Income inequality growing faster in UK than any other rich country, says OECD

A new report from the Organisation of Economic and Co-operation and Development (OECD) has found that income inequality among working-age persons has risen faster in the United Kingdom than in any other OECD country since 1975. From a peak in 2000 and subsequent fall, it has been rising again since 2005 and is now well above the OECD average.

The annual average income of the top 10% in 2008 was almost £55,000, almost 12 times higher than that of the bottom 10%, who had an average income of £4,700. This is up from a ratio of 8 to 1 in 1985. Taxes and benefits reduce inequality by a quarter in the United Kingdom, in line with the OECD average.

They also note that between the the late 1970s and mid 1980s, the tax-benefit system in the UK offset more than 50% of the rise in market income inequality. This effect has fallen in the subsequent decades. Benefits became less redistributive despite being more targeted towards the poor. This was largely driven by declining benefit amounts. It was also due to more people working, often at low-wage jobs and so not qualifying for benefits. And lastly due to tighter eligibility conditions.

Amongst their key policy recommendations are:

* Employment 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.
* Investing in human capital is key. This must begin from early childhood and be sustained through compulsory education. 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.
* Reforming tax and benefit policies is the most direct instrument for increasing redistributive effects. Large and persistent losses in low-income groups following recessions underline the importance of government transfers and well-conceived income-support policies.
* The growing share of income going to top earners means that this group now has a greater capacity to pay taxes. In this context governments may re-examine the redistributive role of taxation to ensure that wealthier individuals contribute their fair share of the tax burden.

Society: Governments must tackle record gap between rich and poor, says OECD