We study earnings and income inequality in Britain over the past two decades, including the period of relatively "inclusive" growth from 1997-2004 and the Great Recession. We focus on the middle 90%, where trends have contrasted strongly with the "new inequality" at the very top. Household earnings inequality has risen, driven by male earnings -although a 'catch-up' of female earnings did hold down individual earnings inequality and reduce within-household inequality. Nevertheless, net household income inequality fell due to deliberate increases in redistribution, the tax and transfer system's insurance role during the Great Recession, falling household worklessness, and rising pensioner incomes.

We study earnings and income inequality in Britain over the past two decades, including the period of relatively 'inclusive' growth from 1997 to 2004, and the Great Recession. We focus on the middle 90%, where trends have contrasted strongly with the 'new inequality' at the very top. Household earnings inequality has risen, driven by male earnings-although a 'catch-up' of female earnings did hold down individual earnings inequality and reduce within-household inequality. Nevertheless, net household income inequality fell due to deliberate increases in redistribution, the tax and transfer system's insurance role during the Great Recession, falling household worklessness, and rising pensioner incomes.

The Joseph Rowntree Foundation has supported this project as part of its programme of research and innovative development projects, which it hopes will be of value to policymakers, practitioners and service users. The facts presented and views expressed in this report are, however, those of the authors and not necessarily those of the Foundation. Neither are the views expressed necessarily those of the other individuals or institutions mentioned here, including the Institute for Fiscal Studies (IFS), which has no corporate view. Co-funding from the ESRC-funded Centre for the Microeconomic Analysis of Public Policy at IFS (grant number ES/M010147/1) is also very gratefully acknowledged.

We study the short-and medium-term impacts of the recent recession on the distribution of net household income in the UK. We document trends in the distribution of income during and immediately after the economy's 6.3 per cent contraction between 2008Q1 and 2009Q2. We then use a tax and benefit microsimulation model combined with macroeconomic and As in other countries, immediate impacts of the recession on net household incomes are remarkably hard to detect, but the pain was merely delayed until 2010-11 and beyond. We find that the major difference between income groups is in the timing of the reductions in income, rather than in their magnitude. For those in the middle and upper parts of the distribution, dependent mainly on labour market income, falls in real income happened largely between 2009-10 and 2011-12. For those towards the bottom, dependent more on benefit incomes, falls in real income will happen largely as a result of the post-recession fiscal tightening between 2010-11 and 2015-16. We explore the sensitivity of the results to different scenarios for employment and earnings: the central and qualitative conclusions prove robust. Policy points• We project that the reductions in household income between 2007-08 and 2015-16 will be spread quite evenly across the income distribution.• The timing of the recession's impact is very different across income groups. Those on middle and higher incomes, largely dependent on labour market incomes, were hit immediately after the recession as real earnings fell sharply. Lower-income families, and in particular those with children, tended to fare less badly than others over that period, but are being hit relatively hard by the tax and benefit measures during the post-recession fiscal consolidation.• The large planned net 'takeaway' from households during the fiscal consolidation is a major driver of the pattern of income changes that we expect to see up to 2015-16. Qualitatively, our conclusions are therefore robust to the direct impacts of quite large deviations in employment and earnings from their forecast levels in the medium term.

We investigate the impact of inheritances and gifts received on the distribution of wealth. Whereas previous work has looked only at marketable wealth, we consider broader measures of wealth including state and private pensions. We find that once pension wealth is included, inheritances and gifts no longer have an equalising impact on the distribution of wealth. Without pension wealth, including wealth transfers reduces the Gini coefficient for wealth from 0.57 to 0.52. With pension wealth, the impact is negligible. We argue that this latter effect gives a better indication of the impact of inheritances on the distribution of lifetime income. 56Fiscal Studies Policy pointsr The relative importance of inheritances and other intergenerational transfers in determining the lifetime economic resources of individuals is widely thought to be increasing over time. This has led to concerns about widening intragenerational inequality and an adverse impact on intergenerational mobility.r Nearly one-third of individuals aged 65-79 in England in 2012-13 had received an inheritance in the past, and 6 per cent had received a gift worth £1,000 or more (in 2012 prices).r Inheritances are smaller in absolute terms for those lower down the wealth distribution, but they are more important relative to other wealth holdings.Inheritances therefore act to make the distribution of non-pension wealth less unequal.r However, this inequality-reducing impact of inheritances and gifts shrinks (or even disappears) when public and private pensions are included in the measure of household wealth. This is important because, in the UK context, the impact of transfers on the distribution of this broader measure of wealth likely gives a better indication of the impact of transfers on lifetime incomes.