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Wealth inequality rises even as wage gap narrows

People working in an office

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The gap between how much people earn in London and the rest of the country has narrowed since the early 2000s, says the Institute for Fiscal Studies (IFS).

According to the think tank, the geographic inequalities in earnings and household incomes have dropped.

However, trends in the housing market have led to a jump in inequalities in wealth across the UK.

London is still pulling ahead of the rest of the country in wealth, health and education, the IFS warns.

The difference between wages in London and the UK at large has shrunk, partly because a higher minimum wage has had a bigger impact beyond the capital, the think tank says.

After accounting for inflation, average full-time earnings in London have increased just 1.5% since 2002, compared with 5.6% across the UK.

But there are still big gaps in both earnings and productivity. Mean earnings in London are 1.3 times the UK average and still 54% higher than in the North East of England.

Londoners still earn more than others, with almost a third of full-time workers there making over £50,000 a year.

Higher house prices have also made Londoners wealthier – their average financial and property wealth soared 150% in the decade to 2018, compared to just 3% for the North East of England.

The report, part of the IFS’s ongoing review of inequality, says people in London also benefit from better educational outcomes.

In 2005, 33% of young people attending state schools in inner London entered higher education. Today, 55% of young people in this area attend university.

In contrast, 37% of young people living in the South West now go to university, up from 29% in 2005.

And almost half of children receiving free school meals in inner London go on to higher education, compared to less than a fifth in several other English regions.

Housing costs in London

Although London is doing better in the many ways than the rest of the UK, it faces its own unique challenge when it comes to housing.

Rising housing costs are eating more into the incomes of households in London and surrounding regions than in other regions.

According to IFS, median household income after housing costs have been deducted has risen by 13% since the early 2000s outside the capital, compared with only 6% growth in London over the same period.

“In London and surrounding areas, the big issue seems to be housing. The high cost of housing pulls down the disposable income of households, especially poorer ones,” said David Phillips, an associate director at IFS and an author of the report.

“And the rapid growth in house prices has widened wealth inequalities not just between London and the rest of the country, but also between those on and off the housing ladder in the capital.”

‘Everything round here is minimum wage’

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Stacey Neille

Stacey Neile, in Sefton, Merseyside, has just set up a sweet shop.

She is building the business to pass on to her children, she says, because it is the only way she thinks they will escape a life on low pay.

“Everything round here is minimum wage,” she told the BBC.

A higher minimum wage has helped boost pay outside London, but to her it feels like the maximum her family might ever earn.

On Friday, IFS released research showing young people were increasingly beginning their careers on the lowest rungs of the career ladder, despite rising education levels.

Merseyside entrepreneur Dr Elliot Street co-founded healthcare firm Inovus from his bedroom in 2012.

He discovered his star product designer working as a sales assistant in a local Maplin’s electronics store.

“Now I almost expect to find them in Aldi, the car wash, who knows,” he said.

The IFS is concerned that the trends and challenges it has highlighted will further be impacted by the coronavirus crisis, although it doesn’t known yet how bad such an impact might be.

If the hospitality industry should struggle to recover, this could have a knock-on effect on areas that depend almost entirely on tourism, such as often-deprived seaside towns, it says.

And the rise in online shopping could further hit brick-and-mortar High Streets in some areas, which are already struggling to repurpose vacant retail space.

However, it also sees opportunities to address the inequalities that currently persist.

For instance, the rise of remote working due to lockdown could “reduce the pull of London and other major cities”, which means access to higher-paid jobs could increase for residents of other areas, which would help to narrow income and wealth gaps, as property prices adjust.

A Treasury spokesman said that it remains “absolutely committed to helping every part of the country return to growth, jobs and prosperity in a way that is safe” .

“This means levelling-up communities who have felt left behind and truly delivering for every region and nation of the UK,” he added.

“We recognise that every region and community will be feeling the impacts of coronavirus, and we’ve introduced unprecedented support for business and workers to protect them against the current economic crisis.”

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