The rich are racing away

Despite rising taxes for people on high incomes, the super-rich continue to race away as the gap between the haves and the have-nots gets wider and wider. This is one of the findings of new research on inequality in the UK from the independent Institute for Fiscal Studies.

‘The incomes of the richest 0.1% of the population increased at an annual rate of 6.6% a year during Labour’s first five years in office. They then fell by 2.7% a year on average in 2002-03 and 2003-04. They picked up again in 2004-05, the last year for which we have data. But the subsequent strength of the stock market suggests that the growth in their incomes may have accelerated again over the past three years, increasing inequality further despite additional attempts by the Government to help the less well off. It remains to be seen what impact recent problems in the banking sector and financial markets will have.’

The richest 0.1 per cent of the British population could fit snugly into the City of Manchester stadium - there are around 47,000 people in this category and the entrance fee for membership of this elite group is a gross income in excess of £375,000 per year. Relative to all tax payers, people in the top echelon of the income distribution (they are overwhemingly male) have an income 31 times that of the average for the UK as a whole.

The average income per tax for the top 0.1 per cent of income earners is £780,000 of which around £275,000 is then paid in income tax - an average tax rate of 35 per cent. This can be compared to the tax burden of people on average incomes. In 2004–05, the IFS found that the average income tax payer had an annual income before tax of £24,769 in 2007–08 prices and paid just over £4,400 in income tax - an average rate of tax of 15.8 per cent.

The IFS study also finds that the gini coefficient - a measure of the scale of income and wealth inequality in a country - has started to increase again having fallen in the first five years of the Labour government.

‘After falling for three years, the Gini coefficient has been rising since 2003–04, and is now slightly higher (0.35 compared with 0.33) than when Labour came to power in 1996–97 – an increase that is statistically significant’‘

Source: Institute for Fiscal Studies

More details available from the IFS at http://www.ifs.org.uk/publications.php?publication_id=4108

Further reading:

Tutor2u revision presentation on poverty and inequality Weath rise boosts unequal Britain (BBC)