Why the Wealth Gap is Set to Widen

As a nation we Brits are earning more than ever before, however after years of narrowing income inequality between the economic extremes of society, 2006/07 saw the tables turn and, according to official figures published this week by the Office of National Statistics, the wealth gap between the rich and the poor is once again increasing.

The report found that at the most basic level, the wealthiest segment of the population have, on average, an ‘original income’ that’s 15 times greater than the £4,900 income representative of poorest members of society.

Once taxation and benefits are taken into consideration, this figure is deflated to a less shocking four fold difference with the wealthiest sector of society paying out 25% of their income in direct tax and the poorest receiving 57% of their income from benefits (compared to 11% and 2% respectively). However, despite this partial redistribution, the wealth gap is undeniably growing.

Unfortunately, these findings are very much a sign of things to come and the income gap is only set to widen further over the next few years.

According to the ONS’s report, this is largely due to the wage gap between skilled and unskilled workers increasing dramatically and the benefits and subsidies available for lower income households failing to keep up.

Furthermore, recent changes in both direct and indirect taxation are also likely to exacerbate this difference, with many updates hitting those who can least afford it the hardest.

Primarily, the abolition of the 10p tax band means that despite the £120 emergency payment the government will be handing out as compensation later this year, over £1 million low income households will still lose out financially.

More worryingly still, there has been no promise that this reparation cashback will be repeated in years to come, potentially plunging many more households into a lose-lose situation.

What's more, indirect taxation such as the increases imposed on alcohol, tax and fuel all have a larger impact on lower income households, as do the recent changes to vehicle excise duty, simply because a greater proportion of their disposable income is spent covering the cost.