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Inequality

Key points

  • London contains the highest proportion (15%) of people in the poorest tenth nationally and the second highest proportion (15%) of people in the richest tenth.
  • In the three years to 2013/14 the income of someone at the 80th percentile in London was 3.75 times higher than the income of someone at the 20th percentile. The 80:20 income ratio peaked at 4.13 (i.e. income at the 80th percentile was 4.13 times higher than at the 20th percentile) in the three years to 2010/11.
  • London has the most unequal pay distribution of any part of the UK wholly due to pay at the top end. The top 10% of employees in London receive at least £1,420 a week, £350 higher than the next highest region. The bottom 10% in London earn no more than £340, only £40 higher than the next highest region.
  • London's 90:10 pay ratio, at 4.1, is much higher than all other English regions. Pay at both the top and the bottom fell in London between 2009 and 2014 meaning the 90:10 ratio is unchanged.
  • The richest tenth of households account for £260 billion of financial wealth in London. The poorest tenth hold more debt than financial assets so have negative financial wealth amounting to -£1.3 billion.
  • Property wealth is the largest component of the wealth held in London. The property wealth held by the poorest 30% of households is negligible. At £280 billion the property wealth held by the top decile is more than double the £120 billion held by the 9th decile.
  • The total wealth of a household at the 10th percentile in London was £6,300 in 2010/12, 57% less than for the rest of Britain. But at the 90th percentile in London it was £1.1 million, 22% higher than the rest of Britain. So the 90:10 wealth ratio in London is 173, almost three times the ratio for the rest of Britain at 60.
  • In terms of wealth London became less unequal between 2006/08 and 2010/12 with wealth at the 10th percentile rising by 66% compared with 22% at the 90th percentile. In cash terms though, this amounts to a rise of £2,500 at the bottom and £200,000 at the top.
  • The ratio of upper quartile to lower quartile house prices rose in every London borough in the last 10 years. There are 13 boroughs where top quartile prices are double that of bottom quartile prices; 10 years earlier, there were only four.

Commentary

Whatever aspect of inequality we look at - income, pay or wealth - London is the most unequal part of the country. This inequality is not due to those at the bottom being exceptionally worse off in London. In terms of income and wealth, the poorest are worse off than those in the rest of the country while pay is higher. Inequality in London is being driven by the wealth of those at the top which is much higher in London in every aspect. This is not new or surprising.

What might be surprising is the lack of evidence that London is becoming more unequal; in some cases it appears to be less unequal than it was. But before dismissing claims of rising inequality in London, it is worth unpicking these recent trends.

Falling income inequality in the period to 2013/14 was driven by a slight growth in incomes at the bottom compared with the top - when the value of earnings was rising less than many benefits. From 2013/14 annual increases in the value of benefits was capped at 1% and will be frozen in the coming years. Further falls in income inequality seem unlikely.

In terms of pay inequality, which remained flat in London between 2009 and 2014 as wages across the distribution fell, there is reason to be optimistic. The introduction of a 'national living wage' over the coming years should increase earnings at the bottom of the income scale. But as pay inequality in London is driven by high wages at the top the impact of a rise at the bottom may be negligible.

Wealth inequality fell between 2006/08 and 2010/12 but this data is now three to five years old. Property is the largest component of wealth and we know that the value of the most expensive properties is rising faster than the least, while a growing proportion of Londoners rent and have zero property wealth. It's probable that this particular aspect of inequality is currently increasing in London.

This section has focused on the difference between people near the top of the distribution
and those near the bottom. It does not look at the very top - the top 1% or the top 0.1%. This is a small group and the level of detail we can explore in this broad report is limited. But in a recent report the IFS showed that the 90:10 income ratio nationally fell in the last decade while the proportion of income held by the top 1% has risen to reach 8.3%. Without adequate data to reflect this group, measures such as the 90:10 ratio can be misleading. This is particularly important for London which contains 15% of people in the richest tenth so it is bound to contain a high proportion of those in the top 1% as well.