IFS
Living Standards & Inequality
Alastair Muriel
Institute for Fiscal Studies
28th March 2007
Headlines – Living Standards
2004/5 to 2005/6
• Little growth in average income from previous
year
Since 1996/7
• Incomes grew 2.3% per year (on average)
• Strong growth up to 2001/2
• 4 successive years of weaker growth since
2002/3
© Institute for Fiscal Studies, 2007
Headlines – Inequality
2004/5 to 2005/6
• Small rise in inequality
• Not statistically significant
Since 1996/7
• Small increase in inequality since Labour came
to power
• Statistically significant
© Institute for Fiscal Studies, 2007
How incomes are calculated
Same as the way government does for HBAI:
• Net of all direct taxes and benefits
• Measured at the household level
• Adjusted for family size (equivalised)
• Presented both before and after housing costs
• UK figures available from 2002-3
• GB figures from before 2001
• Based on Family Resources Survey (FRS)
– All statistics subject to sampling error
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The UK Income Distribution in 2005/06
Number of individuals (millions)
2.0
Poverty
Threshold £217
Median, £362
Mean, £443
1.5
1.0
0.5
0.0
0
100
200
300
400
500
600
700
£ per week, 2005/06 prices
© Institute for Fiscal Studies, 2007
800
900 1,000 1,100
Changes in average real incomes
since 1979 (GB)
£500
£ per week
£400
£300
£200
£100
2005-06
2003-04
2001-02
1999-00
1997-98
1995-96
1993-94
1991
1989
1987
1985
1983
1981
1979
£0
Financial year
Median income
Mean income
© Institute for Fiscal Studies, 2007
Source: HM Treasury
Changes in average real incomes
since 1979 (GB)
£500
£ per week
£400
£300
£200
£100
2005-06
2003-04
2001-02
1999-00
1997-98
1995-96
1993-94
1991
1989
1987
1985
1983
1981
1979
£0
Financial year
Median income
Mean income
© Institute for Fiscal Studies, 2007
Source: HM Treasury
10%
8%
6%
4%
2%
0%
2005-06
2003-04
2001-02
1999-00
1997-98
1995-96
1993-94
1991
1989
1987
1985
1983
1981
-2%
1979
Real percentage increase
Changes in mean real incomes since
1979 (GB)
Financial year
© Institute for Fiscal Studies, 2007
Source: HM Treasury
10%
8%
6%
4%
2%
0%
2005-06
2003-04
2001-02
1999-00
1997-98
1995-96
1993-94
1991
1989
1987
1985
1983
1981
-2%
1979
Real percentage increase
Changes in mean real incomes since
1979 (GB)
Financial year
© Institute for Fiscal Studies, 2007
Source: HM Treasury
10%
8%
6%
4%
2%
0%
2005-06
2003-04
2001-02
1999-00
1997-98
1995-96
1993-94
1991
1989
1987
1985
1983
1981
-2%
1979
Real percentage increase
Changes in mean real incomes since
1979 (GB)
Financial year
© Institute for Fiscal Studies, 2007
Source: HM Treasury
10%
8%
6%
4%
2%
0%
2005-06
2003-04
2001-02
1999-00
1997-98
1995-96
1993-94
1991
1989
1987
1985
1983
1981
-2%
1979
Real percentage increase
Changes in mean real incomes since
1979 (GB)
Financial year
© Institute for Fiscal Studies, 2007
Source: HM Treasury
Average income growth
Conservatives: 1979-1996/97
Labour: 1996/97-2005/06
2004/05- 2005/06
© Institute for Fiscal Studies, 2007
Mean
Median
2.1%
1.6%
Average income growth
Conservatives: 1979-1996/97
Labour: 1996/97-2005/06
2004/05- 2005/06
© Institute for Fiscal Studies, 2007
Mean
Median
2.1%
2.3%
1.6%
2.0%
Average income growth
Mean
Median
Labour: 1996/97-2005/06
2.1%
2.3%
1.6%
2.0%
2004/05- 2005/06
1.3%
1.0%
Conservatives: 1979-1996/97
© Institute for Fiscal Studies, 2007
Components of Income
120%
100%
80%
60%
40%
20%
0%
Income
-20%
Earnings
Self-employment
Other
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Payments
Benefits
Savings, priv. pensions
Payments
Average Annual Growth in
Components of Income
