Income inequality in the UK is significantly less than previous research has suggested, an influential think tank said today.
A common measure of income inequality known as the Gini coefficient is 0.49 when looking at peoples’ annual earnings, the Institute for Fiscal Studies (IFS) said. A Gini coefficient closer to zero represents a more equal spread of earnings whereas scores nearer one imply greater inequality.
But when total lifetime earnings are compared, the Gini coefficient for the UK plummets to 0.28.
The finding has important implications for public policy. In a single year, 64 per cent of people pay more in tax than they receive in benefits, yet over the course of a lifetime, 93 per cent pay more in tax than they receive in benefits.
“The existing tax and benefit system, assessed largely against circumstances in the current year, doesn’t do especially well at redistributing resources towards the lifetime poor. Targeting lifetime redistribution more effectively may require new policies that take longer-run circumstances into account,” said Jonathan Shaw, a senior IFS research economist.