Income inequality: a longer view

My last post highlighted the selective use of data by the Conservative party. In their recent report – Labour’s Two Nations – the Conservatives used 1997 as the start year for measuring income inequality. This gave the impression that rising levels were perhaps a problem specific to Labour’s term in office. I compared their graph with one produced by the Institute for Fiscal Studies (IFS), which used 1979 as the start date. This showed that inequality rose sharply during the 1980s; much more significantly, indeed, than the rises during the latter part of Labour’s current period in office.

Of course using 1979 as the start date – the beginning of the Conservatives’ last period in office – is arguably just as arbitrary as using 1997. So here’s a graph showing trends in income inequality from 1961 to 2008, according to the commonly used Gini coefficient. I’ve used IFS data to construct the graph. Income inequalty before (BHC) and after (AHC) housing costs are represented.

Broadly speaking the data shows three distinct periods of income inequality. The period from 1961 to the late 1970s, when it oscillated within relatively narrow bands, at a comparatively low level. The period of the 1980s, when it grew rapidly. And the period since the early 1990s, when income inequality has again oscillated within relatively narrow bands, but at a much higher level. During this period the gap between income inequality before and after housing costs has also grown.

The late 1970s is therefore not an entirely arbitrary place to start an analysis of income inequality. It did mark the beginning of a period of rapidly rising inequality. That said, Labour has done little to address the high levels of inequality it inherited from the Conservatives. In the last few years the trends are again upwards.