Defining income and its unequal distribution

Income refers to the flow of money received by an individual or household over a specific period, such as wages, salaries, or benefits. In Britain, this distribution is far from equal, with significant gaps between different social groups.

Key trends in income inequality

Historical and international comparisons

• Between 1979 and 1997, the gap in income between the wealthiest and poorest groups expanded dramatically, reaching levels not seen since the late 19th century.
• According to a 2015 report by the Organisation for Economic Co-operation and Development (OECD) - an international body comprising 34 member countries - the UK ranks as the fifth most unequal nation in terms of how income is spread.
• On average, the net income of the richest 10 per cent of the population is over nine times that of the poorest 10 per cent.
• The share of total UK income held by the top 1 per cent rose from 6.7 per cent in 1981 to 12.9 per cent by 2011.

Disparities in executive pay and taxation

Executive pay inequalities

A 2015 report by the High Pay Commission examined earnings among top executives. In 2014, FTSE 100 CEOs earned an average of around £4.8 million, which was 175 times the average full-time employee's pay of around £28,000.

The role of taxation in income distribution

Governments use taxes to redistribute resources, taking more from higher earners and providing benefits to lower-income groups. However, the system can still disadvantage the poor.

How taxation affects different income groups:

• Wealthier individuals pay more in absolute taxes, but lower-income groups often bear a higher proportional burden.
• Indirect taxes, such as Value Added Tax (VAT), or duties on alcohol, tobacco, and fuel, consume a larger share of a poorer person's income.

Sources of data on income and their limitations

Official statistics provide the primary means of tracking income patterns, drawn from government surveys and records.

Main sources of income data

• Family Resources Survey (FRS) - An annual government survey that gathers details on household living conditions, income, and resources across the UK.
• Annual Survey of Hours and Earnings (ASHE) - Provides data on wages, working hours, and occupations, based on a 1 per cent sample from HM Revenue and Customs' tax records.
• British Household Panel Survey - A longitudinal study tracking the same sample of households since 1991, allowing analysis of income changes over time.
• Tax returns - Submissions to HM Revenue and Customs that record declared income, though often incomplete.

Limitations of income data

• Under-reporting - Respondents in surveys may downplay their income to avoid potential tax implications, leading to inaccurate data.
• Tax avoidance strategies - Wealthier individuals often use accountants to shift funds internationally, minimising reported income and taxable amounts.
• Honesty issues - Longitudinal surveys depend on truthful responses, but fears of authority involvement can skew results.

Sociological perspectives on income inequality

Different sociological theories offer contrasting views on why income is unequally distributed and whether this serves society positively or negatively.

Functionalist and New Right views

Functionalists, along with New Right thinkers, see unequal income as beneficial for society, arguing that it encourages hard work and innovation.

Marxist perspective

Marxists take a critical stance, viewing income inequality as a product of capitalist exploitation. They contend that the wealthy elite maintain unequal distribution to preserve their power and benefits.