The gap in absolute wealth between the poorest 10% and richest 10% of people in the UK increased by 48% between 2011 and 2019, according to a new report from the Fairness Foundation. That is, wealth inequality is out of control.
There’s also been a relative decline of the middle class through the neoliberal practices of government. The wealth gap between the middle 10% and the richest 10% rose by 49% over the same period.
Inequality: laid bare
In 2011, the richest 10% held £7.5 trillion in wealth and by 2019 that had increased to £11 trillion. The wealthiest 1% owns not far off half of this, in both cases. By contrast, the poorest 10% went from £12bn in debt to £11bn in debt during that time. ‘Trickle down’ economics has never been more of a joke, but we still carry on with the same policies.
The wealth of the middle 10% rose from £7.3bn to £10.8bn over the eight years. But that’s still dwarfed by the gains of the super rich. The wealth gap between middle earners and the top dramatically increased.
Unearned wealth
The Fairness Foundation notes that a lot of the wealth accumulation from the top 10% is through an increase in the value of assets, which is unearned income. It’s entirely not the case that they are working harder than those at the middle or bottom on the wealth scale. Indeed, the majority of private wealth is inherited – at 60%, according to the report.
Tax Justice Network made a similar point in their research arguing for a wealth tax and a balancing of income tax with capital gains tax so people aren’t contributing less from passive income. This could also address the rampant inequality.
Homes as assets – a driver of inequality
The Fairness Foundation also regards treating homes as constantly inflating assets as a key driver of inequality. That’s instead of delivering homes at cost price as a product of necessity. Disparity in home ownership also plays a decisive role in the wealth gap between minority ethnic households and their white British counterparts.
The report notes that since the 1980s (the premiership of Margaret Thatcher and the following capitulation of Labour under Tony Blair), home ownership has gone from a driver of distributed wealth to something that increases inequality. Millennials spend about 28% of their income on housing costs. Whereas, people of a similar age in the 60s and 70s spent around 5-10% of their income on housing.
Inequality limits the potential of society
Broadly, the poorest half of the UK owns just 9% of the wealth. The research challenges the idea that such stark inequality is good for society:
Contrary to the orthodox idea that inequality is necessary for a dynamic economy, growing evidence suggests that wealth concentration significantly undermines productivity and growth. A lack of wealth creates barriers that prevents people from fully participating in the economy. This limits the potential pool of talent and innovation that contributes to economic growth. It can especially limit entrepreneurship, since wealth allows people to take the risks that are an inevitable part of building a new business
The report offers a variety of solutions, including “sharing wealth”:
Sharing wealth is another approach. Wealth concentration in the UK has been facilitated by an economic system that often incentivises and rewards the extraction of value from existing financial and corporate wealth, rather than encouraging the creation of new economic value. Mechanisms to prevent this, such as public wealth funds, would ensure that income-generating assets are shared more equitably, allowing all citizens to benefit from economic development. These funds would provide access to excellent investment returns for everyone and mitigate the effects of differential returns, where the wealthy enjoy superior rates of return compared to average savers, exacerbating existing inequalities.
Featured image via the Canary
