The Divided Kingdom: The Poorest Pay More
The lottery of birth and the failure of help in modern Britain
As much as political and economic divisions within race or gender do not ‘just happen’, nor do geographical ones. Their occurrence is a sign that something has gone wrong at a structural level, either through design or pure negligence.
One task of modern representative democratic government is to make sure that exactly this does not occur; to enact policies that fend off the gross inequalities of the past and to make sure that there is political and economic equality for all. That we all have the same rights and opportunities. Within this remit, it is safe to say that the UK government has decidedly failed (or just given up).
The UK is the most unequal county in the developed world and in contrast to other developed countries, doesn’t just have ‘poor bits’ but an entire poor half. As the UK’s former PM, Theresa May, declared “if you’re born poor [in the UK], you will die on average nine years earlier than others”. That’s on average. The range of life expectancy between rich and poor geographies in England is 19 years (between Blackpool in the North and Richmond Upon Thames in the South).
In other words, the UK is not only the most unequal place in the developed world but it is geographically defined by its spacial inequality.
The direct impact of the UK government’s failure to prevent structural divides is that just by the lottery of where they’re born, an individual could find themselves living a relatively more miserable and shorter life, compared to if they were born 300 miles South, within the same country.
This didn’t happen overnight. The slow burn of the UK’s acceptance of gross spacial inequality has continually occurred since the 1990s, when the UK was the most regionally equal country in Europe. We have previously spoken about market inequality across the UK (before any tax or welfare corrections) and the growing gap in salaries, rental income and in particular self-employment income.
The Divided Kingdom: the UKs North-South divide is the most unequal in the developed world
(… or how far does the UK need to level up?)
The market in modern economies creates inequalities for which corrections need to be made. We all buy into the assumption that markets should be allowed to create deficiencies due to the advantages of productivity we gain from this, yet we must correct for those deficiencies post-hoc; this is normally accomplished through redistribution. The bigger the gap, the bigger the correction.
What efforts then, through the UK redistributive tax and welfare system, does the UK make to try and correct this situation? What do they do to make sure that in such a wealthy country, citizens of the UK all have — at minimum — the ability to feed and house themselves and their families, live broadly similar quality and years of life and dampen the lottery of birth.
We will see that the system the UK has to correct market inequalities is either not fit for purpose, nor is it trying to correct the deficiencies anymore. At worst, we find regressive taxes where higher relative taxes are paid by the poorest places. At best, the UK’s system reimburses taxes in a mangle of cash flows to the poorest, making them no better or worse off financially than the original market inequalities it tried to fix.
“…countries have poor bits. Britain has a poor half”
Let’s start with where the UK’s poor are. The threshold that normally defines poverty is those living on less than or equal to 60% of median income. ONS provides this data for the UK’s sub-regions, which allows us to graphically show where the UK’s poor are concentrated and live, respectively. The last full series for these figures was in 2018, so we’ll use that year here for consistency.
Current official estimates suggest that on the whole, around 14% of the UK population (after housing costs) live in poverty. That includes 25% of the child population. That’s millions (and millions) of people deprived in one of the world’s wealthiest countries.
When we map that 14% geographically, we can starkly see what’s colloquially known as the ‘North-South divide’ in England and what The Economist called “the poor half” but what could just as easily be called the UK’s ‘squashed middle’. This is shown in “2018 Poverty Rates per NUTS2 Area” (below).
The squashed middle is geographically concentrated poor in the North, the Midlands, Wales and Northern Ireland of the UK. In these areas some sub-regions have nearly a third of their population living in poverty.
We can also see this divide in disposable income (“2018 Regional Differences”, below). The North East receives 20% below the UK’s average disposable income per head, while London receives nearly 40% above the average.
The normal challenge raised to such geographic disparities (at least in the UK) is “well, housing costs and prices are different outside London and the South so people are paid lower in those places” and they’re right, they are. However, the inequality shown here (as noted) is after housing costs are incurred - what we’re seeing can’t be explained by the need to pay higher rents or mortgages.
In addition, this challenge does not explain why the poorest regions also have the highest rates of poverty. If prices are different in different places and they’re associated with income in those places, then we would expect to see a uniform poverty level across sub/regions (all else being equal) as prices flex to income differentials. Instead what we see is there are specific regions of the UK where people consistently face double the poverty, higher child poverty rates and far lower disposable incomes regardless of prices or welfare in that region.
Given the massive emphasis on welfare in the UK where “Stories about the abuse of benefits made up 19 per cent of the British stories about poor people” and the continued moral panic about it across the British media, we would be forgiven in thinking that welfare was going to the right places (those in poverty) but misused by those who ‘just want a handout’.
But what if welfare was going to the wrong places? And what if when it does go to the right places, it doesn’t actually make much difference…
Death, Welfare and Taxes
Let’s be clear, those that live in London and the South who earn more, pay more money into the public pot. That should not surprise us - the sheer sums of market income the South receives inevitably dictate through our progressive income tax system, that as they earn more, they pay more.
