[Image: Daily Mirror.]

They haven’t been including major contributors to the fortunes of the rich, like capital gains and inheritances, in their calculations.

The chancellor and the prime minister might not always see eye to eye, but on this at least they are in unison: income inequality is at its lowest since the mid-1980s.

The Conservatives are uncomfortable with the idea that they are the party of the 1%, so evidence to the contrary is mighty useful.

Look at the official data, the prime minister and the chancellor would say if challenged. It is not us saying that income inequality is at its lowest for three decades, it is the Office for National Statistics. Point proven.

Except that it isn’t. The government has two ways of calculating income inequality, and Hammond and May are using the one that best supports their argument. The ONS measure does indeed show inequality at a 30-year low but only because it doesn’t take account of what’s happening to the incomes of the top 1%.

An alternative measure provided by the Department for Work and Pensions, which takes more account of what is going on at the very top of the income distribution comes up with a different conclusion: inequality is not at a 30-year-low. At best it is flat, but it appears to be gently rising. Disraeli’s famous dictum about there being lies, damned lies and statistics springs to mind.

The discrepancy is the subject of a new report from the Resolution Foundation, a thinktank that focuses on the living standards of those on middle incomes and below. Research by the foundation’s Adam Corlett shows that both the ONS and DWP are failing fully to take account of the incomes of the very rich. Neither, for example, takes account of inheritance or capital gains, both of which are relevant when it comes to how income is distributed. But while neither are perfect, the ONS approach is particularly bad at capturing what is happening at the top.

“In the case of the top 0.1%, often only around half of income is captured. An attempt is made to correct this in Households Below Average Income (the DWP measure) using tax data from HMRC. No such attempt is currently made in the ONS’s ETB and so this data greatly underestimates the scale of top incomes. This has a large effect on inequality trends too, as the share of income going to the top has increased.”

Source: Income inequality is getting wider. If the stats count what counts | Inequality | The Guardian

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