The personal income and wealth levels in the United Kingdom - Essay Example

? Personal Income and Wealth and number} {teacher’s The issue of personal incomes and wealth have gained centre focus especially in the aftermath of the global economic crisis that highlighted unethical practices in use by top business executives. It has been suggested over time that personal income and wealth levels have become skewed to favour those at the top. Consequently, wealth levels have increased in significant amounts for people who were already at the top tiers of personal income and wealth. This report will try to explore these claims in light of statistical data so that these claims can be substantiated with a solid background. Table of Contents 1. Abstract 2 2. Introduction 4 3. Data Collection Methodology 5 4. Data Presentation 5 5. Conclusion 11 6. Recommendation 12 7. References 13 8. Appendices 14 2. Introduction Monitoring personal income and wealth levels is necessary around the world in order to classify the income disparity between the top and bottom earners in society. This also helps to define the local poverty indices as it provides the amount of people living below the poverty line. The wealth of a country can also be defined using a detailed measure of personal incomes and wealth because such a measure is better than using the gross domestic product (GDP) per capita which is seen as rough measure only. A number of different methods are usually utilised in order to describe personal income and wealth including: Individual incomes before tax; Income distribution as per age classifications; Income distribution as per regions; Income distribution as per job types; Post tax household income; Wealth levels; Sources of income. A number of other measures may also be specified such as the disposable income depending on the statistical availability of such data. However, such measures are generally more supported in the North American domain which is unlike current practice in the European domain. Given that this report will be concerned with personal income and wealth levels in the United Kingdom, so data extraction and statistical classification will be limited to its geographic domains. By presenting the statistical objects of personal income and wealth related above, this report will try to classify the level of poverty and income disparity in the United Kingdom. 3. Data Collection Methodology A number of different sources offer information relating to personal income and wealth levels but most of these sources are unreliable. In the United Kingdom, the real sources to extract such information are the Office for National Statistics (ONS) and Her Majesty’s Revenue and Customs (HRMC). These sources derive information from tax collection levels as well as other estimates and measurements which tend to lend them an air of credibility that is unchallengeable. For the purposes of this report the information that has been collected, analysed and displayed has been derived solely from ONS and HRMC. This information is freely available online on the official portals of both official websites. Furthermore, this information is presented in these domains with appropriate noise removal and smoothing which tends to enhance the quality of data being employed. Information relating to personal income and wealth is extensive making it hard to classify and manipulate so data extraction has been limited to the post 1990 period alone. The global economic crisis lies in the wake of the early twenty first century ensuring that the information extracted is relevant and appropriate. 4. Data Presentation When the United Kingdom is compared to other nations, it becomes clear that the United Kingdom is a wealthy country. Within the United Kingdom there are no people who live on less than four pounds a day worth of income. The global poverty line was used at $1 per day (Sachs, 2005) which was revised in 2008 by the World Bank which raised its level to $1.25 per day (Ravallion et al., 2009). When these figures are compared to each other it becomes apparent that people in the United Kingdom on the lowest income tier have at least four to six times more income than people on the lowest tier around the globe. This fact is also helped out by massive income redistribution which tends to promote income equality across various strata. For example, for the fiscal year 2008-09, the income levels of the top and bottom fifth of all households in the United Kingdom were 73,800 pounds and 5,000 pounds respectively without the inclusion of any taxes or benefits. When taxes and benefits were applied to these incomes, the income disparity reduced with new income levels at 53,600 pounds and 13,900 pounds (Office for National Statistics, 2010). These issues and other are explored in detail through the data presented below. The graph below shows the income levels as per percentiles between the years 1992-93 and 2009-10. The