Public services during the past 30 years have been targeted towards lower income UK households in a shift that has reduced the underlying inequality in living standards, according to the Institute for Fiscal Studies.
The think-tank found that a combination of a large increase in health spending, wider access to post-16 education and the introduction of university fees was behind the change after examining the usage of different public services since the 1980s.
The usual measures of income inequality have been flat since the early 1990s. These take account of taxes and state benefits, but exclude public spending on services and therefore do not give a full account of the inequality of living standards, according to Kate Ogden, senior research economist at the IFS and an author of the report.
She said it “would be fair to say” that the inclusion of tax-funded spending on health, education, transport, justice, defence and other services to inequality trends implied that the true underlying level of income inequality had fallen since the early 1990s.
“The provision of public services has a big implication for the standard of living of poorer households,” she added. In 2019-20 — the most recent year before the coronavirus pandemic skewed the figure — spending on these services added up to £509bn.
Official figures show that after a rapid rise in inequality in the late 1980s, income gaps between the rich and poor have been stable, although the incomes of pensioners have increased relative to those of working age.
Although the research was unable to provide a reliable summary statistic on the degree to which public spending on services has become more targeted to poorer households over time, the IFS said there was no doubt about the trends.
“Public service spending has become more progressive and its redistributive impact greater, at least when measured relative to families’ and individuals’ long-term incomes,” the research found.
The main drivers of the redistribution was the proportion of taxpayers funds spent on health and education, the IFS found.
Health spending, which the IFS said was “much higher for lower income households”, rose from 3.9 per cent of national income in 1988-89 to 7.3 per cent in 2019-20.
A rise in the participation of lower income children and young adults in post-16 education, alongside the introduction of university tuition fees, has significantly made the distribution of spending in this area more universal as more affluent households have benefited less.
Social housing and social care provision has increasingly been withdrawn from people towards the middle of the income distribution and focused on the poorest households, the report also found.
Ogden said many of the trends were complex, but “it is important to look at spending on both cash benefits and public services, as well as taxation, to understand how the extent of redistribution being undertaken by the public sector as a whole is changing over time”.
Skewing public services more to lower income households was neither necessarily good or bad, she added. “Different people will have different views on how redistributive the state should be.”