inequality

Median UK household income was £26,300 at the end of the last financial year, according to data from the ONS. But for the poorest fifth, things got better last year, but worse for the richest fifth.

Look at this way, between 1977 and the end of the last financial year, mean disposable income per household rose by 125 per cent, median disposable income per household rose by 113 per cent. This means inequality did grow, but not by much.

To explain: mean is the obvious measure of average. It takes the total value and divides by the number. Median, by contrast, takes the middle reading. Think of this way, you have three people, one is six foot one, one is six foot, the other is five foot eleven. Then both the mean and median would be six foot. But, if instead, the tallest of our three people was seven foot, the other two the same height, the mean would increase to six feet four, but the median would be unchanged.

In other words, the mean gets distorted by extreme changes at either end of a sample, the median doesn’t. And since we live in age when inequality is supposedly getting worse, you would expect the mean wage to rise much higher over time than the median wage.

To an extent this has happened but nowhere near as much as you might have expected. Sure, mean wages have risen faster since 1977, but not by much.

Last year, the poorest fifth of the population saw median wages rise by £700, while the richest fifth saw median wages fall by £1,000.

If that is so, what’s all the fuss about?

Well, drill down into the ONS data and we get more detail. But it’s what the ONS data is not saying that may be more relevant.

For one thing, it may be saying that the richest fifth are getting worse off – and if you fall into that bracket you may not at all surprised by this finding. But what the ONS data does not tell us about is the richest one per cent, or indeed the richest 0.1 per cent.

There are two more issues. Since 1977, one assumes that remuneration for women has risen much faster than for men. So, households may well have seen median income rise for the simple reason that women members of each household earned more. Finally, is it not the case that in recent years the number of households to people has started to decline – certainly among better paid members of the younger working generation, house and flat share is much more common than it used to be. So the ONS data does not tell the full story.

But what it does tell us is that much of the improvement in inequality has been down to cash benefits and direct taxes.

Before cash benefits and direct taxes, the richest fifth enjoyed a median income per household that was 12 times higher than the poorest fifth. After cash benefits and direct taxes, their disposable income was five times higher.

If you want the numbers:

Before cash benefits and direct taxes median income per householdAfter cash benefits and direct taxes median income per household, or disposable income
Richest fifth£85,000£62,400
Poorest fifth£7,000£12,500
The ONS said: “There has been a gradual decline in income inequality in the last 10 years, with levels similar to those seen in the mid to late 1980s.”

But when we break things down by age, they look different.

For non-retired households, median income is still 1.2 per cent less than in 2007/08. While for retired households, median income is 13 per cent higher.

Just to reiterate. For working households, median income has fallen, for retired households it has shot-up.

As Claudia Wells, Head of Household Income and Expenditure Analysis at the OBS put it: “Household incomes are above their pre-downturn peak overall, but not everyone is better off. While retired household’s incomes have soared in recent years, non-retired households still have less money, on average, than before the crash.”