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?)
When two groups under the same political system are so economically separate, at what point does normal variability become intolerable divide? The UK now has to find its own answer to that question as it finds itself the most unequal of any developed country. Simple geography splits the country across infrastructure, health, education, jobs and disposable income alike.
If you didn’t know already, the UK is an aggressively unequal place.
And we all get it, some places are poorer than others. You may live in one of those places; I grew up in one. To a certain degree, variability is inescapable across individual and geographic wealth. The question has never been ‘variability or no variability’, it’s always been how much variability is socially and politically tolerable.
… and I know what you’re thinking “don’t they all have flat screen TVs?” and correct, mostly they do (do they make them any other way?). Yet, across regions in the UK, a man can expect to watch that flat screen TV - on average - for 19 years less than a comparable man, living a 5 hour drive away because, well… he’d be dead that much earlier.
This two-step pattern is replicated throughout the Kingdom’s so-called North-South divide which has resulted in the UK becoming the most unequal country in productivity, job-creation and disposable income, the ability of families to independently feed their children (relying on free-school-meals, an awful modern euphemism), as well as education. The list goes on…
The trouble is, it’s not enough to say it - we have to see it. The graphic below visualises the divide across disposable income. Using the UKs overall average disposable income (pegged at 100%), we can measure regions against that overall average as a benchmark.
The above looks pretty bleak. I don’t know about you, but not being able to feed your kids, on top of a structural disadvantage of them getting ‘good’ grades, while having less money overall in your pocket and dying a fifth of a century earlier, within the same country… seems like something the UK needs to talk more about. It’s frankly a structural and historical embarrassment given the UK is no stranger to wealth; it’s the 5th largest economy in the world.
It’s not like this hasn’t been noticed by the UK government. Earlier this year, the Government announced it would soon release a White Paper on its ‘Levelling Up’ strategy with “bold new policy interventions to improve livelihoods and opportunities in all parts of the UK”. The plan is to reduce geographical inequalities through empowering local authorities, funnelling a ring-fenced £4.8bn to be used for a prospectus of ‘levelling up’ projects.
And while I’m sure the government are being overly optimistic about £4.8bn being anywhere near enough to ‘level up’, what I’d like to do here is show you the gap that they’re trying to close. We must start to pull the ‘United’ veil off the United Kingdom in order to put more pressure onto the UK government to rapidly correct the gross inequalities it’s fostered.
So let’s get straight to the point, what is the difference between in-your-pocket income across the UK? The Office of National Statistics (ONS) publishes figures on exactly this: Gross Disposable Household Income (GDHI). GDHI calculates the amount of money that an average individual has available to spend (or save) after any taxes are paid or benefits received.
As described in a Parliamentary briefing paper from 2018:
"[GDHI] calculates the amount of money in the economy accruing to the household sector (i.e. to people, rather than Government or businesses) in different areas, divided by the resident population to get a per head figure. This per head figure may be loosely understood as the average amount of money that individuals have to save or spend."
At a high level, GDHI breaks the inputs into disposable income into three main parts (made up of various financial streams). We can summarise as:
Disposable Income = Income + Benefits - Taxes
The easiest way to show the components of GDHI (that I couldn't find on the normally very helpful ONS website) is visually, so I've mocked this up below. This diagram shows the monthly GDHI financial data published for 2018 for the North East region, mapped in a Sankey diagram. This shows us how income flowed through — on average — per month to individuals and what contributed to their final Gross Disposable Income (see the notes at the end of this post for a simple breakdown of what each bit actually is).
GDHI is therefore useful to explore patterns over time and because the figures are standardised per head, it also allows comparisons across areas of different population sizes (going forward we’ll refer to GDHI as simply disposable income). Due to the detail we are given, we can also explore how much the UK government has corrected income inequalities through redistributive measures i.e. how much these structural issues are down to a lack of redistributive policy over time (the next post).
Worth a note that the ONS release disposable income figures over four geographical levels but we’re specifically interested in regions here (in future posts we will drill down into other geographical levels).
Let’s use the same visualisation method as above and zoom out. Below, we can see the 2018 figures for all regions giving an immediate sense of where, for instance, compensation was significantly higher than other regions (London and South East) or where individual components such as compensation is significantly less for an average individual, e.g. the North East and Northern Ireland, compared to other regions.
The Rich Gettin’ Richer and the Poor Gettin’ Poorer.
Stripping away a layer, the table and graphic below shows overall monthly gross income (pre-benefit / pre-taxed income) across each region from 1997 to 2018. Using indices, we compare each region’s position relative to the overall average within each year. This tables the map we saw previously and stretches it out across all years. Mounting scaled colours onto this, we can see pretty quickly that the relative order of gross incomes across regions have not changed in the last two decades.
The rich regions are the South East, South West, London and the East of England (highlighted in green), their gross incomes have consistently been over the UK average (or very close to it i.e. the South West). The South East and London specifically, have seen their incomes shift from 121.2% and 125.7% above the UK average in 1997, to 117.8% and 154.6% above the UK average, respectively.
