Income inequality is at highest level since the 1930s, says report

The growing gulf between Britain's top and bottom earners is exposed in a report tomorrow, which shows that there are now 26,000 Britons taking home more in a month than those on average salaries earn in a year.

The study from the High Pay Centre, a think tank set up in the wake of an inquiry into escalating executive pay, will be published on Monday. It says the nation has returned to levels of income inequality last seen in the 1930s, with the share of the national income going to the top 1 per cent more than doubling since 1979, to 14.5 per cent.

These 26,000 top-earning Britons, who have salaries of more than half a million pounds a year, receive at least £21,500 a month after tax – more than the average annual wage of £20,500. At the other end of the spectrum, there are 6.75 million workers earning less than £800 a month.

The study also looks at how pay could be more fairly distributed. It calculates that if everyone on salaries of more than £150,000 took a 10 per cent pay cut, those in the bottom 25 per cent of earners could increase their hourly pay from £6.80 to £7.35 on average. This would bring them closer to the national living wage of £7.45 an hour outside London.

The report comes as The Independent on Sunday has learnt that a prominent British businessman, Sir Mike Darrington, has written to the remuneration boards of all FTSE 100 companies begging them to show restraint on executive pay. Sir Mike, who led Greggs for 25 years before his retirement in 2008, wrote to each board demanding that they "take action to progressively reduce the package" of their chief executive. The letter, sent last month, also said that the inexorable rise in executive pay was a "massive institutionalised reward for a lack of success".

Sir Mike said that he felt compelled to take action because the issue of bumper pay packets "seems to be a cancer in society that's growing". He believes that if executive pay is halved over the next five years it should not make any difference to the quality of candidates. "My view is the greedy ones will go. Well, good riddance, there's plenty of decent people." The High Pay Centre says that their research is "an attempt to understand how we could create a fairer income distribution". Deborah Hargreaves, director of the think tank, said: "There's this huge dislocation in British society and inequality creates well-known social problems."

Commenting on the report, Labour's business affairs spokesman, Chuka Umunna MP, said: "Ministers are prioritising a tax cut for millionaires, coming in next month, and their policies are making Britain more unequal. Too many people in work are struggling. Over decades, we have seen a hollowing out of the middle as average earnings have stagnated, while rewards at the top have grown exponentially."