The more important question concerns putting these absolute payments in context to their respective market salaries, to understand if this absolute amount is a relatively fair share or even a relatively large amount. To do this we need to split out the taxes on different types of income (which have different tax rates) and then aggregate against all income recieved.
A simple way to demonstrate this is this Tweet and takedown of Elon Musk claiming he will pay “$11 billion in taxes this year”. We hear a similar argument in the UK from the wealthiest individuals and regions and we must ask the same question to those who lament that they ‘foot the public bill’ — what is your payment relative to your income? Even for our pseudo-Randian Ubermensch Elon, a small percentage of a large number can still be a Tweet-worthy large absolute number. In comparison a large percentage of a small number could be relatively crippling to those who bear it, even though it’s a small absolute amount.
The narrative is always the same; the rich always complain about how much in absolute terms they pay into the public pot. That’s illuminating. If the rich complained about how much cash they were left with, their moral indignation would be met with laughter.
One way to show the absolute result of our redistributive system regionally is to visualise the household per head net position of taxes and welfare, i.e. the amount that each person in each county or local authority pay in taxes, netted against what they receive in welfare. This tells us if each sub-region per head is on average in surplus (receive more welfare than are taxed) or deficit (pay more tax than they receive in welfare). This is shown in “Absolute Net Transfers Per Head” below.
We can see that there are only 16 counties or local authorities that have a surplus position. A number of these are coastal areas (East and West of South England) and as seen in the “2018 Poverty Rates per NUTS2 Areas” graphic above, here we do not find significant poverty — this could easily be explained by pensioners choosing to live in these areas.
On average, most region’s individuals pay between £1 to £2,500 per head, each year, into the public pot. London and Greater London predominantly pay double that amount. Only one place pays a magnitude higher on average per person, which is London’s Borough of Kensington and Chelsea, paying £20,000 each per year.
Some of the poorest geographies are, as we would expect, in surplus position i.e. offered more than they give, for example, parts of Wales and the North West which have nearly a third of their respective populations living in dire poverty. These regions and their populations need market rates corrected in order to live within their respective counties which (when the market fails to provide this as it often does) is meant to be done through the welfare state. However looking at the picture above, it’s not as the tabloids make it seem i.e. that welfare is predominantly funded by and funnelled from rich regions towards poorer ones. It’s not exactly “London funding everyone else” — far from it.
What we definitely don’t see is the mirror image of “2018 Regional Differences”, where regions with higher disposable incomes pay more into the public pot. On average, everyone seems to pay roughly equal amounts in absolute terms and this gradually increases into the Centre of London instead of across the wider South.
It’s All Relative
As we’ve discussed, it’s not enough to show absolutes and call that fair. If someone on minimum wage and Richard Branson both paid the same absolute amount (or even if Branson paid double), most people would think it a stretch to say this was a fair system. We expect those who earn more to also pay more and it stands that those regions that earn more also pay more. However for the most part, this does not seem to be happening on a per head basis.
To explore the relative taxes and welfare that each region pays and receives on average, we break down geographic taxes and welfare individually (show below) in a little more detail before bringing them together as above but in relative terms.
The first thing to point out is that every part of the UK receives benefits of some kind (shown in the “welfare benefits” map above). We should expect this. Statutory maternity pay, disability allowances, incapacity benefits and pensions will occur in all walks of life (there is one strange case of Child Benefits of which all decile groups receive in equal absolute amounts — but that’s for another time). This flies in the face of those of the neoliberal tendency who push the message that benefits or welfare dependence is a moral vice, that each should be an island. Instead, everyone is receiving help.
Most counties receive between 10–40% per-head in benefits. There are only 4 counties and local authorities that per head, received less than 10% of their gross average income in benefits. They are:
- Kensington & Chelsea (6.1%)
- Westminster (7.4%)
- City of London (7.7%)
- Wandsworth (8.1%)
Notice that the benefits map is again not reflective of vulnerability, as seen in the first two poverty and disposable income maps, but much more like the absolute transfer, i.e. that those who in absolute terms pay more, receive less relative welfare. Probably a reflection of the large denominator of income.
The “Taxes” map shows who relatively pays. This provides an unintuitive view; it neither follows the absolute payments in relative terms (which would indicate that the absolute amount is a large portion) nor is the opposite of the welfare map (meaning that those that receive relatively little also pay a relatively large amount into the public pot). In fact, as a percentage of their total market income, taxes look heavily skewed towards the very regions that crop up as suffering the most poverty, a lack of disposable income and who also are in receipt of the highest relative welfare.
There is another simple way to explore this. The maps below show the UK’s top 30 sub-regions receiving the highest relative welfare benefits per head (right) and the 30 sub-regions with the highest relative taxes (left).
