Inequality 'costs Britain £39bn a year'

This article is more than 7 years old
Thinktank puts a figure on the annual cost of the gap between rich and poor and calls for politicians to act
Up to 1.6 million children in the UK are living in poverty.
Up to 1.6 million children in the UK are living in poverty. Photograph: Christopher Furlong/Getty Images
Sat 15 Mar 2014 20.05 EDT

The ever-increasing gulf between rich and poor in Britain is costing the economy more than £39bn a year, according to a report by the Equality Trust thinktank. The effects of inequality can be measured in financial terms through its impact on health, wellbeing and crime rates, according to statisticians at the independent campaign group.


Duncan Exley, the trust's chief executive, said economists in the US had begun taking the issue seriously but that the UK was behind the curve in understanding the full extent of the harm that could be caused by inequality. "But people are starting to talk about the gap between rich and poor as we are seeing such a chasm now. Not only are wages stagnating and austerity hitting the poor hardest but the rising stock market and soaraway rates of top pay are rocketing in the other direction."

He said there was a growing acceptance that the so-called "trickle down" of money being made by the rich was not happening. "People talk about inequality helping inspire people to work hard and try hard, but we have a situation where jobs are created but they are entry-level jobs that aren't going to go anywhere. It's like getting in at the bottom floor, but it's the bottom floor of a bungalow and there is no way to rise up. So people don't feel valued and so are not motivated."

The research finds that some of the social consequences of inequality could be worked out by calculating reduced life expectancy, poorer mental health and higher levels of crime. The £39bn is equivalent to the government's yearly spending on defence, according to the report, The Cost of Inequality.

Exley added: "We would not need to entirely eradicate inequality to see the benefits. Our estimate is based on a comparison between the level of inequality in the UK and the average level seen in developed countries. In other words, small changes to our level of income inequality would make the public purse richer, individuals healthier and the UK a more pleasant society to live in. We used to be as equal as a place like Sweden, but that has changed dramatically in the past few years. You just need to look at cities like London, where few people can afford a house because of a tiny handful of people who can afford to buy three."

Exley called on all of the political parties to have a policy on inequality, which, he said, was being overlooked as a serious economic issue, claiming a more equal UK would experience less crime and imprisonment, better mental health, higher healthy life expectancy and would be a socially and financially richer society.

The report puts the annual cost of inequality to the UK at £622 for every man, woman and child, with a total of £12.5bn lost through reduced healthy life expectancy, £25bn lost through poorer mental health, £1bn lost through increased imprisonment figures and £678m lost through an increase in murders. But it points to the incalculable extra benefits of a higher level of community cohesion, trust and social mobility associated with less unequal countries.

In a more equal UK, people could expect an extra eight and a half months of healthy life expectancy while rates of poor mental health could improve by 5%, valued at £24bn.

The wider economic cost of mental illness in England alone is estimated to be £105.2bn each year, which includes direct costs of services, lost productivity at work and reduced quality of life. The cost of poor mental health to businesses is just over £1,000 per employee per year, or almost £26bn across the UK economy. In 2008-09, the NHS spent 10.8% of its annual secondary healthcare budget on mental health services, which amounted to £10.4bn. Service costs, which include the NHS, social costs, and informal care costs, mounted to £22.5bn in 2007 in England.

"There has to be recognition by politicians, as there already is by economists, that there needs to be a targeted reduction of the gap between the richest and the poorest in order to sustain economic growth," said Exley.

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