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UK’s income gap exposes tale of two Britains

·Reporter
·3 min read
The Resolution Foundation examines the income gap between different parts of the UK. Photo: Kristian Buus/In Pictures via Getty
The Resolution Foundation examines the income gap between different parts of the UK. Photo: Kristian Buus/In Pictures via Getty

Britain's income gap has exposed the rich and poor hotspots after researchers unveil stark economic inequalities across the country as households face the tightest cost of living squeeze since the 1970s.

New analysis from the Resolution Foundation and LSE, funded by Nuffield Foundation, found incomes in the UK’s richest area, Kensington & Chelsea, are 4.5 times higher than the poorest area, Nottingham.

The study published on Monday argues Britain is beset by "persistent economic gaps" between different parts of the UK. Addressing them "requires investment" in major cities on a scale "not currently being contemplated", it said.

"Four-fifths of the variation in incomes across local authorities is explained by the pattern in 1997, with only traditionally poor inner London areas like Hackney and Newham significantly changing their positions," the report found.

Despite this, it suggests income inequalities have not grown, however the "lack" of overall income change hides growing gaps in investment and self-employment income, driven by richer households in London and the South East.

In contrast, gaps in earnings and employment have narrowed, with the average gap between highest and lowest employment areas of the UK falling by nearly a fifth since 2000.

Experts have said reducing "geographical disparities" requires additional action to address other persistent inequalities such as age, gender and ethnicity.

"Reducing large and persistent geographical inequalities in income requires investment in making more places attractive to high skilled jobs and workers, although that won’t necessarily improve outcomes for lower skilled workers," said Alex Beer, welfare programme head at the Nuffield Foundation.

"Addressing geographical inequalities is important, but even wealthy areas of the country can still have some of the highest poverty rates."

Read more: UK real fall to 20-year low as job vacancies rise to 1.3 million

A separate study suggests the productivity gaps have also widened. Productivity of £76,000 per job in London is twice that of Powys and Torbay.

Resolution Foundation said this is due to the transition from an industrial to a services-based economy, where highly productive economic activity is more geographically concentrated, and by the failure of major cities outside of London to successfully make that transition.

This means the productivity gap between London and Manchester (30%) is much higher than that between Paris and Lyon (20%), contributing to Britain’s big productivity divides, and its weak overall performance.

Researchers say raising productivity in the UK’s major cities in the 21st century is possible and would bring "broad benefits" as 69% of the UK population live in cities or their hinterlands, compared to 56% in France and just 40% in Italy.

But this would require a focus on the drivers of growth in a service economy which have become more important in recent decades, increasing the capital stock, the graduate share, and the size of the local economy, according to the report.

Read more: Cost of living crisis: Over 10 million households struggle with paying bills

Lindsay Judge, research director at the Resolution Foundation, said: "Britain is beset by huge economic gaps between different parts of the country, and has been for many decades.

"While progress has been made in reducing employment gaps, this been offset by a surge in investment income among better-off families in London and the South East."

Henry Overman, professor of economic geography at the LSE, added: "Those looking for Britain’s productivity problems can find them in our under-performing major cities.

"Addressing this challenge will require Britain to completely turn around its poor record on investment, to take hard-headed decisions on where this investment should be prioritised, and for cities to embrace growth."

Watch: How to save money on a low income