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Are people richer In London?

by | 29th, May 2018

We all know that wages in London are higher than they are in the rest of the country. When we start talking about inequality then that’s as far as people go. They get paid more money so they’re richer, inequality must be this much then.

That’s not quite how an economist would try to guide the conversation though. What’s important is not how much someone can earn but what can they consume? So, we talk about the concept of disposable income. And, to the economist, the important one is disposable income after housing costs. Because that’s what you can spend on everything else. Wages, or income if you like, after taxes, benefits and housing costs. That’s the important number to be using when discussing inequality.

This inequality is a lot less than what we’re generally told it all is across the country. A nice example being this:

The sharp differences in household incomes across the UK have been set out in official government statistics.

The average disposable income per person (the ONS calls this household income), once taxes and benefits are accounted, was £19,432 in 2016.

But in Kensington & Chelsea and Hammersmith & Fulham in west London the average income was more than three times this at £58,816.

In contrast, in Nottingham – which has the lowest household income – the average income was £12,232.

This is before housing costs. This is rather important because we can look up what housing costs are by borough (for London) or region (for the rest of the country). We should take the median – 50% of households pay less than this, 50% more.

Nottingham is East Midlands and median rent is £500 a month. Kensington and Chelsea is £2,000 a month. So, the economists’ inequality is rather lower. Because we’d say that disposable income after housing costs, is £6,000 a year in Nottingham, £38,000 a year in K&C. Sure, this is still a big difference. But it’s a smaller difference than the one generally being used.

Sure, incomes are higher in London, but so are the costs of living there. National inequality is lower than what we’re usually told it is.



Posted: 29th, May 2018 | In: Money, News Comment | TrackBack | Permalink