The UK is a wealthy nation, but that wealth is very unevenly divided. The wealthiest 10 per cent own five times as much wealth in aggregate as the least wealthy half of households. To durably reduce wealth inequality requires more than tinkering; we must address unequal patterns of ownership in the economy.
Wealth inequality is set to increase. That is because, as Thomas Piketty’s work has shown, returns to capital – or the income that is earned on assets in the form of interest, capital gains and rents – are currently growing faster than wages. The UK economy is growing, but that growth is flowing to the owners of shares, businesses and property rather than to workers in the form of earnings. This means that those who have assets already, or are set to inherit assets, are seeing their wealth grow, while those without assets or the prospect of inheritance are left behind.
Technological trends including the growth of highly profitable platform monopolies like Google, and the automation of work through the deployment of artificial intelligence, are set to deepen this trend as who owns technologies and platform companies becomes more important. Because wealth begets wealth, the unequal ownership of economic assets is deepening inequality.
The good news is that these trends are not inevitable; there are several ways to stop rising inequality through reimagining the organisation of our economy’s foundational institutions. First, strengthening unions to increase the bargaining power of workers could raise the share of our national income that goes to workers in the form of earnings. Second, taxing wealth and the income that wealth generates more effectively would allow the government to reduce the gap between those with wealth and those without. Third, we can change who owns wealth, to make sure that everyone can benefit from increasing returns to capital.
One way of achieving this third option is to set up a Citizens’ Wealth Fund – a kind of sovereign wealth fund, or public investment fund that is owned by and managed in the interests of citizens. Our new Institute for Public Policy Research paper proposes that the UK should do just this. By transforming a portion of national private and corporate wealth into public wealth, the fund would capture for the public the higher returns to capital that are driving growing wealth inequality. We propose that the fund goes further, and reduces individual wealth inequality by providing all 25-year-olds with a universal minimum inheritance of £10,000.
Over 70 governments around the world have set up sovereign wealth funds, meaning the UK could emulate what the best of these do. We calculate that a fund worth enough to pay a £10,000 dividend to all 25-year olds from 2030 could be capitalised through a mix of existing assets, new taxes on wealth, royalties from future public assets such as spectrum sales and some borrowing. In particular, there is a strong argument that inheritance tax should be reformed to be less easily avoidable and to raise more money, which could be invested in a fund that would generate an inheritance for everybody.
Most funds around the world achieve a long-term return of 4 per cent above inflation; this is substantially higher than the historically low cost of borrowing available to the government currently. Maintaining public assets as assets, rather than selling them off, would maintain a healthy public sector net worth. It would also enable multiple generations to benefit from public assets, acting as a powerful force for intergenerational equality. If the revenue from North Sea Oil the government received in the 1980s had been invested in a fund, it would be worth over £500bn today; future assets must not be squandered in this way. Norway did invest its oil revenues, and today has a fund worth over $1 trillion (£710bn).
The fund would be managed independently from government to maximise returns for citizens, but invested in line with democratically set ethical obligations. For example, many funds are not permitted to invest in the arms and tobacco industries, or environmentally damaging businesses. A fund investing in socially and environmentally damaging activities would neither be popular nor sustainable in the long term.
But a Citizens’ Wealth Fund should also directly benefit its citizen owners. A £10,000 universal minimum inheritance would provide young people with a buffer as they enter adulthood. Many younger people do not enjoy the access to housing, freedom to experiment and start businesses, or secure incomes that their parents’ generation enjoyed. A lump sum dividend would be transformative, enabling everyone to have the “opportunity effect” of assets, not just those set to inherit a large amount of wealth.
Our economy is currently set up to benefit those who already hold assets or who come from wealthy families. Justice demands that we rewire the economy so that everyone can benefit from growth and have a stake in the economy. A Citizens’ Wealth Fund would create and protect everyone’s share in our economy, for both current and future generations. Distributing the returns in the form of a universal minimum inheritance would provide all young people with the opportunity of security and capital as they start out in adult life. It is time we better shared in our common wealth.
Carys Roberts is a Senior Economist at IPPR, and co-author of the report Our Common Wealth: a Citizens’ Wealth Fund for the UK
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