David K.H. Begg, Gianluigi Vernasca-Economics-McGraw Hill Higher Education (2011)

CHAPTER 11 Factor markets and income distribution
Table 11.7 UK personal income distribution, 2006/07
Taxable income band (£000 per annum)
Million taxpayers
< 7.5 2.7
7.5-1 0 3.4
10-1 5 6.0
15-20 4.9
20-30 6.4
30-50 4.4
50-100 l .4
100-200 0.4
-
200+ 0.1
Source: ONS, Social Trends.
does not record what they earn. Even confining attention to people who pay income tax, pre-tax income is
unequal in the UK. Based on 29.7 million taxpayers, the top row of Table 11.7 shows that the poorest
2.7 million households had an average taxable income ofless than £7500 in 2006/07, whereas the bottom
three rows show that the richest 1.9 million households all had taxable incomes in excess of £50 000.
Why do some people earn so much while others earn so little? Chapter 10 discussed some reasons why
people earn different wages and salaries. Unskilled workers have little training and low productivity.
Workers with high levels of training and education earn much more. Some jobs, such as coal mining, pay
high compensating differentials to offset unpleasant working conditions. Pleasant, but unskilled, jobs pay
much less since many people are prepared to do them. Talented superstars in scarce supply but strong
demand earn very high economic rents.
Income inequality in the UK
Britain is becoming an ever-more segregated society, with the gap between rich and poor
reaching its highest level for 40 years, a report from the Rowntree Foundation concluded in
2007. In the past 15 years, there has been a rise in the number of households living below the poverty line,
while the wealthy have become even more wealthy. In this move to the extremes, fewer UK households are
now classed as neither rich nor poor.
The increase in inequality, especially after 1997, was due to the fact that the income of the very wealthy people
(the top 10 per cent of the richest) has increased at an annual rate of 3.1 per cent compared to the 2.3 per cent
for the UK population as a whole.
In 2007, the top 10 per cent of individuals in UK received 40 per cent of all personal income, while the
remaining 90 per cent received 60 per cent.
Although inequality has increased, the number of people living in extreme poverty has fallen. Why the
discrepancy? Because in most developed countries the poverty line is a relative concept, a certain percentage
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