Tax Hit for UK’s Top Earners Helps Reduce Inequality Since Covid

A pedestrian holds shopping bags branded with the Union Flag, also know as Union Jack, on Oxford Street in central London, U.K., on Tuesday, Dec. 4, 2018. U.K. consumer spending growth slowed in November as concerns about Brexit prompted households to become more cautious with their cash. Photo by Simon Dawson /Bloomberg

Article content

(Bloomberg) — Inequality in the UK has fallen since the onset of Covid in 2020 as disposable incomes for the highest earning households shrank by more than anyone else’s, according to the Office for National Statistics.

Article content

Article content

After adjusting for the impact of tax and benefits as well as inflation, typical disposable income for the richest fifth of households fell by 5.8% between the year to March 2020 and the year to March 2024. The poorest fifth saw the second biggest decline for the period, of 4.9%.

Article content

Article content

As a result, disposable income inequality as measured by the much-used “Gini coefficient” is now 2.5 percentage points lower than before the start of the pandemic in 2020 after declining slightly between 2023 and 2024. 

Article content

Article content

For UK households taken as a whole, typical disposable income was back where it was in 2020. Pensioner households, which tend to have lower incomes, were better protected than those in work, the ONS data also showed.

Article content

The figures underscore how Britons saw little to no improvement in living standards during Covid and the inflation shock over the last parliament, which was the worst for living standards since the 1950s.

Article content

But it was the highest earners, who saw big tax rises, and the poor on benefits who bore the brunt of the income slump.

Article content

Bloomberg Economics expects the current parliament, after Labour won the election last July, to be the second weakest for living standards on record as benefit cuts, frozen tax thresholds and persistently weak economic growth take a toll. However, wages have outpaced inflation for 19 months now.

Article content

The ONS data includes post-tax earnings from work, pensions and investments as well as state benefits. In 2024, the government closed a number of Covid, energy and cost-of-living support programs. As a result, household disposable incomes for the poorest fifth were hardest hit between 2023 and 2024, falling 2.6% to £16,832 ($22,369). For the richest fifth, the fall was 1.6% to £71,077.

Article content

Pensioners were insulated against the crisis. The typical retired household saw their post-tax real disposable income rise by 5.1% between 2020 and 2024 as the “triple lock” — which ensures the state pension rises by the highest of inflation, earnings or 2.5% — ensured relative improvements. 

Article content

The typical working household income fell by 0.7% over the same period. Labour last year withdrew the £200 “winter fuel allowance” from around 10 million households after means-testing the benefit. 

Article content