The Chancellor’s boast on inequality

Normally I pay relatively little to the Budget in Britain as it seldom contains much that is new. This time around I was stuck by a throwaway claim made by George Osborne, the chancellor, in his speech:

“The independent statistics show that under this government income inequality is at its lowest level for 28 years.”

This claim is interesting in itself as it confirms that the government claims to be interested in extreme inequality. From a political perspective this is the key point. However, I thought it worth checking out the empirical boast more closely.

A similar claim is included in the Budget’s “Red Book” (which outlines the government’s plans in more detail) which says that: “Office for National Statistics data show that inequality is at its lowest level since 1986” (p4 and p53).

The second reference refers to a document from the Office for National Statistics (ONS), the official statistical agency,

The effects of taxes and benefits on household income, 2011/12 (published in June 2013). P17-18 of this report examine “Longer-term trends in income inequality”.

From here it is clear that the Chancellor’s claim is true in a narrow sense although misleading for several reasons:

• The data only goes up to 2011/12. It therefore does not cover what has happened over the past two years. Since the last election was in May 2010 it only covers the government’s first year in office.

• On the ONS measure (the Gini coefficient) income inequality increased significantly during the 1980s before peaking in 1991. This date is worth noting given the comparatively recently fixation with income inequality in mainstream political debate.

• On other measures – for example, focusing on “top inequality” such as the top 1% against the average –  income inequality may have behaved differently.

The ONS study is based on an earlier more comprehensive report: The effects of taxes and benefits on income inequality, 1980 – 2009/10.

It is also worth noting that the government publishes regular distributional analysis of the impact of tax and spending policies on households. The edition published with the 2014 Budget can be found here.