If you want a stark reminder of inequality in the UK, I have a new statistic for you: the wealthiest 10 per cent of the country owns 44 per cent of the nation’s wealth, whilst the least wealthy half owns just 9 per cent.
This means that wealth is twice as unevenly distributed than income, with many people at the very bottom having negative wealth, as the value of their debts exceeds that of their assets.
And this is just what we know. The Wealth and Assets Survey data is likely to underestimate the extent of wealth inequality because the wealthiest people are less likely to fill it out. It also doesn’t capture the extreme polarisation of wealth at the top end of the wealth spectrum. According to Oxfam’s analysis, there are five billionaire families in the UK that hold the same wealth as the bottom 20 per cent of the population.
These dramatic levels of wealth inequality are driven by several factors. Firstly, increases in house prices, caused partly by a lack of supply and partly by an expansion in mortgage lending, mean that those with property are getting much wealthier, while those without it are increasingly priced out of the market. Secondly, wage stagnation, driven by factors such as low productivity and automation, means that it is harder for people at the lower end of the income spectrum to get enough money to acquire any wealth. Finally, loose monetary policy has increased the real value of financial assets such as equities, which are highly unequally distributed.
There are good reasons to be more concerned about wealth than income inequality. Wealth inequality reduces social mobility, limits economic growth, and has acute political consequences – McMafia’s portrayal of the oligarchical Russian state isn’t far from the truth on this point.
But perhaps the most significant cause for concern is that wealth inequality is itself a driver of greater inequality. This is because wealth produces “economic rents”. These are returns on assets over and above the cost of supply to the owner – many buy-to-let landlords have, for example, benefited from a rise in the amount they are able to charge in rent without a corresponding increase in their costs.
Economic rents represent a non-productive transfer from the asset-poor to the asset-rich – they give more pie to the wealthy without expanding the size of the pie for everyone else. In fact, if anything they restrict economic growth because the wealthy are less likely to spend the incomes in the real economy. Moreover, as the Bank of England has recently pointed out, increasing levels of unsecured consumer credit – the inverse of wealth – are a growing threat to both economic growth and financial stability. This is why John Maynard Keynes, one of the greatest economists of the 20th century, called for the “euthanasia of the rentier”.
The Labour Party’s plans to reform ownership in the UK go some way to achieving Keynes’ goal. The nationalisation of rail will ensure that the private sector is unable to take advantage of the economic rents associated with the provision of this natural monopoly. Incentives for the expansion of the cooperative and mutual sector should promote more equal ownership of companies. The creation of a state investment bank could, depending upon how it was designed, also allow for some public ownership over a variety of private businesses, including banks themselves.
But these plans do not go far enough. The UK is in need of a radical redistribution of wealth, both to grow the economy, and promote equity and social solidarity.
There should be an immediate increase in the rate of taxation on unearned, unproductive economic rents. Capital gains and dividends are, for example, taxed at a lower rate than labour income, which is both unfair and economically nonsensical. The proceeds from these taxes, alongside existing public assets, could be used to help capitalise a Citizen’s Wealth Fund, which could pay a dividend or provide a programme of public investment. Together, these proposals would increase economic growth and promote social justice.
Today’s high levels of wealth inequality are not inevitable, they are a political choice. The Labour Party’s sensible proposals to transform the nature of ownership in the UK show this very clearly. But fully socialising ownership in the UK will require a much more radical attack on the privileges of the rentier class. Doing so would allow the UK to build an economy which distributes the gains from growth more equally, efficiently, and fairly.
Join our new commenting forum
Join thought-provoking conversations, follow other Independent readers and see their replies