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Living Standards and Inequality

Living Standards and Inequality . Luke Sibieta Institute for Fiscal Studies 13 th March 2006. Average income Relatively slow growth in average income recent years Lone parents and single pensioners catching up . Headlines. Average income

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Living Standards and Inequality

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  1. Living Standards and Inequality Luke Sibieta Institute for Fiscal Studies 13th March 2006

  2. Average income Relatively slow growth in average income recent years Lone parents and single pensioners catching up Headlines

  3. Average income Relatively slow growth in average income recent years Lone parents and single pensioners catching up Inequality Little change in inequality in the last year Overall level the same as in 1996/97 ‘Underlying’ income inequality is not rising Headlines

  4. How incomes are calculated • Income as a measure of living standards • Net of all direct taxes and benefits • Measured at the household level • Adjusted for family size (equivalised) • Presented both before and after housing costs • Based on Family Resources Survey (FRS) • All statistics subject to sampling error

  5. The Income Distribution in 2004/05

  6. Average income since 1996/97

  7. Average income growth

  8. Average income growth

  9. Average income growth

  10. Lone parents and pensioners are poorest, but catching up

  11. Income inequality • Popularly defined as ‘the gap between rich and poor’ • No single agreed measure of inequality • Important to look at a range of graphical and summary measures

  12. Income changes by quintile group, 2003/04 – 2004/05

  13. Income changes by quintile group, 1996/7 – 2004/05

  14. Income changes by percentile group: 1996/97 – 2004/05

  15. Income changes by percentile group: 1996/97 – 2004/05

  16. Income changes by percentile group: 1996/97 – 2004/05

  17. Income changes by percentile group: 1996/97 – 2004/05

  18. TheGiniCoefficient:1979–2004/05

  19. Summary measures of income inequality 1996/97 – 2004/05

  20. What has happened to inequality? • Inequality remains roughly the same as in 1996/97 • Rose then fell again on measures that take into account all points in income scale • But equalising except over bottom and top extremes

  21. What has happened to the “underlying” distribution of income? • Inequality roughly unchanged when looking at incomes after taxes and benefits • But tax and benefit reforms have favoured poorer households • Suggests gross incomes (before tax and benefits) are becoming more unequal?

  22. Change in net and gross income inequality 1996/97 – 2004/05

  23. Net and gross income inequality follow similar patterns • Underlying incomes have not become more unequal • How can this be reconciled with redistributive nature of tax and benefit reforms? • Were tax and benefit changes necessary to keep level of redistribution roughly constant?

  24. Conclusions • Average income growth by 2.2% p.a. under Labour • But slower growth in recent years • Income inequality rising and then falling under Labour • Little overall change • The future • Slower growth in public spending may limit scope for more redistribution • Inequality unlikely to return to pre-Thatcher levels any time soon

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