The latest Institute for Fiscal Studies briefing note, Racing away? Income inequality and the evolution of high incomes, focuses on the 'super-rich'. Authors Mike Brewer, Luke Sibieta and Liam Wren-Lewis define this group of 'high income individuals' as the richest 1 in every 1,000 taxpayers (i.e. the top 0.1%) The super-rich earn £350,000 or more in taxable income a year. Nine in every ten are men, and most are lawyers, City bankers and the like. The accompanying IFS press release states:
The outlook for inequality in Britain may depend more on the outlook for the stock market than on Government tax and benefit policies, a study by IFS researchers suggests today. Even though the current Government has increased taxes on people with high incomes, this has not prevented them from them racing further away from the average level of living standards across the country. In recent years, it is only in the wake of extended falls in the stock market that the incomes of the richest have fallen.
The FT's Chris Giles comments on the role played by market forces in his piece, Very rich get richer under Labour:
Highlighting a sea-change from the early post-war years when wealth often derived from land or other inherited assets, Mr Sibieta said the 21st century super-rich received 80 per cent of their incomes from an occupation - whether salaried or self-employment - rather than investments. "We are talking about the working rich rather than the idle rich," said Mr Sibieta.
But the past decade has seen rich people's income sputter as well as soar. With so many working in finance, there is a strong link between their fortunes and those of the stock market. Real incomes of top-earners grew 6.6 per cent a year on average between 1996-97 and 2001-02.
Yet in the following two years, when the stock market reached its low point, they fell on average by 2.7 per cent, before picking up again alongside equities in 2004-05. That tight correlation leads the IFS to predict that, with the rapid growth of financial markets since 2004-05, the incomes of the richest will have risen quickly in the past two years.
The data show the impact of Labour's generous funding of the public services this decade. The one group outside finance, the law or property to be well represented in the top 1 per cent of incomes works in the health sector. These were "presumably doctors and senior health service managers who have enjoyed relatively big pay increases under Labour", added Mr Sibieta.
The 'super-rich' earn 31 times average incomes: around £780,000 pre-tax income a year, of which they pay on average almost £275,000 in income tax: a tax rate of 35.3%. This is double the rate paid by the average UK taxpayer, who earns around £25,000 and pays £4,400 in tax: a rate of 17.6%.
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