In the past two weeks you may have seen new statistics showing inequality once again on the rise. You may also have seen statistics showing inequality broadly staying the same. The reason behind these two different trajectories is that they are using two different data sets.
The figures released today showing inequality staying flat are from the “Household Below Average Income” (HBAI) measure of inequality which shouldn’t be confused with the Effects of Tax and Benefit” (ETB) measure of inequality which were released last week. These are the two main measures of inequality in the UK. They both produce an estimate of the after tax gini coefficient. There are other ways of measuring inequality other than gini which we explain in our About Inequality section. Most researchers and commentators in the UK use the HBAI measure although notably George Osborne and David Cameron in recent speeches have both quoted the ETB measure of inequality.
Both the HBAI and ETB use household surveys to gather their data. The Family Resources Survey (FRS) is used by HBAI and the Living Costs and Food Survey (LCFS) is used by ETB. There are also a few key differences in methodologies. The ETB measure includes benefits in kind provided by employers like company cars which the HBAI measure does not. HBAI includes certain benefits in kind provided by government which the ETB does not like free school meals. ETB measures inequality on a household basis whereas HBAI measures inequality on an adjusted individual basis. The key reason why HBAI is used by us and others is because HBAI makes an adjustment for ‘very rich’ households using data from HMRC’s Survey of Personal Incomes. These households are not as well covered by the FRS and LCFS.
The results from these two different surveys are broadly similar over the long term but with slight differences from year to year (the chart below from the ONS gives the picture from 1977-2012). Both agree that inequality increased massively from the late seventies to 1990, and then broadly flattened out since then. The latest results released in the last two weeks have seen the measures converge again with ETB showing inequality rising and HBAI showing it staying flat. Both measures agree that the country is now far more unequal than it was 1977.