The other English bundle is known colloquially as The North (North East, North West and the Midlands) has, albeit governed by the exact same political system as the South of England, consistently fallen behind.
Scotland (highlighted in light green) which devolved from the UK in 1998, can be seen to be keeping up with the UK average in contrast to the other devolved nations, Northern Ireland and Wales. Wales consistently receives the least gross income of all UK regions, taking over from Northern Ireland in the early 2000s.
Taking all these regions together the range (the maximum income gap between regions), shown on the bottom row of the above table, expanded from 46.2% in 1997 to 80.6%, a widening of 34.4% between the highest earning and lowest earning regions. The rich gettin’ richer and the poor gettin’ poorer.
This becomes much more visible in a line plot, shown below. Here we show actual monthly incomes in different regions along with each region’s individual growth since 1997, in brackets. London has enjoyed a gross monthly income growth of 132% since 1997, with the lowest growth being in Wales (70%); for perspective the respective capitals are just a 3 hour drive away from each other.
Another interesting point is London’s increase. Although this has always been apparent, coming out of the Financial Crisis in 2011, London started pulling away even more. It also coincided with the Conservative government of 2010 to present coming to power. This was a recovery spearheaded by bailouts for banks, low-interest rates for businesses and Conservative led austerity for the commons.
To go one step further, we can break down gross income into its different types. We can also explore if having London within our dataset skews the data, driving inequality through one heavy outlier.
First, a quick ONS jargon buster (yep jargon is confusing, yep it’s annoying):
- Operating Surplus — property rental income (imputed or otherwise)
- Mixed Income — self-employment income
- Compensation — wages and salary
- Property Income — asset income e.g. shares (not housing, confusingly)
Armed with this, the tables below break income into its respective types. I’ve separated out London on the right so we can answer the question of how much London skews our numbers but we’ll come back to this. Using the range — again shown at the bottom of these tables — we can see to what extent each income type is significantly different in each region.
Counter-intuitively, it is employee compensation (which is the main source of income in all regions) that has the least associated regional inequality - with and without London included. There is, no doubt, still a significant inequality associated with it as we can see.
The main income inequality when London is included (on the left) is self-employment income (mixed income). With a self-employed Londoner earning on average 150% more than a self-employed Northerner in the North East.
Whereas if we omit London (on the right) rental income (operating surplus) has the most associated inequality. Here a Southerner in the South East on average earns 88% more rental than — again — a Northerner in the North East.
Below, we plot the ranges for each income type over the entire period showing to what extent each inequality gap has been increasing over time. We can see that compensation has been relatively stable over the last two decades and that it is self-employment (mixed income) income and income from financial assets (property income) which are driving the majority of the inequality.
We could say then that we are very much still in the structural aftershock of the Financial Crisis, with those low-interest rates shunting financial assets and income (shares, bonds etc) to London and the South. And also that, for structural reasons, self-employment seems to be far more accessible for those in The South than anyone in The North.
In contrast to Scotland, Wales and Northern Ireland, which have their devolved governments with some political control over their territories, The North of England economically looks like a different country but is governed by the exact same people as the South.
The last thing we touch on is the age old “yeah but what about housing costs? It’s more expensive to live down South” and again, correct, it is.
We would intuitively expect that a driving force of increasing income would come from increasing housing costs. The question then becomes ‘has housing increased the same across the board or proportionally to the associated increases in income?’
We can see housing payments against the UK average, below. The South is a more expensive place to live than the North; what we cannot see, is the massive divergence over time, which we do with gross income (which if you recall had a 34.4% increase between 1997–2018). Instead we see a 11.6% increase in the range in regard to housing costs.
In other words, housing costs are increasing across the United Kingdom, not just for a few regions as we see with income. The effect of which is to squeeze everyone and the consequence is those who have less end up proportionally paying similar housing rates to those who have more.
So the fact that the UK finds itself as both one of the wealthiest and most unequal places, having to set a purposeful agenda to ‘level-up’. Would seem to be due to the fact that The South (specifically since the financial crisis and Conservative government - or indeed because of them) has been structurally allowed to far outstrip the rest of our economy for the last 10 years.
Levelling up seems strangely like a sort of ‘create the problem and the solution’ theatre. Conveniently, the mess should have enough political momentum and promise, just in time to hold through the next election in 2024. You have to wonder if that’s the play, or if it’s now a case of the Conservative government having to suddenly care and appease it’s newly adopted political base. In 2016 Brexit allowed the above pressure cooker to find a release valve having been voted for by the the less well-off, the unemployed, the least-educated and those who had found their financial situation consistently worsen. Sound familiar… wonder if ‘levelling-up’ will put the lid back on that.
Find the code for all graphics above at my Github, here:
https://github.com/NearAndDistant/ruk/tree/main/projects/ons_region_gdhi_1997_2018
In the next post we’ll have a detailed look at the UK’s regional transfers and what impact, if any, interventions have on our gross figures to create a more equal distribution across regions using the tax and benefits system.
