There is no doubt that the period from 1985 to 2000 saw a considerable increase in earnings inequality.

While not downplaying the role of privatisation and deregulation, Lumsden et al (1997) stress other factors. In particular they highlight the impact of recent legislation concerning trades unions. Laws now exist which ensure that secret balloting of all union members is necessary before any strike action can take place, and whereas unions in certain workplaces were once able to operate ‘closed shop’ policies (effectively ensuring 100% union membership as a condition of employment), this is no longer the case. The overall effect of this legislation has been that the unions have lost some of their collective bargaining power, and as a result union membership has become less attractive (Lumsden et al note that the proportion of union members fell from 82% in 1985 to 62% in 1997, and has only recently begun to recover). This bargaining weakness has contributed to the reduction of wages among manual workers in particular (ibid).

A further reason for the growth in earnings inequality lies in recent tax changes. In the 1980’s and early 1990’s, tax allowances were raised for top earners, in the hope that greater wealth would ‘trickle down’ to lower earners (Blanke, 1996). The benefits of this increased wealth may have reached the middle classes, but failed to reach the poorest members of British society. At the same time, a series of indirect taxes, on cigarettes and alcohol, were increased, and a new form of taxation, the national lottery, introduced. Each of these could be said to have a disproportionately high effect on the lowest earners. These changes in taxation policy, positive for the rich, negative for the poor, have heightened earnings inequality.

The three reasons for increased earnings inequality outlined so far could be said to have had significant, but indirect, effects. Murray and Darling (1996) argue that the fourth and final factor, wage legislation, has however been a direct cause of a less equal distribution of earnings across social classes in Britain. In an attempt to ensure that British industry can attract and keep the best brains to the top jobs, pay limits for high executives have been abolished. This has resulted in some well-publicised and controversial pay increases and bonuses. At the same time, pay awards for manual and clerical workers have been kept down to below the level of inflation. A minimum wage was introduced in 1998, but at a level which many view as excessively low.

These four factors, three indirect, the last direct, have had the combined effect of increasing earnings inequality. Living standards for the majority in Britain have increased considerably since 1985; the issue to be addressed remains the fact that, for the minority, standards have declined. The present government is stressing the need for long-term solutions, by means of retraining opportunities for workers facing redundancy, and above all improvements in educational achievement at school.