Earnings
Benefits
Self-emp
Savings
Other
Payments
Total
-4%
-2%
0%
1996/97 to 2005/06
© Institute for Fiscal Studies, 2007
2%
4%
2004/05 to 2005/06
6%
8%
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
© Institute for Fiscal Studies, 2007
Average annual income
growth (%)
Income changes by quintile group,
2004/05 – 2005/06
3.0
2.5
2.0
1.5
1.0
0.5
0.0
-0.5
-1.0
Poorest
2
3
4
Income Quintile Group
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Richest
Income changes by percentile
group: 2004/5 – 2005/06 (GB)
Average annual income gain (%)
5
4
3
2
1
0
10
20
30
40
-1
Percentile point
-2
© Institute for Fiscal Studies, 2007
50
60
70
80
90
Income changes by percentile
group: 2004/5 – 2005/06 (GB)
Average annual income gain (%)
5
4
3
2
1
0
10
20
30
40
50
60
70
80
90
-1
Percentile point
-2
95% Confidence Intervals
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Income changes by percentile
group: 2004/5 – 2005/06 (GB)
Average annual income gain (%)
5
4
Median growth: 1%
3
2
1
0
10
20
30
40
-1
Percentile point
-2
© Institute for Fiscal Studies, 2007
50
60
70
80
90
Income changes by percentile
group: 2004/5 – 2005/06 (GB)
Average annual income gain (%)
5
4
Average growth above
median: 1.4%
3
2
1
0
10
20
30
40
-1
Percentile point
-2
© Institute for Fiscal Studies, 2007
50
60
70
80
90
Income changes by percentile
group: 2004/5 – 2005/06 (GB)
Average annual income gain (%)
5
Average growth below
median: 0.2%
4
3
2
1
0
10
20
30
40
-1
Percentile point
-2
© Institute for Fiscal Studies, 2007
50
60
70
80
90
Income changes by percentile
group: 1996/97 – 2005/06
Average annual income gain (%)
5
4
3
2
1
0
10
20
30
40
-1
Percentile point
-2
© Institute for Fiscal Studies, 2007
50
60
70
80
90
Income changes by percentile
group: 1996/97 – 2005/06
Average annual income gain (%)
5
4
3
2
1
0
10
20
30
40
-1
Percentile point
-2
© Institute for Fiscal Studies, 2007
50
60
70
80
90
Income changes by percentile
group: 1996/97 – 2005/06
Average annual income gain (%)
5
4
3
2
1
0
10
20
30
40
-1
Percentile point
-2
© Institute for Fiscal Studies, 2007
50
60
70
80
90
Income changes by percentile
group: 1996/97 – 2005/06
Average annual income gain (%)
5
4
3
2
1
0
10
20
30
40
-1
Percentile point
-2
© Institute for Fiscal Studies, 2007
50
60
70
80
90
Income changes by percentile
group: 1996/97 – 2005/06
Average annual income gain (%)
5
1979-1996/7
4
3
2
1
0
10
20
30
40
-1
Percentile point
-2
© Institute for Fiscal Studies, 2007
50
60
70
80
90
The Gini Coefficient:1979–2005/06
Gini Coefficient
0.4
0.3
Thatcher
Major
Blair
© Institute for Fiscal Studies, 2007
-0
5
20
04
-0
3
20
02
-0
1
20
00
-9
9
19
98
-9
7
96
19
19
93
-9
4
91
19
89
19
87
19
85
19
83
19
81
19
19
79
0.2
Summary measures of income
inequality 1996/97 – 2005/06
Relative to 1996/97
1.2
1.15
1.1
1.05
1
0.95
1996/97 1997/98
1998/99 1999/00 2000/01
Gini
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MLD
2001/02 2002/03
Atkinson
2003/04 2004/05 2005/06
90/10
Brown’s redistributive record
14.0%
12.0%
8.0%
6.0%
4.0%
2.0%
-6.0%
-8.0%
© Institute for Fiscal Studies, 2007
9
8
7
6
5
4
he
st
R
ic
Po
-4.0%
3
-2.0%
2
0.0%
or
es
t
Change in net income
10.0%
Conclusions
• Modest growth in average incomes
– Fourth successive year of slow growth
– Average income growth by 2.3% p.a. under Labour
• Income inequality rising again
– Income inequality edged up between 2004/05 and 2005/06
on many measures
– Now slightly higher than when Labour came to power
• The future
– Slower growth in public spending may limit scope for more
redistribution
© Institute for Fiscal Studies, 2007