The background
The claim that inequality is falling is a claim that is often trotted out by right-wing commentators, backed by selective income statistics. It happened in a comment on this blog in the last few days. Yet for millions of households, the lived reality is rising financial stress from the increasing cost of essential household supplies, soaring debts, remortgaging at punishing rates, and rents rising ahead of inflation.
The claims right-wingers make are misleading because they ignore what really matters, which is the fact that people really are falling behind and society is getting more divided as a result.
Data
Official data from the ONS reports that in the financial year ending 2024, disposable income inequality (measured by the Gini coefficient) did fall slightly from 32.9% on that index compared to 33.1% in the prior year. It appears that this is the basis for the claim that inequality is falling, but that change is, of course, statistically insignificant. Over the longer term, the trend is flat: inequality is hardly collapsing.
The House of Commons Library has also noted that incomes fell across the distribution in 2023/24, with the bottom decile suffering most, and the Institute for Fiscal Studies (IFS) has warned that median household income (before housing costs) in real terms has stagnated or fallen since 2019.
In short, the official statistics do not support the bold claim that inequality is in retreat. There are, however, other factors to consider as well.
The misinformation
Firstly, the income statistics used for these comparisons omit many major forms of income derived from wealth. Capital gains, hidden returns in trusts and companies and pension funds, rents, and asset price growth - all of which have a significant influence on the well-being of the wealthiest - are poorly captured (or not captured at all) in the standard income measures. A wealthy investor may see enormous gains that never show up in “income” as conventionally measured. Failing to include those sources of increased well-being hides part, if not most, of the true story of inequality.
Second, unequal inflation and cost burdens distort the real picture. Even if nominal incomes were equal, those with lower incomes usually face steeper inflation on energy, food, rent, transportation, phone use, and essential services than those who are wealthier. Importantly, these types of spending comprise a much higher proportion of their expenditures. The costs of essentials usually rise faster for those with lower incomes, less bargaining power and the inability to travel to find a bargain. The official “average inflation” adjustment conceals this. The IFS estimates that when you allow for household-specific inflation, income falls more steeply at the bottom than the headline data suggest.
Third, debt dynamics and financial fragility matter. The expansion of unsecured debt, arrears, and remortgaging stress are symptoms that the bottom and middle are being squeezed. Debt is not an offset to inequality but is instead a magnifier of precarity.
By relying on headline income alone, the Gini coefficient of inequality is akin to assessing health by just looking at height: it makes no sense at all.
The mounting pressures on households: evidence
There are concrete signs that households are under strain. For example:
-
Utility and energy arrears. As of June 2025, Ofgem reports that energy debts owed to suppliers stand at a record £4.4 billion, with sharply rising arrears. Earlier in the year, the default rate on direct-debit energy payments hit 2.7 %, triple the pre-Covid crisis level. More than one million households are behind on their gas or electricity bills without a repayment plan.
-
Mortgage stress is pushing people into poverty. A report by the IFS and Joseph Rowntree Foundation estimates that the surge in mortgage rates has pushed around 320,000 people into poverty, which is many more than the official counts suggest, because the latter use one average interest rate across all households.
-
Flat or falling real incomes. Between 2021–22 and 2022–23, median household income (before housing costs) fell by 0.5 % in real terms. Combined with prior years, the median is now estimated to be 1.6 % below its 2019 level.
-
Wealth concentration is escalating. Wealth inequality is far more extreme than income inequality. In the UK, the bottom 50 % of the population owns less than 5 % of wealth, while the top 10 % owns 57 %. The top 1 % alone hold 23 % according to the Joseph Rowntree Foundation. Over an eight-year span, the wealth gap reportedly grew by 50 %.
-
Debt burdens are rising in absolute and relative terms. The House of Commons Library notes that household debt as a ratio of income has been climbing again after a brief post-pandemic pause. For those without wealth buffers, even small shocks now force reliance on expensive credit or arrears.
These are not isolated issues. They are markers of an economy under structural stress, which functions well for those who already possess wealth and access to credit, and hardly at all for those who do not.
Consequences
First, the gap between income-based measurements of inequality and lived reality becomes politically corrosive. Claims that “inequality is falling” based on statistically insignificant changes in official data that ignore a great deal of economic reality, feed complacency and obstruct reform, most especially when people are seeing their finances worsening.
Second, the deepening fragility of households erodes democratic legitimacy. When more people feel economically powerless, as many do now, resentment grows, as is all too apparent.
Third, the growing leverage of debt transforms inequality into a self-reinforcing dynamic. Those who own assets absorb the resulting gains; those who borrow absorb interest costs. Wealth amplifies itself; debt compounds insecurity.
