UK income inequality on the rise

Research by the Organisation for Economic Co-operation and Development (OECD) found the sharp increase in income inequality, which began in 2005, leaves Britain well above the group’s average.

The study - Divided We Stand: Why Inequality Keeps Rising - published by the forum of 34 countries that earn the most, said the annual average income of the top 10 per cent was almost £55,000 in 2008, nearly 12 times higher than that of the bottom 10 per cent, who earned an average of £4,700.

This is up from a ratio of 8 to 1 in 1985, the OECD said.

Data showed the money earned by the country’s top 1 per cent of earners doubled from 7.1 per cent of the total UK income in 1970 to 14.3 per cent in 2005.

Just prior to the global recession, the top 0.1 per cent of top earners accounted for 5 per cent of total pre-tax income. At the same time, the top marginal income tax rate saw a marked decline, dropping from 60 per cent in the 1980s to 40 per cent in the 2000s, before its recent increase to 50 per cent.

In order to combat the problem, the OECD said: “Work is the most promising way of tackling inequality.

“The biggest challenge is creating more and better jobs that offer good career prospects and a real chance to people to escape poverty.”

It said investing in “human capital” is vital.

“This must begin from early childhood and be sustained through compulsory education,” it concluded.

“Once the transition from school to work has been accomplished, there must be sufficient incentives for workers and employers to invest in skills throughout the working life.”