Average income of the poorest fifth of the population shrunk by 1.6% last year, says ONS

Income inequality across Britain increased over the course of 2018 as cuts to benefits damaged the finances of poorer households while the wealthiest in society got richer, official figures show.

According to the Office for National Statistics, the average income of the poorest fifth of the population after inflation contracted by 1.6% in the last financial year ending in 2018, while the average income of the richest fifth rose by 4.7%.

The Whitehall statistics body singled out the falling average value of cash benefits for the poorest households as the main driver behind the decline in their income, while a rise in earnings from employment lifted the income of the richest.

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It also said that median household disposable income growth had plateaued last year at £28,400, ending four years of steady increases for the strength of household finances.

The latest snapshot into the health of household finances across the country suggests that welfare cuts imposed by the government have exacerbated inequalities, at a time of mounting political and economic divisions.

Separate analysis has previously shown the Brexit vote damaged average household incomes, after the sharp drop in the pound immediately after the referendum result drove higher inflation, outstripping wage rises.

Theresa May has come under growing pressure to enact her promise to end austerity, after almost a decade of cuts to benefits and services. Household benefits for millions of families, including those in work, have been frozen over the last four years under a policy launched by the then chancellor, George Osborne, in 2015.

The policy, in place until 2020, means household benefit payments do not rise in line with inflation. The Resolution Foundation thinktank estimates the average lower-income family with children will be £200 worse off this year as a consequence.

Despite the deterioration in household income last year, the ONS said the longer-term picture was more positive for poorer families. Since the 2008 financial crisis, it is the average income of the poorest fifth that has risen the most, up 11.6%, compared with the richest fifth, rising by 4.9% over the same period.

The highest 1% of earners in the country have, however, managed to protect their share of total household disposable income over the past seven years, with the richest 1% of the population controlling 7.1% of total household disposable income.

The ONS said income inequality had increased slightly last year when measured using the Gini coefficient – a sliding scale between 0 and 100 where higher values represent a greater degree of inequality – with the gauge ticking up from 31.4 to 32.5 last year in the UK.

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Despite the small increase last year, income inequality remains slightly lower than the levels reached 11 years ago, although is substantially higher than during the 1970s and 1980s before income inequality rapidly accelerated in Britain and several other major economies.

Dominic Webber, the head of household income and expenditure analysis at the ONS, said: “While our report highlights a contraction in average income for the poorest fifth of the population, the longer-term trend has seen this group’s income rise the most. As such it may be too early to draw definite conclusions from this specific downtick.

“Those in the richest fifth have seen a greater change, as well as a sustained rise over a number of years, which has helped to drive an increase in inequality.”

A Treasury spokesperson said unemployment was at a historic low, it had raised the national living wage and was cutting taxes to help families.

“But we recognise the importance of providing more support to those who need it. That’s why we’re spending an additional £1.7bn a year on universal credit and by 2022 we will be spending £28bn more on welfare than we do now.”