Chris Giles, the Economic editor of the Financial Times, has made an interesting observation.
‘Britain’s local authorities with Scandinavian low levels of inequality voted Leave, those with extreme high Mexican levels of inequality voted remain.’
He then asks whether, given the correlation between total income and the strength of the leave vote in that area, this means ‘income levels, not distribution, matters for happiness in Britain.’
I think he is onto something here.
Recent history suggests that overall income determines people’s satisfaction with the economy, not levels of inequality.
Income inequality, as measured by the Gini coefficient, increased considerably under Margaret Thatcher. However, since John Major took office, the Gini coefficient has remained broadly stable. When you omit the top 1 per cent, whose share of income accelerated from 3.4 per cent to 8.7 per cent between 1980 and 2010, the picture since the early 1990s is even more positive, with income inequality falling across most of the population.
Following the Financial Crisis, this egalitarian trend extended to the top 1 per cent, with those on the highest incomes experiencing the greatest loss in earnings. Over the past decade, the Gini coefficient has fallen, reaching its lowest level since the mid-1980s.
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But Britain still has relatively high levels of inequality relative to elsewhere in Europe and compared to the pre-Thatcher period. The changes which have occurred in recent decades have by no means reversed the dramatic increases in inequality which occurred in the 1980s, and income inequality in the UK remains above the OECD average. This is of course, cause for concern.
But if income distribution is an important determinant of how the electorate feel about the economy more broadly, it would have been reasonable to expect an electoral backlash long before 2016, perhaps in the early 1990s. Rather, the Labour Party shifted to the right, accepted the fundamental tenets of Thatcherite economic policy and were swept to power in 1997 on a mandate to keep taxes and spending low.
It appears that inequality is not as an important determinant of economic wellbeing as we may have believed. Research available from Our World in Data, which looks at average life satisfaction scores, shows that happiness inequality has fallen in countries which have experienced sustained economic growth, such as the UK and the USA, even as income inequality has grown. This challenges the argument in Pickett and Wilkinson’s influential book The Spirit Level, which asserted that levels of inequality determine outcomes in health and happiness, regardless of national income.
So, if we are to take the argument that a huge portion of the Brexit vote was down to economic disillusionment, income inequality does not account for that.
As Robert Peston has highlighted in his most recent book, had the pre-crash trend in income growth continued, ‘it would have been reasonable to expect us to be between 10% and 20% richer today than we are’. After an unprecedented period of rising prosperity, the UK was hit by an equally unprecedented economic crisis, which has left everyone significantly poorer.
The narrative that Britain voted for Brexit because of a long-term disillusionment with the economic changes ushered in by the Thatcher governments has provided much-needed comfort for those left reeling from the referendum result. The logic runs: Brexit was the inevitable consequence of the endemic inequality which has developed since Thatcher’s electoral triumph in 1979. However, if we are to argue that economic disenfranchisement lay behind the vote to leave, it is because we are all poorer following 2008, not because we are more unequal.
It is this flat lining of living standards over the past decade, rather than inequality, which accounts for the economic aspect of the recent backlash. Get the economy growing again and we’ll all be happier. Literally.