Rising inequality in Britain risks putting the country on the same path as the US to become one of the most unequal nations on earth, according to a Nobel-prize winning economist.
Sir Angus Deaton is leading a landmark review of inequality in the UK amid fears that the country is at a tipping point due to a decade of stagnant pay growth for British workers. The Institute for Fiscal Studies thinktank, which is working with Deaton on the study, said the British-born economist would “point to the risk of the UK following the US” which has extreme inequality levels in pay, wealth and health.
Speaking to the Guardian at the launch of the study, he said: “There’s a real question about whether democratic capitalism is working, when it’s only working for part of the population.
“There are things where Britain is still doing a lot better [than the US]. What we have to do is to make sure the UK is inoculated from some of the horrors that have happened in the US.”
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His warning comes as analysis from the Trades Union Congress (TUC) showed that real wages in the finance sector had outstripped average salaries in the UK over the decade since the financial crisis. Earnings after inflation in the finance sector have grown by as much as £120 a week on average, compared with the average British worker still being about £17 a week worse off after taking account of rising living costs over the past decade.
Frances O’Grady, the TUC general secretary, said: “It’s not right that pay is racing ahead in the City when most working people are still worse off than a decade ago.”
Deaton said geographical inequality appeared to be a factor in the UK, with London benefiting disproportionately compared with other parts of the country.
“People really feel that not everybody is having a fair crack anymore,” the US-based economist said. “There’s a sense that if you live in one part of Britain away from the capital, lots of bad things are happening, while lots of good things are happening in the capital – and you don’t see why you should be left behind that way.”
Deaton, a professor at Princeton, won the Nobel prize in his field for work charting global developments in health, wellbeing and inequality in 2015.
The US is ranked on some measures among the most unequal of major nations. Pay for non-college-educated men has not risen for five decades, while mortality for less-educated white men and women in middle age has led to average life expectancy to fall for the past three years, something that has not happened for a century.
Launched amid growing international concern over inequality and the rise of more extreme political ideologies in several countries, the IFS Deaton Review will span five years and look at inequalities in areas such as income, wealth, health, social mobility and political participation.
In a research paper accompanying the launch by IFS researchers Robert Joyce and Xiaowei Xu, figures show that “deaths of despair” in Britain have more than doubled among men since the early 1990s. This concept was coined by Deaton in an earlier study and refers to deaths from suicide and drug- and alcohol-related issues.
In a reflection of the pressure on certain groups in society as inequality grows across Britain, the number of such deaths per 100,000 adults has risen from about 30 to 61 for men and from 15 to 26 for women over the period. Deaton believes these figures are an early warning sign of the UK developing characteristics of inequality similar to the US.
Deaton warned that rising inequality was not a uniform phenomenon in the UK, judging by mortality statistics. “One part we do know is that it seems to be geographically unequal,” Deaton said, referring to deaths from suicide, drugs and alcohol. “Blackpool seems to be a hotspot and the north east, but not very much in London. So it maybe that it’s geographical inequalities in health that are much more important here than in the US.”
On some measures, inequality in Britain has remained relatively steady over recent years, despite having rapidly accelerated in the 1980s.
Some economists point to the Gini coefficient – a sliding scale between 0% and 100% used by academics where a reading of 100% would indicate that one person received everything. The gauge has remained stable since the 1990s, although it rose slightly last year from 31.4% to 32.5%.
However, the headline measurement of inequality masks significant differences for households in modern Britain, which Deaton said were important to consider.
According to the IFS paper, the richest 1% in Britain have seen the share of household income they receive almost triple in the last four decades, rising from 3% in the 1970s to about 8%. Average chief executive pay at FTSE 100 firms has risen to 145 times that of the average worker, from 47 times as recently as 1998.
Earnings in the lowest-earning working households have barely risen since the mid-1990s, compared with greater increases for higher-income groups.
A spokesman for the Treasury said: “Our policies are highly redistributive – this year the lowest income households will receive over £4 in public spending for every £1 they pay in tax, while the highest income households will contribute over £5 in tax for every £1 they receive in public spending. Income inequality is lower now than it was in 2010.”