mid-1980s.

There is some evidence that the gap between total wealth owned by the richest and poorest has gone up since 2010, but only by an insignificant amount.

Poverty statistics are so complex that both Labour and the Conservatives can justify claims that poverty has either risen or fallen under a Tory Prime Minister and Chancellor.

Finally, George Osborne is right about the gender pay gap, as defined by the ONS. The difference in median earnings for full-time employees fell to 9.4 per cent in 2014, the lowest figure since records began.