Fourth, the failure to properly tax or regulate returns on wealth becomes ever more pernicious. The wealthy use trusts, companies, offshore, and capital gains or unremunerated equity returns to inflate their wealth, none of which are well captured in standard tax or statistical regimes.
Fifth, in macroeconomic terms, demand is squeezed. When large fractions of the population struggle to service debt and pay for necessities, consumer spending inevitably falters, meaning weakened growth prospects in an already sluggish economy.
What should we do?
Five possible reforms stand out, all of which are required now. We need to:
-
Reform measurement and statistics. We must develop national accounts that accurately reflect wealth distribution, including capital gains, trust income, hidden returns, and household-specific inflation burdens. Only then can we see the whole picture of inequality and challenge the currently complacent narratives.
-
Strengthen taxation of wealth and capital. We need to address this issue in the ways described in my Taxing Wealth Report.
-
Enhanced debt relief and stronger protections for those in financial crisis. We need to:
-
establish energy-debt forgiveness schemes given the scale of the issues in this sector;
-
regulate predatory credit, including in the housing and even mortgage sectors;
-
and introduce more broadly based social tariffs for utilities.
-
In particular, the state must act as a guarantor where households face structural pressures on issues like energy or housing costs that have moved beyond their control, and through no fault of their own. It is unacceptable for the state to offer loan guarantees to luxury car maker JLR when it became stressed due to its own folly, when it will not do so for households in financial crisis, usually for reasons unrelated to any choice they have made.
-
Counteract inequality of cost burdens. This requires recognition that those on low incomes face steeper inflation on essential goods and services. This requires targeted compensation and indexing for lower-income households, including for those on benefits, minimum wages, and pensions: universally based indexing is inappropriate.
-
Deliver public investment to reduce structural burdens. That requires investment in insulation, renewable energy, public transport and regional infrastructure, all of which are measures that cut living costs and reduce vulnerability to inflation shocks.
Summary
We must challenge the complacent rhetoric that “inequality is receding” based on partial metrics. Only by rebuilding the state's capacity to measure and to act can we create an economy that delivers genuine security and well-being for all.
The reality is that we are living in an economy where inequality is growing, and that is toxic for everyone, which is why the issue needs to be addressed as a matter of social and political, as well as economic, priority.
Taking further action
If you want to write a letter to your MP on the issues raised in this blog post, there is a ChatGPT prompt to assist you in doing so, with full instructions, here.
One word of warning, though: please ensure you have the correct MP. ChatGPT can get it wrong.
Comments
When commenting, please take note of this blog's comment policy, which is available here. Contravening this policy will result in comments being deleted before or after initial publication at the editor's sole discretion and without explanation being required or offered.
Thanks for reading this post.
You can share this post on social media of your choice by clicking these icons:
There are links to this blog's glossary in the above post that explain technical terms used in it. Follow them for more explanations.
You can subscribe to this blog's daily email here.
And if you would like to support this blog you can, here:
Buy me a coffee!
Every time my union puts in a pay claim it is rejected and what is actually agreed is less than what they suggest we need. So, as they ‘negotiate’ with the LGA from April we wait until November to get the pay rise – and then you are taxed on the back pay as if you earn that amount all of the time. So the Government gets a lot of it back.
Now I know there are people doing worse than me for sure. But from where I am, even I can see that you just cannot get ahead so to speak.
Looking back, it is amazing how bad ideas stick around or endure. Two that spring to mind are fascism and Thatcherism.
Hitler’s persecution and attempted annihilation of the Jews affects us today and is one of the reasons why the obscenity that is Gaza is before our eyes.
The other is Thatcher’s lies about money and what a good economy should look like.
And no one wants to deal with it. They’d rather harp on about being ‘un-British’ or come out with crass observations about how many black versus white faces they see whilst waking down a street and other ‘cutting edge’ stuff that defines our barren politics these days.
The only answer can be is that our democracy is being paid to ignore the real problems.
My two eldest sons, 30 & 31, still live with me as they cannot afford to move out. My youngest, 25, lives with his girlfriend but cannot afford some of what I took for granted when I was his age.
I’ve thought for years that we need decent, affordable, social housing, the kind that my parents took advantage of, as do I. That kind of housing enabled families to grow and have a life. It’s been taken from my children’s generation through greed.
There’s more to it than that, but it would be a decent start.
It is essential.
Thanks for sharing.
The idiots running the country refuse to ask why the UK birthrate is in decline instead they focus on demonising immigrants who help to keep the economy functioning. The cost of living (including the big factor of housing costs) across all deciles clearly needs to be carefully researched but the rich who control the media and corrupt politicians are refusing to allow this to happen. A Royal Commission fairly appointed would make a start!
Much to agree with
I was talking to someone who was remortgaging.
The lenders ‘standard variable rate’ was eye watering.
