The report uses the latest available statistics to update research carried out for the Foundation's Inquiry into Income and Wealth four years ago. Falling unemployment and abolition of the Community Charge (Poll Tax) were among the factors that helped those with the lowest incomes to make up some of the lost ground. But reduced inequality also reflected a slow-down in the rate of earnings growth between 1992 and 1995, and tax increases affecting those on higher incomes.
In spite of these equalising factors, income inequality remained much greater than in any previous decade since the Second World War. Inequality grew faster in Britain between the mid 1980s and the early 1990s than in any western nation for which comparable data is available.
Between 1979 and 1994/95, incomes for the richest tenth of the population grew by between 60 and 68 per cent. Those of the poorest tenth showed only a 10 per cent increase before housing costs, or a fall of 8 per cent when housing costs were taken into account.
Professor John Hills of the London School of Economics, the report's author and Secretary to the JRF Inquiry, said: 'Rapid growth in income inequality after the mid-1970s was the result of a wide range of compounding factors accumulating over two decades.
'Some of these trends halted in the mid-1990s, producing a shift towards greater equality. It is not clear whether these trends will be sustained for long enough maybe more than a decade to reverse the previous, rapid growth in inequality. But the shift does show that the pressures are by no means inexorable or incapable of influence by government policy.'
Recent trends The JRF Inquiry, which reported in February 1995, found the expanding gap between high pay and low pay in the 1980s was partly linked to technological change and greater premiums placed on skills and qualifications. There was increasing polarisation between homes where more than one adult worked and those where no one had a paid job.
Tax cuts in the 1980s favoured those on higher incomes, with the result that the taxation system did not restrain rising inequality in the way that it did in other countries. A decision to link social security to the prices index, not earnings, meant that those who stayed on benefit fell behind as earnings grew.
Changes between 1992-93 and 1994-95 that brought about a limited closing of the gap included:
The study examines the range of data on income and expenditure that informed the JRF Inquiry report, including the Households Below Average Income (HBAI) statistics, published by the Department of Social Security.
Like the Inquiry, it concludes that some extremes in the available figures cannot be justified whether showing a substantial drop in incomes of the poorest tenth measured after housing costs, or a coinciding significant increase in spending when housing costs are included. But it finds that official statistics provide a fair picture: taking a balanced view of trends before and after housing costs and discounting some of the most pessimistic figures.
The report also points to research published since the Inquiry as evidence that although people who are poor in any one year are not necessarily poor the next year, the proportion who successfully manage a long-term escape from poverty is relatively small. Between 80 and 90 per cent of those found at, or near, the bottom of the income distribution in any one year are likely to be part of a persisting 'poverty problem'.
Future policy Many of the Government's areas of policy concern match the JRF Inquiry's agenda for tackling social exclusion. 'Welfare to work' measures, the Working Families Tax Credit and improved benefits for those with younger children are designed to close the inequality gap, but the effects could still be undermined by a relative decline in the incomes of those who remain on benefit.
The report concludes that a regularly published 'Poverty Report' would act as a spur to faster analysis and publication of official data. It would also make it easier for government to set realistic policy goals and monitor progress in reaching them.
Sir Peter Barclay, Chairman of the Joseph Rowntree Foundation who also chaired the Inquiry into Income and Wealth, said: 'Our report three years ago found that millions of families and individuals had not benefited from the growing prosperity of our country. We warned that failure to re-integrate the excluded minority into the mainstream of society would leave the well-to-do majority with a heavy price to pay in terms of increased public spending, wasted economic resources and social dislocation.
'This update study confirms the early signs we reported three years ago of an end to the period of rapid growth in inequality. It is, however, vital that the present Government makes positive use of the breathing space that has been created.
'The creation of the Social Exclusion Unit and other cross-departmental initiatives are signs that the Inquiry's message has been taken on board, as is the latest Budget which seeks to tackle poverty among working families head on. But it remains to be seen whether the Government will follow through with other initiatives to help other low income groups, including pensioners.'
