Today brings some good news from the Office for National Statistics. Average income is rising, most people were better off last year than they were the year before and are better off now than they were before the financial crisis. At the same time it looks like income inequality is falling, it is lower now than it was directly following the recession and that was less than it was before the financial crisis.

Whilst this is definitely good news it also shows that progress is very slow. Non-retired households still have lower household incomes than before the crash. The crash was almost a decade ago and the fact that average incomes are only rising to just above their former levels is hardly a reason for unconfined joy. It also does look like inequality is falling but it is slow. If inequality were to keep falling at the rate it has been since the crash we would still expect to be above the levels of inequality we had in the 1970s until after 2030.

For several reasons we don’t expect inequality to keep falling. The recent falls we’ve seen in inequality have been powered by rising levels of employment and rising earnings for those at the bottom. There is much less room for employment to keep rising and more recent data suggests that its growth has slowed. The other side to that is that scheduled cuts to the social security system will provide a substantial hit to low income households. Cuts to the Universal Credit work allowance will mean a serious decrease in incomes for working poor families and cuts to the employment and support allowance’s work related activity group will hurt low income disabled people.

A longer term worry is the freeze to much of the working age social security system. Since the early years of the last government most elements of working age social security have either not increased year on year or only increased by 1%. Up to now this hasn’t had that large an effect because inflation in that time has been at very low levels. With the fall in the pound after the referendum that now looks to be changing. Inflation looks like it may return to being a powerful force in the UK economy. If this happens and benefits do not increase to match then the poorest households will find themselves increasingly left behind, with their social security payments covering less and less each week. These cuts and freezes are behind the Institute for Fiscal Studies prediction that child poverty will rise by 50%.

If Theresa May wants to build a Shared Society where households aren’t left behind then she needs to get serious about tackling inequality. A good first step would be to reverse cuts in Universal Credit and Employment Support allowance as well as abandoning the benefits freeze at the earliest opportunity. If this doesn’t happen we could easily see the small progress we have made reversed. 

Tim Stacey, Research and Policy Manager