Should there be some sort of ‘maximum’ interest rate for secured lending as there is with energy costs?
Yes, in a word
Yet despite this the cost of living which is affecting many of us to different degrees was barely mentioned in the last election. And many of the ,measures Labour cite as addressing poverty such as breakfast clubs are really child care aimed at getting women back to work. The only places I hear poverty discussed are in church and the Green Party. And there seems to be a tacet agreement amongst most people that there is no money to address poverty and inequality.
People were not rich in the 70s, but I remember a number of things that helped such as good quality social housing and rent controls. Public transport was also much cheaper. We could and should do so much more.
Much to agree with
It looks like tackling inequality is the wrong place to start. As Martin suggests we should be looking to open up opportunities for all.
I agree.
I’m 62 and my other half is 61. I have three children aged 30,28, and 22. Our eldest works for a low wage in a children’s nursery and still lives at home. Our middle one has just started a PhD (fully funded, amazingly) – he rents with his partner at £1,100 per month – about 66% of his gross income (thank goodness his partner is an earner), and our youngest has just finished her MA and has job-seeking for some weeks now. She’s back at home, too. We love our children dearly, and it isn’t a problem that two of them are still at home, but it isn’t good for them or society in the long-run.
When I was 5, in 1968, my parents qualified for a brand-new council house in Devon. I can still remember the thrill of having an indoor bathroom and central heating. Having looked at the development not so long ago, I can see that none of the 50-odd houses are still available for social rent – most see to have been bought under Thatcher’s “right to buy” scheme and a significant number are now being let privately by parasitic rentiers. Probably for about £1,000 a month, too.
It should have been possible for our son and his partner to rent an affordable property in Warwickshire whilst he studies and she works mainly from home. Instead, they are ‘forced’ to pay usurious levels of rent and have been forced to live further away from campus than they wanted involving a commute of 40 mins each way.
We need to get a grip on this problem, but I doubt we will, as Tim Watkins’ latest piece about the problem with Welsh bridges describes.
https://consciousnessofsheep.co.uk/2025/10/07/thermodynamic-drag/
The profound disconnect between “financial assets”, such as useless savings and gold at $4,000, and the everyday existence people like my children face must collapse back into a poorer physical reality soon. Perhaps we can now see why the UK birth rate has collapsed, as my adult children are hardly untypical. Everywhere I look around me in Somerset, there are dozens of empty properties being hoarded by greedy individuals or estates, and this will only get worse as the “boomers” start dying off en-masse in the next decade. I would at least quadruple the council tax!
So very much to agree with.
Thanks for sharing.
And council tax does, quite emphatically, need reform.
It’s distressing to know that all the problems inherent in a fossil fuel economy – both those like climate change, and those related to the inevitably increasing energy cost of producing more fuel – have been know for many years, and yet it’s only recently that even the most obvious of them have been publicly acknowledged.
And yet we seem to be heading in the direction of the next major economic collapse – when the AI bubble bursts – full steam ahead, very little sign of concern from anyone in power (even though just today it emerged that the Bank of England has finally realised that there might be a problem. Might?!)
How on earth can we be so stupid?
Good question. Videos over the next few days will address this.
Thanks for an excellent post.
A small aspect is that, I think, we need to address mortgages. It is mortgages that first stoke house prices, and then plunge mortgagees into financial difficulties.
It has long seemed to me that variable rate mortgages are an unfair contract because the mortgage lender can change the rate on a whim. Lenders would argue they only change when interest rates rise, but it is still an unbalanced, unfair, contract. So I suggest that the government mandate that all mortgages are fixed rate for the term, as happens in other countries.
Secondly, mortgages are also unfair in that all the risk is with the borrower. The lender can load the borrower with unsustainable debt but takes no risk. This is what happened in the US with sub-prime mortgages. So, I suggest, that borrowers should be able to hand back the keys and walk away with no debt. Put the risk with the lender not the borrower.
These are controversial proposals. They would require change in the housing market. But overall they would, I think, lead to a fairer system, probably with lower house prices, in which borrows where not exploited by lenders
The US does fixed rate whole of term mortgages.
So could we.
It does seem widely understood among ‘the general public’ that things that were affordable twenty and forty years ago are no longer affordable. Especially with young people not being able to afford to buy or rent.
As you say Richard we need radical reform of ‘official’ measures of inequality – and specifically of ‘absolute’ poverty. I think Rowntree did some work on the number of people /households that were ‘destitute’.
Nearly all income and poverty measures listed by ChatGPT seem to show a similar trend to the Gini – mushroomed under Thatcher in the 80’s and stayed broadly static since .
Even the ‘material deprivation’ measure in the FRS don’t really seem to capture the dire situation many households are now in, and as shown by your correspondents Richard.
