The UK is the fifth most unequal country in Europe but has taken steps to reduce disparities of income

The Institute for Public Policy Research (IPPR) commission on economic justice recommends an overhaul of the UK economy, with greater fairness one of the key aims. Here is a summary of levels of inequality in the UK and the policies that have been deployed to address them over the past decade.

What are current levels of inequality in the UK?

The picture of rising inequality across modern Britain revealed by the commission’s report shows the financial health of nation is divided along the lines of income, geography, gender, ethnicity and age. It ranks the UK as the fifth most unequal country in Europe.

More than a fifth of the population live on incomes below the poverty line after housing costs are taken into account, even though most of these households are in work. Nearly one in three children live in poverty and the use of food banks is rising.

There is a sixfold difference between the income of the top 20% of households and those of the bottom 20%. Wealth inequality is much worse, with 44% of the UK’s wealth owned by just 10% of the population, five times the total wealth held by the poorest half.

Although falling, the gender pay gap remains stubbornly high. London and the south-east has much greater levels of wealth than the rest of the country. The north-east is the poorest region in terms of aggregate total wealth, holding just £370bn, versus £2.5tn in the south-east, which is the wealthiest.

Has inequality worsened since 2008?

Inequality between the richest 1% and the rest of the country is continuing to rise, according to the report, worsened by weak wage growth and rising living costs. The growth in property values in recent years might have helped homeowners, yet the younger generations have suffered. Millennials, or people born after 1981, are four more times likely to be renting, and only half as likely as baby boomers to own their own home by the age of 30.

On some measures inequality has declined slightly in the past few years, particularly since the financial crisis reduced the earnings of the highest income workers in Britain following the implosion of the banking system, while the rising minimum wage has also helped.

The Gini co-efficient, which gives a score ranging from zero to one according to how riches are divided across the country, shows wealth inequality has dropped slightly or remained broadly the same in the past decade, at 0.62. A score of 1 would mean a single person earned a country’s entire income.

What has been done to tackle inequality since 2008?

The government has raised the minimum wage to £7.83 per hour for workers over the age of 25 from £6.19 six years ago, while cutting taxes and raising the level of income at which people begin paying tax. However, a fifth of all employees remain on low pay, the majority of whom are women.

The Bank of England dropped interest rates close to zero straight after the financial crisis to stimulate the creation of jobs and growth, while pumping billions into the economy through quantitative easing, through which it acquired bonds from financial institutions.

Some economists argue the effect was to inflate asset prices, by making borrowing cheaper for those buying residential property, and benefiting the wealthiest in society. Threadneedle Street argues its actions were neutral because cheaper borrowing helped people pay their mortgages and companies keep people in work.

Despite taking action to raise workers’ pay, austerity measures have had the opposite effect – with benefit cuts for those in and out of work. Public sector pay has been frozen for several years.

Has it worked?

Some economists who sit on the righthand side of the political spectrum argue that inequality is the price of economic growth, and that when the better-off in society flourish, those at the bottom do also from the so-called trickle-down effect.

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However, the International Monetary Fund, which specialises in rescuing troubled economies, has warned that countries with greater levels of income and wealth inequality are inherently less stable. When the rich channel their savings into property and financial assets, an economy can become more volatile – as seen in the run-up to the financial crisis.

Inequality of income and opportunity can prevent people from positively contributing to the economy, holding back economic growth and the overall development of the nation. Low pay can damage productivity, or the amount of economic output generated per hour worked, according to the commission’s report. At the same time, higher levels of inequality can lead more people into debt and into poor health, which in turn can drive up longer-term spending costs and damage the public finances.