Inequality 'is worse than under Thatcher'

The gap between rich and poor has widened under Labour, and has reached its highest level since 1979, a City analysis of government statistics showed yesterday.

The gap between rich and poor has widened under Labour, and has reached its highest level since 1979, a City analysis of government statistics showed yesterday.

The inequality in the incomes of the richest and poorest in society is now higher on average than under the Tory governments of Margaret Thatcher and John Major.

The analysis, published the day after Tony Blair set out his plans for the creation of a "truly meritocratic society" through the creation of the "baby bonds" scheme, and only two weeks before the expected announcement of the general election, could prove highly damaging to the Government.

The report, by the City accountants Chantrey Vellacott DFK, tracked the disposable incomes of all sections of society using official government figures since 1979. It showed that although the gap in post-tax income between the poorest and richest in society was closing under the 1992-97 Conservative government, it has substantially widened since Labour was elected.

Opposition MPs seized on the figures and said that they were conclusive proof that Labour had not succeeded in improving the prosperity of the poor since coming to power. They blamed the rise under Labour in indirect taxes as one of the main reasons for the widening gap in incomes.

"Under Labour, taxation has got more unfair," said Matthew Taylor, the Liberal Democrat Treasury spokesman. "Because Labour have cut income tax while raising indirect taxes the inevitable result is that the poor are paying more tax while the rich are paying less while earning more."

The report used figures from the Government's Office of National Statistics measuring equality of disposable incomes between 1979 and 1990. It drew on an official indicator, used by governments and bodies such as the UN to measure the gap between the incomes after taxation, rich and poor.

The "Gini Coefficient" indicator, which is higher if the wealth gap is wider, showed that, between 1997 and 2000, the average indicator was on average one-eighth greater than during the Conservatives'18 years in office. Economists said they had expected to see the wealth gap close under Labour after the introduction of measures such as the minimum wage.

Maurice Fitzpatrick, head of economics at Chantrey Vellacott, said: "Given Labour's 1997 general election commitment to help build a fairer society, then this Gini Coefficient result might well seem surprising."

The Government's Office of National Statistics blamed the rise in inequality on the globalisation of the world economy and recent changes in technology.

But the Treasury said last night that there was no clear explanation for the figures. A spokesman said that the Chancellor, Gordon Brown, had introduced a string of initiatives to boost the incomes of the poorest in society and pensioners.

He said that although the effect of the minimum wage would have been included in the calculation, many new initiatives to help the poor would have not have "kicked in" when the figures were compiled.

"These figures only go up to 1999-2000. They only include about one-quarter of a year's worth of working families tax credit data and also exclude subsequent increases in income support child credits, the children's tax credit and a 1p cut in the basic rate of income tax, and the pensioners' package," the spokesman said.