No consistent trend since start of 1990s
Gini coefficient for equivalised disposable income, UK
Inequality in disposable income has shown no consistent trend since the start of the 1990s. Prior to this, during the second half of the 1980s, income inequality had been increasing.
Inequality in original income (before taking account of taxes and benefits) increased fairly steadily throughout the 1980s but has also remained relatively stable since then.
The Institute for Fiscal Studies (IFS) has investigated some of the possible explanations for this higher level of inequality since the start of the 1980s.
There has been an increase in wage inequality, and particularly an increase in the gap between wages for skilled and unskilled workers. Suggested reasons include skills-biased technological change and a decline in the role of trade unions. Growth in self-employment income and in unemployment were also found to be associated with periods of increased inequality.
There has also been a decrease in the rate of male participation in the labour market, often in households where there is no other earner. There has also been increased female participation among those with working partners. This has lead to an increased polarisation between two-earner and zero-earner households, although in the late 1990s, there was some fall in the proportion of people in workless households.
Demographic factors, such as the growth in one person households, make a relatively unimportant contribution compared with labour market changes.
The IFS has found that the income tax cuts of the late 1980s worked to increase income inequality while direct tax rises in the early 1990s - together with the increases in means-tested benefits in the late 1990s - produced the opposite effect.
Sources: Office for National Statistics; Institute for Fiscal Studies
Disposable income consists of income from employment and self-employment, pensions, investment income and cash benefits less income tax, local taxes and employees’ national insurance contributions.
Income inequality is measured by the Gini coefficient. The Gini coefficient takes values between 0 and 100, and the lower the value, the more equally household income is distributed. For more detail, see the link ‘Explaining the Gini coefficient’.
As with all measures derived from sample surveys, the Gini coefficients are subject to sampling errors. In most cases, the year-on-year changes are within the bounds of sampling variation. However, over periods of more than one year there are changes which cannot be explained by variation introduced by the sampling process.