Thanks
I recall some accidentally created “inequality” 45 years ago involving gold. A girlfriend’s father was a small-scale dairy farmer who caught the dreaded “Gold Bug” in the summer of 1979. Just that Christmas he decided to borrow rather a lot of money to buy Krugerrands. Even then, as a green 16-year old, I thought he was being reckless. If I recall correctly, he gave each of his three daughters 10 one-ounce gold coins that cost something like $500 each (my girlfriend was perplexed). By mid-January 1980, the price had risen to something like $855 – the coins were ‘worth’ something like £4,800 allowing for the approximate exchange rate. He spent many thousands of borrowed money on coins for himself.
Back then, I think that the UK base rate was somewhere around 17% (!), so he might have borrowed north of a 20% interest rate. We know what happened; by June 1982, gold had fallen back to something like $300 per ounce. And then the loan had to be paid back. By then I’d moved on in life, but I know a tractor and some cows were unexpectedly sold, so this greedy man became an even smaller-scale dairy farmer.
History does not repeat, but it can rhyme.
Wait for it to happen gain. There are a lot of fools buying gold now.
I agree with Mark Meldon’s post. I live in Somerset, in Glastonbury. We have council elections at the moment. I had a flyer yesterday from the Tory candidate, whose leaflet focussed solely on getting rid of the caravans around the town. He is oblivious to the fact that those people have nowhere else to live that is remotely within their financial means, and never will be, if we continue down the road the current Labour government are on. I know many of them, they are part of my community. Their circumstances follow a pattern- redundancy, divorce, no fault evictions. Most just want to earn enough to eat, frankly, and take whatever casual/ seasonal work they can. I’ve employed several van dwellers- carpenters, painters, gardeners. We have our drug/drink casualties, as does everywhere, but the addiction services and support here closed down long ago. The amount of hoarded and empty property in Somerset is huge. We are famously a very inclusive and generous town, it is why I live here- most of us don’t demonise folk for being poor and there are a lot in my community who provide free food and emotional support without judgment. But of course, generosity of spirit is not really a Labour thing now, is it? Our van dwellers refuse to accept that they are worthless. I admire their resilience. But winter is coming. Clare H.
Thank you, in many ways, for the sentiments epcressed.
I can see Glastonbury Tor from my home, Clare. My office is in Cheddar, seemingly quite well-off on the surface. Scratch a bit, however, and you can see a busy food bank, and people struggling with their food shopping costs in Sainsbury’s in the village. I’m involved with a local charity that helps those <25 with educational, vocational, sporting, and employment costs. The young people who apply for grants are, more and more, from the struggling "middle-class" households with over-extended parents speaking financially and emotionally.
I live in hope, though. Not very long ago, I was in a supermarket in Wells, and witnessed a lovely thing. A young mum with three well-behaved kids in tow was checking the affordability of buying a chicken to cook. Looking at her bank balance on her 'phone I think. An elderly couple next to me noticed too, and struck up a conversation with her. Despite her embarrassment, she clearly could not afford the food that she and her children would have liked. To cut a long story short, the elderly couple said "we have more than enough and, although its not your fault, you don't – we think that's wrong." So they bought her the chicken (upgraded to organic free-range, too), potatoes, greens, carrots, stuffing, oil, frozen peas, gravy, dessert, etc – a splendid meal for a family of five, in fact. And they gave her £20 "for the electric", despite her protestations.
When I left, she was in tears talking to her partner on her 'phone – tears of relief and joy.
I do believe that most of us, given the chance to express it, are good people, like the couple in Wells.
I sometimes see pople struggling to pay for coffees. They rummage for coins. I never doubt they are living in hope of finding another £1. I usually ask if I can tap the machine. If they protest I just say do it for someone else sometime.
I wish more places gave the chance to ‘buy forward’. When you can afford to be generous, pay for someone else yet to come in. The barrsita can then decide who to favour. As a group, I like them and think they’d be honest about this. It just gives them the chance to say ‘This one’s on the house’ when they think it’s needed.
That’s lovely, Mark, also that her dignity wasn’t compromised. Glastonbury isn’t paradise, but we make sure no one is patronised. Dignity is crucial for survival. I was homeless for two years at 17 and have never forgotten the absolute helplessness and terror of having nowhere to turn. I was taken in by Travellers at one point, so find the hatred of them hard to understand. Good, ordinary people are under the political radar everywhere, and I owe my life to kind strangers- that’s not a figure of speech. I’m 69 now and would not have survived back then without basic, ordinary kindness. Dare I use the word “moral”? Does Labour dare to use that word? For me, this Groundhog Day financial crisis is not just an ongoing financial disaster. It hollows out our humanity. So for me, it is also a moral crisis. I can see the Tor from my house, too! Best wishes, Clare.
Thank you.