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Why have inequalities increased in recent years?

Income can be defined as a flow of factor incomes, such as earnings, dividends and rent.  Alternatively, wealth is a stock of financial and real assets including savings, deposits and property.  Inequalities in the UK have risen faster than any other OECD country, where relative poverty is defined by the UK and EU governments as household income less than 60% of the median household income. 

Geographical factors

A primary reason as to why wage inequalities have increased over recent years is due to deindustrialisation which occurred in the 1970’s.  This is an important factor which caused the ‘North South divide’ today, resulting in structural unemployment on the back of a contraction within the manufacturing industry. 

Additionally, in the city of London the large bonuses and salaries within the financial sector attracts a greater proportion of workers into that industry.  As a result, this leads to the wage growth of high earners and inequalities as a result.

House Prices

Over the last decade, house prices in London have soared compared to more Northern areas.  This has a regressive effect since lowly paid earners in London pay a greater proportion of their income on housing costs, resulting in consequent wealth inequalities. 

Government measures

A further factor contributing to inequalities in the UK has been the recent cut in unemployment benefits, aiming to encourage those unemployed to enter the workforce.  This temporarily reduces the income of those unemployed since they may be occupationally immobile.

The imposed VAT rates of 20% by the government has a regressive effect for those on low incomes, contributing to the ‘cost of living’ crisis and further increasing inequalities. 

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