Income gulf between rich and poor widened as inflation struck: ONS

In 2021/22, average household disposable income (median) was down 0.6% to £32,300. The poorest fifth were hit hardest, with disposable income down 3.8% to £14,500 – as their earnings and benefits fell.

This group had a real term reduction in cash benefits of 2.6% (as the covid uplift came to an end). The richest fifth were actually better off, with their disposable income up 1.6% to £66,000. Disposable income inequality rose from 34.4% to 35.7%.

The Office for National Statistics has released average income statistics: Average household income, UK – Office for National Statistics (ons.gov.uk)

And its report into disposable income and inequality: Household income inequality, UK – Office for National Statistics (ons.gov.uk)

Sarah Coles, senior personal finance analyst, Hargreaves Lansdown said: “The income gulf between rich and poor opened up in 2021/22, while inflation pushed millions of lower earners over the edge.

“A toxic combination of covid restrictions and cuts in benefits meant overall our average disposable income dropped in the tax year to April 2022. But the average disguises a yawning gulf between lower earners, who took a horrible income hit, and higher earners who actually ended up better off. At the same time, inflation was starting to climb, taking another horrible toll on those on lower incomes.

“Covid took a toll during the year. The tax year in 2021 started as the third national lockdown came to an end, and we gradually returned to life as normal. Some restrictions remained and furlough was in place until September, which will have depressed average incomes. It affected those on lower incomes most, including an awful lot of people working in hospitality. The poorest fifth were also hit by the removal of the covid boost to universal credit, and by the fact that an average increase in benefits of £80 was effectively a fall once inflation was taken into account.

“Meanwhile, higher earners were actually better off. Wages and salaries were up 3.2% on average – but they were up 7.8% among the richest fifth and down 7.5% for the poorest fifth,and while higher taxes unwound some of this, they still fared far better. It meant the gulf between the disposable incomes of rich and poor widened from 34.4% to 35.7%.

“Disposable income inequality is difficult enough for lower earners to deal with, but inflation will have made it even worse. It started the year at 1.5%, and had shot up to 9% by April 2022. Everyone’s incomes were stretched further, but people on lower incomes faced more of the pain of inflation too, because the price of the essentials rose alarmingly. Because they absorbed a bigger proportion of lower incomes, it did far more damage to those who were already suffering enough.”