Chris Hamnett: Incomes grow more unequal as the South still takes the lion's share

Remember the late 1980s? The era of Harry Enfield's "Loadsamoney", champagne in every City wine bar, the privatised "fat cats" and Gordon Gekko's creed of "greed is good" in the movie Wall Street. Things have changed a bit since then. Thirty thousand jobs lost in the City in the past two years, bonuses axed and more discretion in how money is spent. But the inequalities still exist - remember the six City bankers who ran up a bill of almost £44,000 for wine at a meal at the restaurant Petrus two years ago.

Well-publicised incidents such as this are the exception. For the most part, and unlike the United States, earnings and incomes in Britain are considered a delicate subject. This is why survey researchers put income questions at the end of questionnaires and often ask people to indicate a band, rather than say how much they earn. The higher the earnings, the more secretive people become. Unlike the US, the UK census does not include an income question, fearing it may reduce response rates.

We know what many of the high earners in quoted companies make because Incomes Data Services and others comb the annual reports to produce figures. IDS found that in 2001-02 the median package for FTSE 100 chief executives was £1.6m a year, including salary, bonuses and share options; an increase of 11 per cent on the previous year. The median package for FTSE 250 chief executives was a third of this at £514,000 a year. The high earnings in the City and in many of the City law firms (with senior partners earning more than £500,000 a year) have also been well documented. But what do we know about the overall distribution of incomes?

One of the most comprehensive sources is the annual Inland Revenue report on earned income which is based on individual tax returns. Although there is no doubt some under reporting, it provides a fascinating insight into the distribution of incomes.

The latest Inland Revenue statistics provide figures based on 29.2 million individuals who earn more than the minimum amount for taxation (currently £4,385) a year. For 2000-01, the average earned income (including income for employment, self-employment and pensions but not welfare benefits) in Britain was £19,000 a year or about £365 a week. But, what is really interesting is not the average, but the distribution. The top graph shows that almost a third (32 per cent) of taxpayers in Britain earn more than £20,000 a year - the other two-thirds (69 per cent) earn less, though almost half (49 per cent) had earnings of more than £15,000.

Even more interesting is the distribution at the top and bottom ends. Ten per cent of people earn between £30,000 and £50,000 a year, 3 per cent earn between £50,000 and £100,000 a year and just under 1 per cent earn more than £100,000 a year. This may seem small, but it's still a lot of people: just more than 300,000 people, with another 960,000 earning between £50,000 and £100,000. At the other end, 13 per cent of people had total incomes of less than £7,000 a year.

Comparing the number of earners in each band, and the share of total earnings they command (top graph) the inequalities begin to show through. The top 4 per cent of individuals earning more than £50,000 take almost 22 per cent of total earnings, and the top 1 per cent takes 11 per cent. At the bottom end, the 18 per cent of individuals on less than £8,000 a year take under 6 per cent of total earned income. The total income of the top 1 per cent exceeds the bottom 30 per cent. The average earnings for each band explain why. Average incomes for the top 1 per cent were £201,000 compared with just £4,500 at the bottom.

Britain has become one of the more unequal Western countries over the course of the last 20 years, though it is still well behind the US. Income inequalities began to increase in the late 1970s and New Labour has not been successful in reducing them. Incomes of the top earners have increased faster than ever aided by the development of what Robert Frank and Philip Cook in their 1995 book termed the "winner-take-all society", whereby earnings for top performers, whether footballers, chief executives or investment bankers, have risen dramatically, allegedly to reflect their global scarcity value.

Interestingly, given the recent (and speedily quashed) suggestion that Labour should consider reintroducing a 50 per cent top rate of income tax, the share of total income taxes paid by high earners has increased significantly. In 1990 the top 1 per cent of earners paid 15 per cent of income taxes and the top 5 per cent paid 32 per cent. By 2000-01, these proportions had risen to 22 per cent and 41 per cent respectively. Conversely, the share of the bottom 50 per cent fell from 15 per cent to 11 per cent. The rich are paying a bigger slice of income taxes than 10 years ago.

Not surprisingly, given the nature of the regional economy, the concentration of high earners and earnings in London and the South-east of England, the geographical distribution of earned income is also unequal. The Government has questioned the existence of a North-South divide. But although there are pockets of high incomes in the Midlands and the North, and major concentrations of poverty in London and the South-east, the Inland Revenue data by regions show that the differences are very sharp.

The middle and bottom graphs show, respectively, the regional distributions of the proportion of the number of people and the proportion of total incomes (amount) by income band. They reveal a marked difference between London and the South-east and the other regions. In London only a quarter (24 per cent) of taxpayers earned less than £10,000 a year compared with a third in the North-east, North-west and Northern Ireland. At the other extreme, more than 6 per cent of taxpayers in London and the South-east earned more than £50,000 a year compared with between 1.8 per cent and 2.7 per cent in the northern regions. The discrepancies are equally marked where amounts are concerned. In London, those earning more than £50,000 a year took a third (34 per cent) of total income, compared with between 10 to 14 per cent in the northern regions. The conclusion is simple: there are more high incomes in London and the southern regions than in the North, and they take a much bigger share of regional incomes. The Government may deny the existence of a North-South divide but the Inland Revenue data is clear cut.

Chris Hamnett is Professor of Geography at King's College London and author of 'Unequal City: London in the Global Arena', Routledge, 2003