Income inequality and the very rich
The ‘go to’ official sources for information about UK income inequality levels and trends are the data and statistics produced annually by the DWP and ONS and are based on data from household surveys. These tell a different story from administrative record data from income tax returns held by HMRC (the Survey of Personal Incomes), which show a rising share of income going to those at the very top since the mid-1990s.
Research by MiSoC’s Stephen Jenkins with colleagues combines information about how income is distributed over the very highest income ranges (poorly covered by household surveys) with the information about the income distribution over the rest of the income range which is reliably provided by the household survey (but not the tax data). Jenkins concludes that the official income distribution statistics in the UK (and elsewhere) could be improved. This work led directly to changes in the methods used to derive the UK’s two official series about income distribution.
The ONS’s (2018) paper, Transformation of ONS household financial statistics: ONS statistical outputs workplan, 2018 to 2019, which states: “[i]n line with research into using administrative data to tackle potential under-reporting of high income earners in surveys, (for example, Burkhauser and others (2018)), we are planning to prioritise the development of an adjustment for the income of high earners in the next year. We will work closely with DWP on this research and learn from their experience in using an adjustment for high earners using HMRC Survey of Personal Incomes (SPI) data in the Households Below Average Income release.” ONS’s resulting work was then summarised in their publication “Using tax data to better capture top earners in household income inequality statistics”, 26 February 2019. The ONS research confirms the findings of Jenkins and colleagues that estimates of inequality levels are higher when combined data are used, and that recent inequality trends differ.
Jenkins’s work is complemented by work by MiSoC’s Mike Brewer who argued for a greater use of the HMRC data in UK debates about income inequality (Brewer, 2019), and whose work on the very rich was the subject of an article in The Economist (“A rare peep at the finances of Britain’s 0.01%”, 29 June 2019).
Download the full papers here:
- Survey Under‐Coverage of Top Incomes and Estimation of Inequality: What is the Role of the UK’s SPI Adjustment? (Jenkins et al, October 2017)
- Pareto Models, Top Incomes and Recent Trends in UK Income Inequality (Jenkins et al, December 2016)
- Top incomes and inequality in the UK: reconciling estimates from household survey and tax return data (Jenkins et al, September 2017)
- What Do We Know and What Should We Do About Inequality? (Brewer, June 2019)