Is inequality driving higher public spending on people from poorer backgrounds?

Headline measures show that levels of poverty and income inequality in the UK have stayed relatively flat in the past decade. Meanwhile, new research indicates that spending on public services has become more redistributive, with relatively more spent on people with lower incomes.

But the cost-of-living crisis is visibly pushing more people into hunger, fuel poverty and debt, and the UK COVID-19 Inquiry has reminded us of the wide inequalities in health exposed by the pandemic. So, what is the link between public spending, poverty, inequality and health? And is the UK becoming more or less equal?

How have income inequality, poverty and public spending changed? And what does it mean for health?

Headline measures of income inequality rose steeply in the 1980s and into the early 1990s as household worklessness increased while incomes grew relatively faster at higher levels. Since then, summary measures of inequality have remained high but not increased further – although the share of income to the very top has increased. As the Resolution Foundation showed, the 10 most unequal years over the past 50 were all between 2000/01 and 2019/20. The top 10% of highest income households in the UK also have a higher share of national income than in any other country in the OECD, apart from the US.

Similarly, the past two decades have not seen a significant change in official relative poverty (measured as having less than 60% of median income after housing costs). But the period since the global financial crisis has seen weak growth in GDP, productivity and wages. This has held back living standards for all, while not necessarily widening the headline inequality or poverty measures.  

Recent Institute for Fiscal Studies (IFS) analysis indicated that state spending on public services has become more redistributive in the past 35 years – with comparatively more resources going to people with lower incomes. Some major reforms, like university tuition fees and loans, have reduced public subsidies for services used more by the wealthy. Health care spending has risen, and because people living in poverty tend to be sicker, they receive more resources (adjusting for age). Some social services spending has also become tightly rationed and means-tested. The Office for National Statistics estimates that the redistributive effect of benefits in kind helps to reduce inequality.

Taken together, these income and public service spending trends could suggest that UK inequality has been reduced. But do they really show that redistribution is creating a more equal country? Or do they reflect widening inequalities in the need for services like health care?

Alongside income and public service spending, it is important to consider other outcomes that capture the quality of our lives – such as our health. In the decade preceding the pandemic, average life expectancy improvements stalled, falling behind many peer countries, and health inequalities have if anything widened between the most and least deprived local areas. Health Foundation research also shows that, on average, a 60-year-old woman in a deprived area now has the same level of diagnosed ill health as a 76-year-old woman in an affluent one. Working-age sickness is also on the rise, as seen in rising economic inactivity. Regardless of what has happened to the distribution of income and spending, this analysis suggests that the UK has worse health outcomes than many peers, with widening inequalities.

Three ways inequality and spending have impacted on health trends

The causes of these health trends have been hotly debated by experts, but the inequality figures give some clues.

1. Historical income inequality has a scarring effect on health

The rapid rise in income inequality in the 1980s to early 1990s seems to have had a long-term effect on health, particularly in ‘left behind’ areas. People who lost their livelihoods in deindustrialisation are now in older age, and it is likely that the scarring effects of mass unemployment are still feeding through into their earlier deaths.

Generations that followed have grown up in economically depressed labour markets and deprived neighbourhoods. Areas with historic high deprivation, such as former coalfields, still have worse health 40 years later. This has a self-perpetuating effect on work – places where people left paid work at relatively younger age due to poor health in 1991 were much more likely to experience this trend in 2011 as well.

2. The squeeze on living standards has left some people more exposed

The past 15 years have seen a lack of growth in living standards coupled with high income inequality. This ‘stagnation nation’ has left the poorest people relatively more vulnerable to changes in individual or wider economic circumstances – such as the great recession and subsequent austerity, the pandemic and current high inflation – even though poverty and inequality measures have remained steady.

This is partly because real-terms cuts in the value of working-age benefits have pushed down on the incomes of the poorest. Below the radar of the official poverty measure, the Joseph Rowntree Foundation has shown that around 10% of the population, or 6.5 million people, were in ‘deep poverty’ on the eve of the pandemic – the consequences of which include payday debt, homelessness and food poverty. These all have an impact on health.

3. A closer look at spending shows further inequalities in access to care

Average public service spending has become more ‘progressive’ over the past 35 years, but this has masked fluctuation and diverging trends that are important for health. The IFS found that periods of public service expansion in the 2000s increased redistribution, whereas periods of service contraction in the 2010s reduced the scale of redistribution relative to incomes.

The impact of cuts to local government services including social care and public health has been greater in poorer (and less healthy) areas, as their populations are more reliant on public funding. For instance, older people in more deprived areas are less likely to receive social care for eligible needs and more than twice as likely to have unmet needs than those in less deprived areas.

Within health care spending, the IFS found that since funding constraints hit in the 2010s, access to proactive health care got harder for people from poorer backgrounds, with lower use of preventive and proactive health services, later diagnoses, longer waiting times and fewer outpatient appointments. This echoes research on the inverse care law, with patients in more deprived areas receiving shorter GP appointments.

One effect of this inequity in proactive health care is that people in the most deprived areas rely on more costly, reactive hospital care, including 71% more emergency episodes (controlling for age and sex). The IFS concluded that ‘this may reflect greater difficulties in having their needs recognised and acted upon in a system subject to greater rationing’.

Reducing income inequality remains an important target

If this is the case, the pattern reported by the IFS of higher reactive spending, particularly in health, on people from poorer backgrounds is evidence of the effects of sustained high income inequality, depressed living standards and more tightly rationed services, and their effect on increasing health needs and inequalities. This trend is both inequitable and inefficient for the NHS as well as our nation’s living standards and health.

If we want to become a healthier, more productive nation with more equal outcomes and efficient, preventive spending, we need to address longstanding high income inequality, raise living standards for our poorest communities and reinvest in proactive services.

Joe Farrington-Douglas (@joefd) is Senior Policy Fellow at the Health Foundation.