The background

The declare that inequality is falling is a declare that’s usually trotted out by right-wing commentators, backed by selective revenue statistics. It occurred in a touch upon this weblog in the previous couple of days. But for tens of millions of households, the lived actuality is rising monetary stress from the rising price of important family provides, hovering money owed, remortgaging at punishing charges, and rents rising forward of inflation.

The claims right-wingers make are deceptive as a result of they ignore what actually issues, which is the truth that folks actually are falling behind and society is getting extra divided because of this.

Information

Official information from the ONS studies that within the monetary yr ending 2024, disposable revenue inequality (measured by the Gini coefficient) did fall barely from 32.9% on that index in comparison with 33.1% within the prior yr. It seems that that is the premise for the declare that inequality is falling, however that change is, in fact, statistically insignificant. Over the long term, the pattern is flat: inequality is hardly collapsing.

The Home of Commons Library has additionally famous that incomes fell throughout the distribution in 2023/24, with the underside decile struggling most, and the Institute for Fiscal Research (IFS) has warned that median family revenue (earlier than housing prices) in actual phrases has stagnated or fallen since 2019.

Briefly, the official statistics don’t assist the daring declare that inequality is in retreat. There are, nonetheless, different elements to contemplate as nicely.

The misinformation

Firstly, the revenue statistics used for these comparisons omit many main types of revenue derived from wealth. Capital good points, hidden returns in trusts and firms and pension funds, rents, and asset value development – all of which have a major affect on the well-being of the wealthiest – are poorly captured (or not captured in any respect) in the usual revenue measures. A rich investor might even see monumental good points that by no means present up in “revenue” as conventionally measured. Failing to incorporate these sources of elevated well-being hides half, if not most, of the true story of inequality.

Second, unequal inflation and value burdens distort the true image. Even when nominal incomes had been equal, these with decrease incomes often face steeper inflation on vitality, meals, lease, transportation, telephone use, and important companies than those that are wealthier. Importantly, most of these spending comprise a a lot larger proportion of their expenditures. The prices of necessities often rise sooner for these with decrease incomes, much less bargaining energy and the shortcoming to journey to discover a discount. The official “common inflation” adjustment conceals this. The IFS estimates that once you permit for household-specific inflation, revenue falls extra steeply on the backside than the headline information counsel.

Third, debt dynamics and monetary fragility matter. The enlargement of unsecured debt, arrears, and remortgaging stress are signs that the underside and center are being squeezed. Debt just isn’t an offset to inequality however is as an alternative a magnifier of precarity.

By counting on headline revenue alone, the Gini coefficient of inequality is akin to assessing well being by simply taking a look at peak: it is mindless in any respect.

The mounting pressures on households: proof

There are concrete indicators that households are below pressure. For instance:

• Utility and vitality arrears. As of June 2025, Ofgem studies that vitality money owed owed to suppliers stand at a document £4.4 billion, with sharply rising arrears. Earlier within the yr, the default fee on direct-debit vitality funds hit 2.7 %, triple the pre-Covid disaster degree. Multiple million households are behind on their gasoline or electrical energy payments with no reimbursement plan.

• Mortgage stress is pushing folks into poverty. A report by the IFS and Joseph Rowntree Basis estimates that the surge in mortgage charges has pushed round 320,000 folks into poverty, which is many greater than the official counts counsel, as a result of the latter use one common rate of interest throughout all households.

• Flat or falling actual incomes. Between 2021–22 and 2022–23, median family revenue (earlier than housing prices) fell by 0.5 % in actual phrases. Mixed with prior years, the median is now estimated to be 1.6 % beneath its 2019 degree.

• Wealth focus is escalating. Wealth inequality is way more excessive than revenue inequality. Within the UK, the underside 50 % of the inhabitants owns lower than 5 % of wealth, whereas the highest 10 % owns 57 %. The highest 1 % alone maintain 23 % in accordance with the Joseph Rowntree Basis. Over an eight-year span, the wealth hole reportedly grew by 50 %.

• Debt burdens are rising in absolute and relative phrases. The Home of Commons Library notes that family debt as a ratio of revenue has been climbing once more after a quick post-pandemic pause. For these with out wealth buffers, even small shocks now drive reliance on costly credit score or arrears.

These are usually not remoted points. They’re markers of an economic system below structural stress, which capabilities nicely for many who already possess wealth and entry to credit score, and hardly in any respect for many who don’t.

Penalties

First, the hole between income-based measurements of inequality and lived actuality turns into politically corrosive. Claims that “inequality is falling” based mostly on statistically insignificant modifications in official information that ignore quite a lot of financial actuality, feed complacency and hinder reform, most particularly when individuals are seeing their funds worsening.

Second, the deepening fragility of households erodes democratic legitimacy. When extra folks really feel economically powerless, as many do now, resentment grows, as is all too obvious.

Third, the rising leverage of debt transforms inequality right into a self-reinforcing dynamic. Those that personal property take up the ensuing good points; those that borrow take up curiosity prices. Wealth amplifies itself; debt compounds insecurity.

Fourth, the failure to correctly tax or regulate returns on wealth turns into ever extra pernicious. The rich use trusts, corporations, offshore, and capital good points or unremunerated fairness returns to inflate their wealth, none of that are nicely captured in customary tax or statistical regimes.

Fifth, in macroeconomic phrases, demand is squeezed. When giant fractions of the inhabitants battle to service debt and pay for requirements, client spending inevitably falters, which means weakened development prospects in an already sluggish economic system.

What ought to we do?

5 attainable reforms stand out, all of that are required now. We have to:

• Reform measurement and statistics. We should develop nationwide accounts that precisely replicate wealth distribution, together with capital good points, belief revenue, hidden returns, and household-specific inflation burdens. Solely then can we see the entire image of inequality and problem the at present complacent narratives.

• Strengthen taxation of wealth and capital. We have to tackle this challenge within the methods described in my Taxing Wealth Report.

• Enhanced debt reduction and stronger protections for these in monetary disaster. We have to:

  • set up energy-debt forgiveness schemes given the size of the problems on this sector;

  • regulate predatory credit score, together with within the housing and even mortgage sectors;

  • and introduce extra broadly based mostly social tariffs for utilities.

Specifically, the state should act as a guarantor the place households face structural pressures on points like vitality or housing prices which have moved past their management, and thru no fault of their very own. It’s unacceptable for the state to supply mortgage ensures to luxurious automobile maker JLR when it turned harassed because of its personal folly, when it is not going to accomplish that for households in monetary disaster, often for causes unrelated to any alternative they’ve made.

• Counteract inequality of price burdens. This requires recognition that these on low incomes face steeper inflation on important items and companies. This requires focused compensation and indexing for lower-income households, together with for these on advantages, minimal wages, and pensions: universally based mostly indexing is inappropriate.

• Ship public funding to cut back structural burdens. That requires funding in insulation, renewable vitality, public transport and regional infrastructure, all of that are measures that reduce residing prices and scale back vulnerability to inflation shocks.

Abstract

We should problem the complacent rhetoric that “inequality is receding” based mostly on partial metrics. Solely by rebuilding the state’s capability to measure and to behave can we create an economic system that delivers real safety and well-being for all.

The fact is that we live in an economic system the place inequality is rising, and that’s poisonous for everybody, which is why the difficulty must be addressed as a matter of social and political, in addition to financial, precedence.

Taking additional motion

If you wish to write a letter to your MP on the problems raised on this weblog put up, there’s a ChatGPT immediate to help you in doing so, with full directions, right here.

One phrase of warning, although: please guarantee you’ve the proper MP. ChatGPT can get it mistaken.

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