In Defence of Liberty

Driven by data; ridden with liberty.

The Rich Get Richer

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Are households “better off now than they have ever been”? (Edited: Images of Money)

“The rich get richer, the poor get poorer” is a phrase whose ubiquity is owed more to poetic symmetry than to historical accuracy. In an exchange with the Shadow Minister for Women Cat Smith MP (Lancaster and Fleetwood, Labour) on the BBC programme Question Time, Kelvin MacKenzie said [1]:

Oh, working people. They are not struggling right now. They are better off now than they have ever been. You’ve got no idea. They are not struggling. They are thriving. You’re in London. The global capital of the world. Ridiculous.

The former editor of The Sun was then booed and jeered by the audience for these remarks.

(Video: BBC News)

The Effects of Taxes and Benefits on Household Income

The Office for National Statistics (ONS) publishes annual reports on the effects of taxes and benefits on household income. It takes a household’s original income from employment and investment dividends, adding cash benefits (such as the state pension), taking away direct taxes, giving the disposable income. A household’s disposable income then has indirect taxes deducted, before adding in benefits-in-kind (like healthcare and education) to provide a final income.

The ONS consider three prominent measures of personal income, the median and mean equivalised disposable household income, and GDP per person. Whilst it may be incorrect to suggest that working people are “better off now than they have ever been”, as these measures still lie beneath peaks around 2008, the historical trend is indisputably upwards.

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However it is measured, household incomes have been rising over time. (Source: ONS)

As the report conducted up to the end of 2013-14 states:

The median household disposable income was £24,500 in 2013/14. After taking account of inflation and changes in household structures over time, the average disposable income was slightly over twice (2.02 times) as high in 2013/14 as in 1977, growing from £12,200 at an average rate of 2.0% per year over this period. Most of this growth in average incomes occurred during the late 1980s and late 1990s.

This analysis does not consider the improvements in our lives due to technological advancement, whether the mobile phone or the dawn of the internet.

Into quintiles

The ONS report also breaks down mean equivalised household income into quintiles, and it is found that each quintile has increased its average income since 1977. This growth has not been uniform across these five income categories:

Incomes have not grown evenly across the income distribution since 1977. The average (mean) disposable income for the richest fifth of households in 2013/14 was over twice (2.39 times) as high as in 1977, after accounting for inflation and household composition. The average income of the poorest fifth of households has also grown over this time, but the rate of growth has been slower (1.77 times higher in 2013/14 than 1977).

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Even the lowest quintile of household income has risen to 1.77 times what it was in 1977. (Source: ONS)

This analysis only looks at categories of household disposable income, and so will not consider when a household passes through the membrane of one category into another [3].

The poor get richer, and the rich get even richer. Whilst these measures of income have yet to pass over their former peaks, the time is coming. Studying data is important for correcting misconceptions.

References

[1] Demianyk, G., 2016. BBC Question Time: Ex-Sun Editor Kelvin MacKenzie Tells Labour MP Cat Smith People Are ‘Not Struggling’. Booed. Huffington Post UK. Available from: http://www.huffingtonpost.co.uk/2016/01/14/kelvin-mckenzie-bbcqt-struggling-better-off-cat-smith_n_8985064.html [Accessed: 17th January 2016]

[2] ONS, 2015. The Effect of Taxes and Benefits on Household Income, Financial Year Ending 2014. Available from: http://www.ons.gov.uk/ons/dcp171778_407906.pdf [Accessed: 17th January 2016]

[3] Masters, A., 2013. Zeniths and Valleys of Income. In Defence of Liberty. Available from: https://anthonymasters.wordpress.com/2013/01/27/zeniths-and-valleys-of-income/ [Accessed: 17th January 2016]

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One comment on “The Rich Get Richer

  1. Pingback: Statistics and Lampposts XXV: The Perceived Chasm | In Defence of Liberty

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This entry was posted on February 5, 2016 by in National Politics and tagged , , , , .
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