data presented was updated in February 2012 making it up to date and relevant. The most noticeable thing in the graph below is the progression of the percentiles with the 99th percentile showing the greatest increase. All other percentiles have registered near equal growth especially the 1st, 5th, 10th and 50th percentiles. This indicates that the income levels of the lowest percentiles have seen the greatest increase which in itself is a measure to decrease income disparity. The most noticeable growth comes after 2004-05 for the entire period. Figure 1 - Personal Income Levels before Tax between 1992-93 and 2009-10 Figure 2 - Personal Income Levels after Tax between 1992-93 and 2009-10 The second graph depicts the personal income levels after tax. When compared to the first graph it becomes apparent that the 1st percentile has grown the least followed by the 5th percentile, the 10th percentile and the 50th percentile. The growth of the 99th percentile that was highly rapid in the first graph is also seen as more gradual in the second graph. This indicates that the disparity levels have remained near stable throughout these two decades. Figure 3 - Income Levels as per Age Band Age Band No. of Taxpayers Under 20 321 20-24 2,090 25-29 2,970 30-34 2,900 35-39 3,030 40-44 3,360 45-49 3,410 50-54 2,920 55-59 2,490 60-64 2,550 65-69 1,580 70-74 1,210 75 and over 1,740 Table 1 - Number of Taxpayers as per the Age Band for 2009-10 The graph above displays the income levels of people according to their age range for the fiscal year 2009-10. The median income levels before tax and the median tax can be seen as stable and following each other closely. However, the mean tax level and the mean income before tax levels are separated from each other especially between the age ranges of 25 and 70. This indicates that the median income and tax are closely related while the mean tax and income are not well linked up due to distortion in the age band. Overall this graph also indicates that the income distribution is more skewed in favour of people in the active working range because they have greater needs to deal with. The Gini coefficient has been related in Figure 4 (shown below) as percentage points between the years 1980 and 2009-10. The graph clearly depicts that the greatest change in income levels occurred in the late eighties following which the income levels for all households gained a gradual growth and reduction rate. This enabled the overall income levels to remain stable. The graph below also includes the effects of benefits and taxation which can be seen as having a positive impact on the equalised original income levels. Figure 4 - Gini coefficients for all households between 1980 and 2009-10 Figure 5 - House prices in the United Kingdom between 1953 and 2009 Table 2 - Ownership of main residence for 2006-08 and 2008-10 A large indicator of personal wealth is house ownership and the resulting house prices. The graph shown above depicts the house prices throughout the United Kingdom between 1953 and 2009. The prices can be seen as relatively stable till the early eighties when the prices rose significantly. The nineties and the ensuing half a decade saw gradual growth. However, this was changed altogether due to the property bubble that claimed rapid growth and subsequent deceleration leading to massive increases in wealth followed by massive decreases. Figure 6 - Distribution of household gross physical wealth as per household for 2006-08 and 2008-10 Another stable measure for wealth is the gross physical wealth of households which has been compared for two periods being 2006-08 and 2008-10. The distribution of wealth can be seen as increasing between 2006-08 and 2008-10 at a gradual scale expect for a couple with no dependent children and single households. However, these decreases are minor and not significant enough to impact the overall trend which depicts stable wealth levels with near equal growth for all household types over these periods. 5. Conclusion The data presented above clearly shows that the personal income levels have remained stable in the United Kingdom over a range of criteria including the personal income levels before and after tax. Moreover, the income levels according to age bands are relatively stable with some variation in the mean tax and income levels which may be attributed to slight disparity. However, this trend is not holistic though it is significant enough to impact the overall trend. The equalised personal income levels for households in the United Kingdom show that the income levels saw significant growth in the eighties followed be relative stagnation in the nineties and thereafter. The measure of property prices is indicative of the fact that house prices shot up rapidly in the eighties (given the rise in incomes then) and then during the early twenty first century due to the recent property bubble. However, the prices of houses have returned to previous levels and can be seen as experiencing average growth in recent years. Furthermore, the physical wealth of households as per household types has remained stable showing gradual and equal growth in all household types. This indicates that poverty is relatively low in the United Kingdom as personal income and wealth levels are well distributed. 