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The Golden 1%: Britain's poor worse than ever

Published time: June 17, 2014 15:16
Reuters / Toby Melville

Reuters / Toby Melville

The poorest 20 percent of UK households earn just $9,530 annually, a dramatically lower rate than in other countries with a similar average income, according to new research.

Few Britons would probably agree with the observation that “life is much worse (in the UK) than it is for the poorest fifth in virtually every other northwest European country,” but that is exactly the conclusion the High Pay Centre, an independent British think-tank, has made in a newly released study.

Using figures from the OECD Better Life Index, the report shows that average UK household incomes of $53,785, which makes up the wealthiest 20 percent in the UK, ranked third in EU countries, lagging behind Germany and France.

But that is where the economic similarities between the UK and the EU come to a screeching halt.

The OECD estimates the average income of the bottom 20 percent of UK households at just $9,530, which is significantly lower than the poorest 20 percent in France ($12,653), Germany ($13,381), Belgium ($12,350), the Netherlands ($11,274) and Denmark ($12,183).

The report revealed Britain’s rapid decline from economic equality in just a few decades.

“Since 1960, Britain has gone from being more economically equal than Sweden to being one of the most unequal countries in the developed world,” according to the High Pay Centre. “Of the 32 members of the Organization for Economic Co-operation and Development (OECD) only Portugal, Israel, the United States, Turkey, Mexico and Chile are more unequal than the UK.”

Source: High Pay Centre study

In fact, the think-tank said marginalized UK living standards are much closer to those of former Eastern bloc countries, such as Slovenia and the Czech Republic.

The report noted that “inequality does not happen by chance,” but arises from deliberate political, social and cultural choices in areas like “taxation, public spending, industrial relations and public tolerance of high and low pay.”

“These figures suggest we need to be more concerned about inequality and how prosperity is shared, as well as average incomes or aggregate measures like GDP,” as the Financial Times quotes Deborah Hargreaves, director of the High Pay Centre. “The fact that the rich are richer in the UK than many other countries hides the fact that the poor are poorer.”

It should be noted that other studies have shown that UK poverty levels are about on par with the top EU economies.

The Luxembourg Income Study Database, for example, suggests that the 20th percentile of UK and French households have very similar incomes. And both are only slightly less worse off than equivalent households in Germany.

Yet both studies show that the impoverished in the UK have lower living standards than the poor in the Netherlands, Sweden, Norway, Finland and Denmark.

Reuters / Paul Hackett

The "Golden One Percent"

Income inequality has been proven to have a direct effect on the total earnings of the lowest percentile of households.

In the UK, the wealthiest one percent takes 13 percent of total income, which is much greater ratio than in other Western European countries.

The World Top Incomes Database reported total incomes in the UK in 2011 (the most recent year for which records are available) at £1 trillion. Thus, the 13 percent share taken by the richest one percent equates to about £130 billion per year.

“If the share captured by the one percent were the same as in the Netherlands and Denmark, it would be worth £60 billion,” the report emphasized. “The £70 billion difference distributed across the remaining 99 percent of the UK would put an extra £2,700 in the pockets of every household.”

The 6 percent share of total incomes grabbed by the richest one percent in the Netherlands and Denmark is the lowest recorded by the world top incomes database; however, the share in other countries such as Sweden (seven percent), Norway (eight percent) and France (eight percent) is also much lower than UK levels.

If total income between the 99 percent and the one percent of UK’s population was split up in the same way as in European and Scandinavian countries, the 99 percent would be “thousands of pounds better off each year,” the report said.