Scotland’s richest get richer as wage gap widens

A rise in so-called 'superstar' wages has been blamed for some of the inequality shown. Picture: TSPL

The top 1 per cent – made up of 25,000 people earning more than £120,000 a year – are estimated to earn a tenth of all income in Scotland, and 20 times more than those in the bottom 1 per cent, according to a study published today.

The report, by the Economic and Social Research Council (ESRC), estimates the rich elite are now responsible for 20 per cent of income tax collected in Scotland, up from 14 per cent in the late 1990s.

It says the explosion in “superstar” wages – typically for company chiefs and financial executives – has led to an overall increase in wage inequality over the past 20 years, with wage growth among low and middle earners failing to keep pace.

However, in a surprise finding, the report concludes that overall inequality in Scotland has not increased over the boom years, as the tax and benefit system has worked to ensure cash is handed from the very rich to society’s poorest.

The paper also finds that, while inequality in the Nordic countries – seen as an exemplar of social democracy – is still relatively low, it is now increasing faster than in Scotland and the UK.

Scotland’s level of inequality is much lower than in the UK as a whole. But the report says the UK’s high level is due entirely to the “London effect”, and that inequality in the rest of Britain is on a par with that north of the Border.

The report, by an ESRC-funded team of academics at the University of Stirling, was prompted by claims from independence campaigners that a Yes vote in next year’s referendum would allow Scotland to create a fairer society.

The report’s authors said they hoped their findings would help to inform the debate. They conclude Scottish independence would “provide opportunities” to form a fairer society but “constraints that already exist would not go away”.

Their report says inequality in the UK is caused by a mixture of technology and global trade and warns there would therefore be “limits” on how an open economy such as Scotland’s could reduce inequality.

The Yes Scotland campaign welcomed the conclusions, saying the report proved the UK was one of the most unequal countries in the developed world and that an independent Scotland could do better.

However, pro-UK politicians said the paper showed the tax and benefit system in Scotland was working to correct massive global shifts in capital, which was now rewarding the elite more than ever.

The report lists 35 OECD countries, and it ranked the UK seventh in terms of income inequality, behind Chile, Mexico, Turkey, the United States, Israel and Portugal.

Scotland was ranked 18th, below Ireland, Spain and Italy but ahead of France, Sweden and Norway. Iceland was ranked the most equal country of the 35.

While the taxation system means the UK is not rising up the list, the report says income inequality is increasing and being driven almost entirely by the wages of the top earners. Those in the top 2 per cent were ranked as those earning more than £86,000, while those in the top 1 per cent were earning more than £119,000.

The report found that, in 1997, the top 1 per cent earned 6.3 per cent of total pre-tax incomes. By 2009, that had increased to 9.4 per cent – a rise of 49 per cent.

That rise was reflected in the tax system, with the share of income tax contributed by the top 1 per cent going up from 14 per cent to 20 per cent. The report concludes: “The very rich have become even richer relative to other taxpayers.”

Wage inequality has been further exacerbated by the growth in part-time work, the report says. Another key factor has been the changing job market, which has seen a rise in both high- and low-paid jobs, and a slump in middle-wage jobs, largely as a result of “technological change and globalisation”.

However, once taxes and benefits are taken into account, the report concludes that overall household inequality has not risen since the mid-1990s.

Scotland and the UK therefore bucked the trend found in many other western nations. The report says: “This is because the UK tax and benefit system – which also applies to Scotland – transfers more income from higher to lower income households than the average developed country.”

Report author Professor David Bell said: “Inequality is clearly an issue in the Scottish referendum debate, and our motive in writing this report is to help provide evidence.”

Referring to the global technological effects driving inequality, he went on: “Though an independent Scotland would have more powers to address inequality, its room for manoeuvre would be constrained by these wider forces.

“Inequality in Scotland, like in many developed nations, is partly being driven by technology, by trade and even by how we decide to form households. So there are likely to be limits to the extent that a small, open economy can reduce inequality.

“Scottish independence would provide opportunities, but the constraints that already exist would not go away.”

A spokesman for Yes Scotland welcomed the report, saying: “This report confirms what we already know – that under successive Westminster governments, the UK has become one of the most unequal countries in the developed world.

“We welcome the acknowledgement that independence would provide more powers to tackle inequality. Of course, there would be much to do after a Yes vote, but the example of the small, independent Nordic states shows that a more equal society is possible.”

A Scottish Government spokesman said: “As the report makes clear, the UK is the seventh worst in the OECD at tackling income inequality, so we particularly welcome the view that the full powers of independence would give Scotland the opportunity to create a more equal society.

“This is particularly important in the context of the paper noting that the UK government’s welfare reform is likely to reverse the recent trend of declining income equality.”

However, Scottish Labour finance spokesman Iain Gray said: “This latest report shows that, as part of the UK, Scots benefit from being part of shared systems of taxation and welfare. Not only does John Swinney want to take this away and start again, he has cut over £1 billion in poverty programmes since he assumed power over Scotland’s finances.

“That is not making Scotland a progressive beacon; it is ignoring the reality of the income gap.”

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