6. Recommendation The personal income and wealth levels in the United Kingdom can be seen as stable showing little income disparity or its growth. The impacts of the taxation system and the impacts of the benefit system are undeniable in keeping these levels in line. In order to conserve this status quo the following recommendations need to be looked into: Mean income levels and mean income tax levels show some bias according to age bands which indicates slight disparity to the more aged section of society. This needs to be looked into in order to introduce greater parity. House prices have seen significant rise in recent years so the government needs to deflate prices through intervention so that upcoming earners can afford housing. This is also made apparent from the fact that gross personal income levels for single and couples without children have suffered although very slightly as yet. The taxation and benefits system needs to be protected legally against any changes that may bias it towards once section of society or the other such as in the United States. 7. References Office for National Statistics, 2010. Income inequality remains stable. [Online] Available at: HYPERLINK "www.statistics.gov.uk/pdfdir/taxbhinr0610.pdf" www.statistics.gov.uk/pdfdir/taxbhinr0610.pdf [Accessed 31 March 2012]. Office for National Statistics, 2011. The effects of taxes and benefits on household income, 2009/10. Statistical Survey. London: Office for National Statistics. Office for National Statistics, 2011. Wealth in Great Britain. Statistical Survey. London: Office for National Statistics. Office for National Statistics, 2012. Topic guide to: Personal Income and Wealth. [Online] Available at: HYPERLINK "http://www.statistics.gov.uk/hub/economy/personal-finances/personal-income-and-wealth" http://www.statistics.gov.uk/hub/economy/personal-finances/personal-income-and-wealth [Accessed 30 March 2012]. Ravallion, M., Shaohua, C. & Sangraula, C., 2009. Prem Dollar a day. The World Bank Economic Review, 23(2), pp.163-84. Sachs, J.D., 2005. The End of Poverty: Economic Possibilities for Our Time. 1st ed. London: Penguin Press. 8. Appendices Total income before tax   1 5 10 50 90 95 99 1992-93 3,630 4,400 5,160 11,500 25,500 33,100 62,800 1993-94 3,670 4,440 5,220 11,600 25,800 33,500 64,800 1994-95 3,690 4,460 5,270 11,900 26,100 33,700 68,400 1995-96 3,760 4,640 5,420 12,200 27,100 35,100 69,900 1996-97 4,000 4,900 5,650 12,500 28,300 37,200 76,100 1997-98 4,260 5,220 6,020 13,200 29,400 39,000 83,700 1998-99 4,450 5,410 6,220 13,600 31,100 41,600 90,000 1999-00 4,600 5,630 6,570 14,400 33,000 44,600 96,400 2000-01 4,620 5,520 6,480 14,800 34,200 46,700 102,000 2001-02 4,780 5,850 6,860 15,500 36,200 49,200 107,000 2002-03 4,860 5,960 6,970 15,800 36,700 49,800 108,000 2003-04 4,820 5,850 7,000 16,000 37,100 50,600 111,000 2004-05 4,980 6,070 7,260 16,400 39,000 52,400 117,000 2005-06 5,200 6,350 7,610 17,100 41,300 56,200 132,000 2006-07 5,410 6,600 7,880 17,700 42,900 58,500 141,000 2007-08 5,600 6,870 8,240 18,500 44,900 61,500 149,000 2009-10 6,800 7,970 9,510 19,600 46,600 63,200 149,000 Total income after tax 1 5 10 50 90 95 99 1992-93 3,600 4,250 4,880 10,100 21,100 26,500 45,300 1993-94 3,630 4,290 4,920 10,100 20,900 26,400 46,100 1994-95 3,640 4,310 4,980 10,200 21,100 26,200 48,100 1995-96 3,720 4,440 5,150 10,400 21,900 27,200 49,200 1996-97 3,950 4,690 5,390 10,800 23,100 29,000 53,400 1997-98 4,220 4,990 5,750 11,400 24,300 30,700 58,800 1998-99 4,400 5,180 5,930 11,800 25,600 32,500 62,800 1999-00 4,570 5,500 6,340 12,500 27,300 34,800 67,500 2000-01 4,600 5,410 6,270 12,900 28,400 36,200 71,000 2001-02 4,760 5,730 6,650 13,600 30,000 38,000 74,300 2002-03 4,840 5,830 6,760 13,800 30,400 38,400 75,000 2003-04 4,800 5,730 6,790 14,000 30,700 39,000 77,000 2004-05 4,950 5,940 7,040 14,400 32,100 40,500 81,500 2005-06 5,170 6,210 7,340 14,900 33,900 43,100 91,100 2006-07 5,370 6,450 7,610 15,400 35,000 44,800 97,400 2007-08 5,570 6,710 7,940 16,100 36,600 46,800 103,000 2009-10 6,740 7,690 8,940 17,200 39,200 49,300 105,000   Median income before tax Median tax Mean income before tax Mean tax Under 20 9,800 652 11,600 1,080 20-24 13,700 1,410 15,500 1,790 25-29 18,900 2,410 22,100 3,210 30-34 22,400 3,030 28,400 4,860 35-39 23,500 3,210 32,700 6,220 40-44 23,300 3,160 34,700 6,860 45-49 23,200 3,120 35,300 7,070 50-54 22,900 3,070 34,500 6,760 55-59 21,300 2,790 31,400 5,840 60-64 18,300 2,260 26,300 4,610 65-69 17,200 1,490 25,000 3,800 70-74 15,300 1,110 21,400 2,820 75 and over 16,200 1,020 21,600 2,590 Read More