Income inequality is increasingly a subject of public discussion and analysis. Productive debate about what is happening to inequality requires reliable estimates. Yet the two main sources of information – household survey and personal tax return data – provide very different estimates of inequality trends. The UK’s main official income inequality statistics, published by the Department for Work and Pensions (DWP) are based on Family Resources Survey data. They are the basis of the recent statement by a Deputy Governor of the Bank of England that income inequality is ‘broadly unchanged’ over the past quarter century (Broadbent 2016: 2). Many others have drawn the same conclusions, referring to the same source. And yet we also know that the share of total income held by the very richest groups in the UK has increased dramatically over the same period – but the main data source is administrative record data from personal income tax returns held by HMRC.
One of the reasons that survey- and tax-based data provide different conclusions is because the statistics derived from them use different definitions of ‘income’, the income-sharing unit, and the unit of analysis. Apples are being compared with bananas not apples.
But a more fundamental reason for the different conclusions is that household surveys are increasingly bad at capturing the income of the very richest people. By contrast, the forte of tax data is that their very much better coverage of exactly this group (and worse coverage of the bottom half of the distribution.)
On the basis of MiSoC research, we draw conclusions about how official income distribution statistics in the UK and elsewhere could be improved. This research has been discussed and presented with relevant analysts at each of Department of Work and Pensions, the Office of National Statistics, HM Revenue and Customs, and OECD. There is a particularly close relationship with the ‘Households Below Average Income’ team at the Department of Work and Pensions, who take a specific interest in our work.
Changing national reporting and understanding of poverty
In 2011, Professor Stephen Jenkins published Changing Fortunes: Income Mobility and Poverty Dynamics in Britain, a book that is the culmination of a sustained body of research carried out in MiSoC over a period of many years.
This work demonstrates the importance of taking a longitudinal view of poverty and inequality – looking at how individuals’ incomes change over time, and how these changes relate to changes in family structure, employment and the tax-benefit system. The methods used in the book have provided the template for the way in which poverty dynamics are summarised in the UK’s official income statistics: the Low Income Dynamics supplements to the Households Below Average Income publication, a crucial source for policy-making.
The book was launched at a high-profile public lecture at the LSE, and a tailored presentation was given to the Social Mobility group in the Cabinet Office. The research has received wide media exposure, including being the lead item in the BBC Radio 4 programme Thinking Allowed. It is also the subject of a forthcoming short film, one of eight that the ESRC has commissioned to showcase its work to research users. As a result of the work contained in Professor Jenkins’ book, a measure of persistent poverty was one of the four statutory measures of child poverty named in the Child Poverty Act 2010, against which future governments have to report progress. These sorts of statistics continue to inform policymaking at the highest level: Figure 1.3 of the Cabinet Office’s 2010 State of the nation report—a document which represents the current government’s overall approach to poverty and disadvantage—cites statistics on persistent poverty.
Influencing government thinking and improving evidence
MiSoC has made a large contribution over many years to policymakers’ understanding of the pattern and movements of inequality and poverty over time, in terms of income, wealth, deprivation and, more recently, health. 2009-2010 saw a particularly large impact for MiSoC research, through our participation in the National Equality Panel (NEP), commissioned for the UK government by the then Minister for Equalities, Harriet Harman. The report provided an anatomy of economic inequality in the UK, identifying a range of deep-seated and systematic differences’ between social groups across many dimensions of life, and it has attracted a great deal of policy and media attention. MiSoC’s Stephen Jenkins was a member of the NEP and an author of its report, and the panel also commissioned members of MiSoC to produce special studies of income dynamics (Jenkins 2009) and ethno-religious and disability inequalities (Longhi et al 2009) and drew on other MiSoC research, presented to the panel during a visit to the Centre.