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Thursday, December 27, 2012

UK Coalition is cutting the wealth gap

Over at the Independent, John Rentoul highlights some inconvenient facts for those who claim that the UK Coalitoin Government is putting the interests of the rich above those of the poorest in our society. It simply is not true.

Well, this is where it gets interesting, because what “everyone knows” is not what is happening. The gap between rich and poor has not changed significantly for about 20 years, not since the increase in inequality that occurred when Margaret Thatcher was Prime Minister in the 1980s. For most of the boom times since then, everyone got richer, at roughly the same rate, and the ratio between rich and poor remained unchanged. And even now, as we all get a bit poorer again as a result of the bust, the losses are spread pretty equally with, if anything, the rich bearing the greater share of the burden.

Two important sets of statistics were published this year which bring the picture up to date. Their findings on equality were unreported for the simple reason that they did not show what everyone expected them to show. In June, the Institute for Fiscal Studies (IFS) published an analysis of official data that found that, although all after-tax incomes fell in the first year of the Coalition (2010-11), higher incomes fell more than lower incomes, resulting in a more equal distribution.

Then in July, the first official estimates of the distribution of wealth were published for some time. The new figures, from the Wealth and Assets Survey carried out by the Office for National Statistics, covered the period from 2006 to 2010. In other words, roughly the period of the Gordon Brown government. The figures do not tell us about what is happening under the Coalition, but they were a missing part of the puzzle, because although there are a lot of statistics about incomes, there have been no reliable figures for the inequality of wealth in the UK for many years. What the survey showed was that the degree of inequality of wealth hardly changed from 2006 to 2010, becoming slightly more equal. Unless something dramatic has changed in the past two years, we would expect that trend to continue.

In fact a millionaire will pay £381,000 more tax on their income under this government than they did under Labour. Why are we not shouting louder about this?

I think the data you post does not include those on benefits, a group that, despite the cuts, has increased during the coalition.There is also data that shows the savings (not incomes) have been eroded faster in the middle to lower income groups. The "rich" are hard to define but it is definitely the case that the top 1% have seen the gap between them and the bottom 10% grow in the last two years
Actually if you read the IFS study you will see that you are wrong. Their methodology states that they "measure each household’s total income from all sources (including earnings, self-employment, pensions, benefits and tax credits) minus council tax and any direct taxes paid on these sources. We then apply 'equivalence scales’ to each household’s income, accounting for the fact that (for example) a net income of £200 per week will mean a higher standard of living for a single individual than it will for a couple with four children (all else equal)." And clearly, on the basis of that study the gap between the top 1% and the bottom 10% has narrowed.

Where does this figure of a millionaire paying £381K more come from.

On a million pounds per year that would be an extra 38.1%. Unless something very odd has happened I think this is a pretty dodgy statistic.
It is a combined figure including changes to income tax, stamp duty and capital gains tax. Clearly it is not £381k on a million pounds but on total income which will be in several million pounds.
Is there any link to where this has been worked out.

The 5p drop in income tax (admittedly Labour brought this is very late) means earnings of a million pounds a year decrease by £50,000.

I just can't understand this £381k figure.
I can't find the link at the moment, but you need to remember that the 50p tax rate was only in force for 37 days of the 13 years Labour were in power. The current 45p rate is actually ano increase in tax liability for millionaires over that they had under Blair and Brown.
I would like to know who this particular millionaire is? It would be more interesting to know how many earn over £1million pa and how much more someone earning £1million pa is paying, remembering to include CGT increases and pension cuts.
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