February 14, 2014 8:04 pm

The fractured middle: UK salary split sees übers pull ahead

Luxury Property And Residential Streets As 2014 Price Increases To Halve©Simon Dawson/Bloomberg

A deep divide has opened among Britain’s high earners, with an “über-middle” elite reaping the rewards of globalisation while millions of “cling-on” professionals struggle to sustain a middle class lifestyle.

An analysis of almost 40 years’ worth of data on salaries for the Financial Times has found that a large, highly qualified group has slipped down the economic league table. The findings starkly illustrate the growing inequality, driven by the highest earners, that policy makers are grappling with. President Barack Obama has identified the divide as a central theme of his second term.

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In a week when the Bank of England issued bullish forecasts for economic growth, capping the most sustained run of upgrades since it gained independence in 1997, it will also raise questions about which groups are reaping the spoils of the recovery.

In this tale of two middle classes, doctors and London finance workers emerge as the big winners. But this “über-middle” is dwarfed by a much larger group of “cling-ons” who have seen their relative position dramatically worsen, even during the years of economic boom.

The data, prepared for the FT by two of the nation’s foremost labour market economists, Professors Brian Bell and Stephen Machin, shine a light on Britain’s changing economy and the shifting fortunes of the professional middle class.

In 1975, more than a decade before the Big Bang that deregulated the City, the average London financial services worker was paid about £3,800 a year, a salary that was outstripped by a sizeable proportion of other professionals. Academics were paid about £5,000, around a third more, while natural scientists and engineers received roughly 10 per cent more than finance workers.

Now the average London financial services salary is about £102,000 including bonuses while academics are paid about £48,000, natural scientists average about £42,000 and mechanical engineers £46,000.

Entire groups have completely disappeared from the ranks of upper earners. In 1975, further education lecturers and teachers together made up almost one in 10 of the top 5 per cent of earners. Thousands employed in manufacturing and industry – as printers, pit deputies or even coal miners – also featured but none are now in that bracket.

Driving the change is a big expansion in the proportion of finance professionals, including bankers, in the top 5 per cent of earners. Their share has more than doubled since 1975, from 7.4 per cent to 17.8 per cent.

The jobs which pay staggeringly high money are all in London

- Professor Brian Bell, labour market economist

The findings come as a pre-election battle is beginning over the top rate of income tax, with Labour planning to restore a 50p rate for earners over £150,000 as some influential Conservatives press for a reduction to 40p.

Underpinning this shake-up in the top tier of society is a severing of the bond that for decades tied the top 1 per cent of earners to the 9 per cent below them. The very highest earners have increased their share of total earnings by almost 9 percentage points since 1979 while the rest of the top 10 per cent have captured only an extra 4 percentage points.

The data also highlight the difficulties politicians face in delivering balanced growth across the UK. Taken together, London and the southeast have increased their share of top 5 per cent of earners from half to almost two-thirds in the past four decades. The south’s gains have come at the expense of Scotland, Wales and the north.

Professor Bell said the findings underlined the extent to which high-paying jobs had become concentrated in the capital as the economy increased its reliance on the financial services industry.

“The jobs which pay staggeringly high money are all in London. Forty years ago there were very well paid people around the country in manufacturing and they have all vanished. If you want to earn £1m it is difficult not to live in London,” he said.

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Letters in response to this report:

Critically, research left out pensions / From Mr R N Austin

Financial elite and a few more factors / From Mr Samuel Weeks

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