Brexit plays its part in bleak outlook

The populist surge of the past year is often interpreted as a backlash against rising income inequality. In the UK, this view requires qualification. Marked disparities in pay may have been a factor in the vote for Brexit. Yet in recent years, households had been enjoying a much delayed rise in disposable income. Since the financial crisis, the wage gap between the poorest and richest has been shrinking. It is now at its lowest level in 30 years.

If researchers at the Resolution Foundation are correct, this benign trend is coming to an end. Last week, the think-tank painted a bleak outlook for UK living standards, predicting an “unprecedented” combination of very weak average income growth, falling incomes for the entire bottom half of the working age income distribution and the biggest rise in inequality since the Thatcher years.

This is partly due to the effects of Brexit. Sterling’s depreciation — worsened by higher oil prices — is already pushing up prices in the shops. The Bank of England expects inflation to remain well above its 2% target for years. Pay growth appears unlikely to keep pace with inflation and employment has risen so fast in recent years further gains seem unlikely. Rises in the minimum wage will help the poorest, but low earners are disproportionately affected by higher prices for food and fuel, which take a bigger share of their spending.

However, the rise in inequality will be in large part a direct result of government policy. George Osborne, the former chancellor, helped low earners with his “national living wage”. But he also committed the government to a freeze on working-age benefits, overgenerous guarantees on pensions and income tax cuts that mainly benefit higher earners. By pressing ahead with these inherited policies Prime Minister Theresa May is “actively choosing to increase inequality”, as the Resolution Foundation puts it. London, February 6.