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Neoliberalism: The Engine Powering the Age of Inequality

by GSC Blog Administrator | Jan 21, 2026 | Global inequalities | 0 comments

Article by Luca Grillo

Proponents of the new era of red-blooded capitalism promised neoliberalism would fuel efficiency, unleash the full potential of competitive markets, and make us all increasingly better off – but did they underestimate the detrimental impact it would have on widening inequalities? Up until the 1980s, the total share of income of the richest 1% within the United States and United Kingdom was progressively declining [1], thanks to the post-war consensus in Britain [2] and Keynesian ideology followed in the US. This however did not continue, and post-1980 income inequality made a sharp reverse on its original decline.1 Enter the new dawn of neoliberalism.

When Margaret Thatcher entered office in the UK in 1979 and Ronald Reagan entered office in the US in 1981, both brought in new sweeping reforms pledging that free-market ideology was the grand solution to powering economic growth. Encompassed in these reforms were absurd tax cuts – which Reagan prioritised the same year he entered office – slashing taxes on the wealthiest members of society from 70% all the way down to 50% (Economic Recovery Tax Act of 1981). Likewise, by 1988 the ‘Iron Lady’ had reduced top-rate income tax from 83% to 40%.[3] So you may be asking, why would anyone choose to cut taxes so aggressively on those who, arguably, could easily afford to give up more of their income? The answer lies in Reagan [4] and Thatcher’s [5] shared ideology of trickle-down economics (based on neoliberalism), a view proposing that if the rich get richer, those riches will trickle down into the rest of the economy, so everyone else will get richer. Despite seeming logical that ‘freeing up money for the wealthy allows them to hire more workers, pay better wages and invest more,’ it only leads to the rich becoming even wealthier, with there being no ‘meaningful effect on unemployment and growth’ (Hope, 2020).[6] To conclude, the lasting legacy of both Reagan [7] and Thatcher [8] can unfortunately not be seen in higher rates of economic growth, but instead in laying the foundations for a surge in income inequality, which still continues to this day.

With neoliberalism left engrained in economic policy in subsequent UK and US governments after Thatcher and Reagan’s reign, it is no surprise that the income gaps within these countries widened exponentially. Currently in the UK, the richest 20% of the population have an average income more than 12 times [9] that of the poorest 20%. Strikingly, the richest 20% of the population in the US have an average income more than 18 times that [10] of the poorest 20%. This disparity is however by no means the norm in other similar developed countries. For instance, in the Netherlands, the richest 20% in the population earn just over 4 times [11] as much as the poorest 20%. Similarly, the richest 20% in France also earn just over 4 times [12] as much as the poorest 20%. Unsurprisingly, the vast contrast in income inequality among these countries can largely be attributed to the persistence of neoliberal economic policies in government. One key example of this difference in neoliberalism, is the fact that young Europeans can practically receive university education for free, enabling greater social mobility, while the prospect of university for their US and UK counterparts is often burdened by sky-high tuition fees and crippling life-long debt.

So, why does economic inequality matter in modern-day societies? How has the legacy of neoliberalism left a lasting scar that will impact us all?

While inequality has largely been neglected [13] by economists, more recent research shows that the impact of inequality both economically and socially is detrimental. It has been found [14] that increased inequality can lead to more financial crises, greater economic instability, whereas higher levels of equality is associated with longer periods of sustained economic growth. Additionally, as found by Wilkinson and Pickett (2010),[15] the higher the level of income inequality found in a country (notably high in the US and UK), the more prevalent health and social problems were. These health and social problems were also not found to be linked to average income levels, as wealthier nations such as the US and UK were two of the three worst15 performing countries in terms of health and social problems.

To conclude, the wounds left by neoliberalism in the societies of the UK and US (but also in many other countries in the world) are larger than ever, with rampant income inequality destroying our social and economic well-being. So, let the words spoken by neoliberal politicians intending to enrich themselves and their millionaire friends, serve as a warning of the harm yet to come for the rest of the society.

References

[1] https://ourworldindata.org/how-has-income-inequality-within-countries-evolved-over-the-past-century

[2] https://www.economicshelp.org/blog/310/economics/rising-inequality-in-the-uk/

[3] https://cebr.com/blogs/the-telegraph-why-thatchers-tax-cuts-are-so-hard-to-repeat/

[4] https://www.reaganlibrary.gov/reagans/reagan-administration/reagan-presidency

[5] https://www.economicshelp.org/blog/glossary/criticism-thatcher/

[6] https://www.lse.ac.uk/research/research-for-the-world/economics/tax-cuts-for-the-wealthy-only-benefit-the-rich-debunking-trickle-down-economics

[7] https://pubmed.ncbi.nlm.nih.gov/8500951/

[8] https://jacobin.com/2020/12/margaret-thatcher-british-economy-tories-austerity

[9] https://equalitytrust.org.uk/scale-economic-inequality-uk/

[10] https://inequality.org/facts/income-inequality/#income-inequality

[11] https://internationalcomparisons.org/countries/netherlands/