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Here's Why A Slowdown In Earnings For The Top 1% Is A Problem For The UK

It's simple. They pay more tax than the rest of us.

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For people worried about how the Budget will affect their pockets, analysts at the Institute for Fiscal Studies (IFS) had a fairly gloomy message on Thursday.

Average earnings will be no higher in 2022 than they were before the financial crash in 2007, assuming growth stays at the current weak rate, the analysts said in a presentation having spent the night crunching through the figures.

"Fifteen years without a pay rise," IFS director Paul Johnson said. "I'm rather lost for superlatives. This is completely unprecedented."

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This graph shows the path of real earnings since 2007-08, in pounds.

OBR Economic and Fiscal Outlook (various years) and IFS calculations using Annual Survey of Hours and Earnings

As you can see, earnings are at least rising again. But they're still 7% behind where they were before the recession, and it's going to take years to get back to that level.

And the data shows the top 1% of earners are lagging behind, relatively speaking.

That's right: Those who earn more than £105,000 a year will see their earnings grow a lot more slowly than those who are less well-off.

The highest earners – many work in finance, most live in London and the South East, and about 85% are men – have already seen their earnings growth lag behind the rest of the population since the financial crash.

And it won't get much better. They're going to be disproportionately affected by Brexit, the Office for Budget Responsibility forecasts – mainly because of the impact that leaving the European Union is expected to have on the City.

See, look...

OBR Economic and Fiscal Outlook (various years) and IFS calculations using Annual Survey of Hours and Earnings

Johnson said: "Our calculations suggest that the top 1%, having pulled away from the rest over the 2000s, are being reeled back in. The ratio between earnings at the 99th percentile and those at the median hit 5 to 1 in the late 2000s. It is back at 4.6 to 1 now, about where it was in 1999."

Cry me a river. Isn't it a good thing if the gap between the highest earners and the rest of us narrows?

Actually, it's a big problem for the government.

For the simple reason that the top 1% contribute such a large share of tax revenues.

Earnings among the top 1% are 4.6 times the median, yet that group contributes 8 times more income tax and national insurance than the population as a whole, the IFS said in its presentation.

If the top earners make less, the government brings in less tax revenue; it's as simple as that. And with Brexit looming, the exchequer needs to raise all the funds it can.

Alex Spence is a senior political correspondent for BuzzFeed News and is based in London.

Contact Alex Spence at alex.spence@buzzfeed.com.

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