Income inequality may soon start to fall, but this isn't a cause for great optimism. Inequality is at far higher levels in Britain than other large European countries, with hugely damaging effects for society and quality of life, as well as for politics: high inequality tends to go along with political disengagement and high levels of far-right voting.
Income inequality may be about to fall.
There is a possibility that we are reaching a peak in income inequality. The last time income inequality in the UK peaked was 1913. Reaching the peak does not mean the immediate decades ahead will be at all pleasant. Furthermore, the peak is reached earlier for those with less. The quintile ratio of income inequality peaked at 6.4:1 in 1990 (after Margaret Thatcher was forced to resign). But the take of the 1 per cent continued to rise until at least the financial crash of 2008. Their greed fuelled that crash as their take rose right up to that point (see Figure 1).
The take of the 1 per cent appears to have fallen since 2010 partly because of greater tax avoidance after that date. They report lower incomes to HMRC as more of them have incorporated companies with no employees since that date, in part to launder their income. However, some of the apparent fall in Figure 1 may be real. Above the 1 per cent, the 0.01 per cent (who feature in the Sunday Times rich list) have continued to increase their incomes and hence their wealth greatly through to 2016. Most of the very richest people in Britain claim citizenship of another country and can avoid paying full taxes as a result. (1)
Worldwide we are just beginning to see evidence emerging that the very richest, but not the richest eight people in the world, are beginning to see their fortunes turn. Among the richest the most recent Forbes annual billionaires guide found that the number of billionaires in the world has dropped slightly from 1826 to 1810. The total wealth of those that were left had fallen by $570 billion to roughly $6.5 trillion in 2016. They had been rocked by 'market turbulence' including falling oil prices. This was the first fall in their wealth since 2009. (2)
Wealth inequality falls lag behind falls in income inequality; and the impact of high inequality is felt for decades
When income inequalities begin to fall, wealth inequalities tend to fall about a generation later. Similarly, they rise more slowly than income inequalities rise. Wealth inequalities in the UK were lowest in the late 1980s despite income inequalities rising during that decade. (3) We should expect any fall in income inequalities not to result in falling wealth inequalities for many...