IFS - Geographical inequality in incomes has been falling, but wealth inequalities are rising

3 Aug 2020 02:57 PM

The government pledges to ‘level up’ the country and, more recently, the unequal impacts of the COVID-19 crisis have led to an increased focus on inequalities between places as well as between people.

In this context, a new report – part of the IFS Deaton Review of Inequalities and funded by the Nuffield Foundation – finds that geographical inequalities in earnings and household incomes have in fact fallen since the early 2000s.

Big gaps in productivity and earnings remain, however. Mean earnings in London are 1.3 times the UK average and 54% higher than in the North East of England. This reflects the concentration of high-paying jobs in London and neighbouring areas: almost 30% of full-time workers in London earn £50,000 a year or more, compared with 10% in the North East, for example. Earnings and incomes lag the national average in former industrial and coastal towns. 

London is also pulling ahead of the rest of the country in terms of wealth, health and educational attainment.

Other key findings from the report include:

Inequalities also show up in education, and here London looks remarkably different from the rest of the country.

How the COVID-19 crisis will affect these patterns and trends is as yet unclear. If the hospitality industry struggles to recover, tourism-focused areas, including often deprived seaside towns, could suffer. And a further shift to online shopping could particularly hit high streets in more deprived areas, which have struggled more with repurposing vacant retail space. But there could also be opportunities. Increases in the prevalence and productivity of remote working could reduce the pull of London and other major cities to high-productivity employers and workers, increasing access to high-paid jobs for residents of more peripheral areas. This could narrow gaps not only in incomes, but also in wealth, as property prices adjust.

David Phillips, an associate director at IFS and an author of the report, said:

'It’s clear from our analysis that even prior to the COVID-19 crisis, different parts of the country face different challenges – calling for different policy responses.'

'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. 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.'

'In much of the rest of the country, a bigger issue is low productivity and a paucity of high-productivity firms and high-paying jobs. That’s true even of parts of the South where commuting to London or other high-productivity places is too costly or time consuming.'

'As the government develops its policies to ‘level up’ the country, it needs to take this complexity of economic inequalities into account – and play close attention to the risks and opportunities posed by the impacts of the COVID-19 crisis.'

Mark Franks, Director of Welfare at the Nuffield Foundation, said:

'This research demonstrates that there is no simple story when it comes to geographic inequalities - patterns of income, housing costs and wealth are all different across areas. Nevertheless, such inequalities are stark both within regions and between them. The report also raises important questions about the complex link between parental income and participation in higher education, which is strikingly different in London compared to other areas of the UK.'

Catching up or falling behind? Geographical inequalities in the UK and how they have changed in recent years