Income inequality in the UK

In 2020-21, 37% of total disposable household income in the UK went to the fifth of individuals with the highest household incomes, while 8% went to the fifth with the lowest.

The Gini coefficient for income inequality was 34% before housing costs and 38% after housing costs in 2020-21.

A couple without children with disposable income below £270 per week before housing costs were in the 10% of people with the lowest household incomes in 2020-21. To be in the highest-income 10% required an income just over three and a half times higher, of at least £1,000 per week.

Trends in income inequality

Inequality in household incomes in the UK has remained at a roughly similar level since the early 1990s but is higher than during the 1960s and 1970s. While the share of income going to the top 1% of individuals by household income increased during the 1990s and 2000s, there was some reduction in inequality among the rest of the population (based on incomes before housing costs) with the result that inequality overall was fairly stable during this period.

The rising cost of living

The budgets of low-income households are most affected by the rising cost of living. ONS data shows that households with the lowest incomes experienced a higher than average inflation rate in October 2022, while the richest households experienced lower than average inflation.

The Resolution Foundation expects income inequality to fall during 2022-23 and 2023-24. This is due to benefits being uprated by 10.1% in April 2023 and targeted Government support for low-income households in the form of cost of living payments.

However, people at the top of the income distribution will see their incomes from investment and savings increase because of rising interest rates: the OBR expects a rise of around £65 billion in gross household interest receipts between 2021-22 and 2023-24.

This means that the Resolution Foundation predict the Gini coefficient to reach a record high of 40.8% in 2027-28.

Impact of coronavirus

During the coronavirus lockdowns, the wages of low-income households were disproportionately affected by the economic fallout. However, the benefits system means that the incomes of low-income households were not more affected than other households.

High- and middle-income households saved more than low-income households during coronavirus lockdowns, and low-income households were more likely to go into debt.

Income inequality between regions, ethnic groups, and disability status

Historically, household income across the UK has varied significantly between regions and countries, ethnic groups, and the disability status of households. The latest data for 2020-21 does not include these breakdowns due to difficulties collecting survey data during coronavirus lockdowns. This paper therefore includes the most recent available data, for 2019-20.

Household income varies significantly between regions and countries in the UK, ethnic groups, and the disability status of households. The North East (£480) had the lowest median income before housing costs in 2017/18-2019/20, while London (£615) had the highest. Households from a Pakistani ethnic group (£350) had the lowest median incomes before housing costs while households from an Indian ethnic group (£558) had the highest. Families with a disabled member had a median income of £467 before housing costs during this period, compared to £577 for households where nobody was disabled.

Measuring inequality

Measurement of income inequality is generally concerned with inequality in disposable incomes. The tax and benefit system acts to reduce inequality: disposable income is distributed more equally than income excluding benefits or before deducting taxes.

Household income statistics are adjusted for the number of people in the household because this affects how much income the household needs in order to experience a given standard of living.

Various indicators may be used to track income inequality. For example, the Gini coefficient summarises income inequality into a single number between 0 and 100%. Other indicators discussed in this briefing paper include the ratio of incomes for individuals at different points on the household income distribution (how does the income of someone with a relatively high income compare to that of someone with a relatively low income?), and the share of total income going to different groups of households. By looking at these different indicators together, a more complete picture of income inequality is obtained.

International comparisons

OECD figures suggest that the UK has among the highest levels of income inequality in the European Union (as measured by the Gini coefficient), although income inequality is lower than in the United States.