Inequality in the UK Is Now a Massive Problem

10/07/2014 17:13 BST | Updated 09/09/2014 10:59 BST

The recent news of even more house price rises in London and the South East reminds everyone again about the growing problem of inequality in the UK. There has always been a large gap between the income and wealth of those who are most and least well off in socio-economic terms, but inequality in the UK has got much greater since the 1970s and you could argue that today it is completely out of control.

For those who are statistically minded, the UK's Gini co-efficient, a measure of income distribution, which was 26 in 1979, is now 36, having steadily increased over all of the last three decades. As a comparator, Germany's Gini co-efficient is 27 and Sweden is down at 23. As inequality slowly became greater, four fifths of the total increase in incomes over the decade between 2000 and 2010 went to those with above average incomes and two fifths went to those in the richest tenth. The income of the richest tenth is now more than the income of all those on below average income combined.

The period between 1945 and 1970 saw much less inequality in the UK than ever before in its history. Some of this was due to government policies on redistribution of income and the much larger civilian role the state took on following the election of the Labour government in 1945. Much of the reduction in equality, however, stemmed from other factors, particularly the very full employment there was over this period. Another important contributor was the reasonable balance in prosperity between different regions of the country, for which the wide and fairly even dispersion of manufacturing industry over most of the country was responsible.

From the 1970s onwards, however, these vital props for keeping inequality at bay were removed. For the last four decades, unemployment - especially if those not included in the headline figures are included - has been on a remorseless upward trend. At the same time the UK has steadily deindustrialised, with fewer and fewer of the country's labour force employed in manufacturing. As late as 1980 about 28% of the UK's labour force worked in manufacturing industry. By 2011, that percentage had fallen to 8.8% and by the third quarter of 2012 it was down to 8.3%.

As well-paid blue collar jobs have disappeared with the demise of manufacturing, employment in services has become even more dominant. In 1980, 61.2% of the working population were employed in the service sector. By 2011 that proportion had risen to 81.1%. Within this sector, there were much wider disparities in remuneration than generally applied in manufacturing. In 2012, mean gross value added (GVA) was £240 a week in 'Accommodation and Food' whereas it was £802 in 'Finance and Insurance'.

At one end of the spectrum are bankers and others in the City earning sums per annum beyond the dreams of avarice for the vast majority of the population while at the other end there are huge numbers of people working unconscionably long hours on no more than the minimum wage. This is not the best way to build a society which is at ease with itself, let alone one which is providing all its citizens with the best opportunities for leading fulfilling and rewarding lives.

There is also a huge regional as well as socioeconomic dimension to inequality in the UK. During the height of the Industrial Revolution, standards of living were higher in the North of Britain than they were in the South, but this has now all changed. Figures for 2012 show a staggering difference in the annual average GVA per worker in Greater London (£37,232) compared with the poorest region, the North East, where the comparable figure was £16,091.

Average gross weekly earnings may provide a better guide to actual living standards and in the second quarter of 2012 these were £719 in London and £462 in the North East. Of course London is a much more expensive place to live than Newcastle, so the differences in living standards are not as stark as these comparisons might suggest. Even so, they are still very wide indeed and there is little doubt why these enormous gaps have opened up. It is the collapse of so much manufacturing industry in the regions combined with the dominance of financial services in London which is very largely responsible.

So what do we need to do to change this situation? How can we reverse this inequality between the rich and the poor, and the North and the South in the UK? We must take bold economic steps to realign our currency to make British goods affordable and desirable for the rest of the world. If we had a more competitive pound, manufacturing would expand, creating more jobs for reasonable rates of pay across the whole country. Pockets of government assistance for the regions, schemes and sporadic cash injections, do not work in the long term. We need a bold change in economic policy and we need it before it's too late to reverse the insidious inequality that is ruining the life chances of millions of British citizens. The present Government, and whoever wins the next General Election in 2015 needs, to be bold, brave and determined to make some radical changes in economic policy, to secure a brighter future for the UK.