By and large, there is evidence here that our welfare system is funnelling towards some of the poorest regions. Notably though, there are no sub-regions from the Midlands and only two from Northern Ireland even though they make up a significant portion of the most deprived parts of the UK.
What is key to point out here is that within both the top 30 sub-regions for relative amounts of benefits and taxes, we find significant cross-over - indeed 1/3 of the ‘top 30’ lists are exactly the same. The following are both relatively significant payers of taxes and receivers of welfare per head:
- East Ayrshire and North Ayrshire mainland
- Central Valleys
- Gwent Valleys
- Bridgend and Neath Port Talbot
- Isle of Anglesey
- Blackburn with Darwen
- South Teesside
- South West Wales
This is a weird finding. We would not expect on the basis of welfare redistributing financial income from the least vulnerable to the most, that the same cities (for instance) showed up in both the highest payers and highest receivers; unless of course, their regional inequality was so significant that there was only a handful of very rich people.
Bring it all together
At this point, we’ve shown where the poor are and described the structural geography which British politics has created. We’ve also shown that far from welfare going to the places which have the highest poverty rates, we actually see some of the highest relative tax rates and a non-uniform welfare support. What’s the impact of this?
One way to begin answering this is to peg each region’s gross income at 100% and show the total taxes, as well as the benefits as percentages of that figure. The graphic below shows this and the picture starts to become a bit clearer.
What this highlights is that because of the absolute difference in starting positions, when we layer over what we have seen above (the relatively high taxes and high welfare payments to the poor regions), welfare becomes a simple return of those poor regions’ taxes to them, rather than any regional redistribution to them to fend off deprivation.
This is showcased above, between London’s and the North East’s gross income before any redistributive efforts, at £37,050 and £17,818 respectively. When taxes, social contributions and other transfers were combined, an individual in the North East was taxed around 40% on average, whereas a Londoner was taxed on 35% of their income in 2018. Exactly the opposite of what we would expect to happen.
Welfare payments received by the region top this figure up to bring the North East back to 97% of their gross income in absolute terms, whereas London only gets back up to just over 75%. This explains why we don’t see much shift in the net income of the poorest regions because although they do, in fact, receive higher benefits, those benefits are paid onto a lower relative floor which is produced by higher relative taxes from a lower overall starting position.
This doesn’t necessarily need to be a bad thing but it relies on the market rates being enough to live on in that particular area, which in most cases they’re not. It also relies on a mangle of cash-flows out and then into people’s pockets post pay-day giving the most vulnerable less control to plan.
The table below, produced from the same data, makes this even clearer (if you needed more convincing). Here, we breakdown each type of tax regionally per head as absolute amounts and a relative percentage of the gross income in 2018 showing us where the higher taxes stem from.
What this made apparent when we do this is that it is Social Contributions (such as National Insurance), are regressively weighted the poor regions at a tax level.
Social contributions such as National Insurance regress from 12% to 2% when employment income hits the Upper Earning Limit. This means that with each extra pound earned, the wealthier pay relatively less of their overall income in taxes while the least wealthy are mostly stuck paying the higher relative rate. There are historic reasons for this but mostly they are defunct now.
This system isn’t working.
Our poorest regions have less income to start with and then get taxed more overall per head as we decrease the burden on higher income earners. On top of that they then get gawked at for receiving benefits which allows them to just get by. In other words, those benefits ‘scavengers’ are created by a system that doesn’t consider regional differences in starting incomes (the 0% Personal Allowance is £12,570 everywhere, for instance) and relatively takes more from the poorest and at some absolute value affords the richest a huge tax break.
This situation has become worse over the last two decades. For example, the North East on average received £1,509 per month in 2018. Once adjusted for taxes and rent paid, as well as benefits received, their monthly disposable income came to £1,416. In comparison London went from £3,133 per month gross to £2,447 (after taxes, benefits and rents) i.e. the rich never complain about what they’re left with.
This amounts to a Londoner receiving 100% more in gross income and, even after paying taxes and rent, having 75% more to play around with in actual purchasing power than someone in the North East.
A 75% difference in in-your-pocket income is vast for what amounts to a 300 mile car journey within the same country. As stated above by a former Prime Minister, miles translate into years and quality of life in the UK in pure geospatial inequality.
It’s time we call out geographic inequalities in the UK as what they are: structural and deliberate. The system is set up to reward the rich for being rich, allowing them to keep more the more they earn all the while getting more indignant about how much they will pay (not be left with).
The answer is that the UK cannot have its cake and eat it. We cannot have a system in which there are large regional differences in wealth, financial income and opportunity and then decide to tax everybody the same. This blanket regional approach results in those who start lower, being taxed relatively higher and forced into poverty only to then sneered at on national TV programmes and told to have better financial management.
The UK’s ‘great nation’ rhetoric is applicable to a smaller and smaller group. It’s time we all realise that that small group is not dotted amongst us but in a very specific place.