Central to the Blair government's economic and social policies has been the promotion of a more ‘knowledge-based economy’. However, some commentators have suggested that the knowledge economy stretches income distributions and polarises skilled and unskilled workers. Drawing on empirical data about the UK case to explore such claims, this paper concludes that there is a significant positive correlation between the extent to which a region's economy has become ‘knowledge based’ and its level of income inequality. It argues this finding has important policy relevant implications.