Sharp increase in income inequality

The pay gap between the highest and lowest earners in the UK has grown more quickly than in any other high-income country since 1975, a report said today.

Research by the Organisation for Economic Co-operation and Development (OECD) found the sharp increase in income inequality, which began in 2005, leaves Britain well above the group's average.

The study - Divided We Stand: Why Inequality Keeps Rising - published by the forum of 34 countries that earn the most, said the annual average income of the top 10% was almost £55,000 in 2008, nearly 12 times higher than that of the bottom 10%, who earned an average of £4,700.

This is up from a ratio of 8 to 1 in 1985, the OECD said.

Data showed the money earned by the country's top 1% of earners doubled from 7.1% of the total UK income in 1970 to 14.3% in 2005.

Just prior to the global recession, the top 0.1% of top earners accounted for 5% of total pre-tax income. At the same time, the top marginal income tax rate saw a marked decline, dropping from 60% in the 1980s to 40% in the 2000s, before its recent increase to 50%.

In order to combat the problem, the OECD said: "Work is the most promising way of tackling inequality.

"The biggest challenge is creating more and better jobs that offer good career prospects and a real chance to people to escape poverty."

It said investing in "human capital" is vital.

"This must begin from early childhood and be sustained through compulsory education," it concluded.

"Once the transition from school to work has been accomplished, there must be sufficient incentives for workers and employers to invest in skills throughout the working life."

A Government spokesman said: "The OECD recognises that the causes of inequality are complex. As we have seen, just putting billions of pounds into the tax and benefit system cannot alleviate poverty on its own and has the perverse effect of trapping thousands of families in a life on benefits.

"The OECD rightly points out that governments need to facilitate and encourage employment of low income groups - something we are directly focusing on through the Work Programme and Universal Credit.

"Our wide-ranging reforms will have a dramatic impact on the poorest families, improving the life chances of children at an early age and lifting almost a million people out of poverty through the Universal Credit."

Rail Maritime and Transport union leader Bob Crow said: "Far from all being in it together, the rich are getting richer while working families are taking the biggest hit on their standards of living since wartime rationing.

"This Government continues to pedal the lie that we are all sharing the pain while the boardrooms are awash with cash and those whose rampant greed created the crisis are laughing all the way to the bank."

PA