Almost a quarter of UK household wealth is owned by just 1% of the population. That’s according to new analysis which suggests we have historically underestimated the significant levels of inequality in this country.
According to the research, the top 1% hold nearly £800 billion more wealth than disclosed by official statistics. This means that inequality levels in the UK are likely to be much higher than previously thought.
In fact, the researchers say that the extra £800 billion in wealth is only a conservative estimate and it could be much, much more.
In this video, I’m looking at the research from the Resolution Foundation think tank, and considering what it means for high and rising levels of wealth inequality in the UK. Is it really such a bad thing that the top 1% own so much?
This research from the Resolution Foundation comes at a critical time for the wealth inequality debate.
We’ve had calls in recent weeks for a one-off wealth tax, levied on the wealthiest in society, to raise money to pay back the cost of the Covid response. Higher taxes are also being discussed as a way to cope with the rising costs of the ageing population, with recent proposals for an ‘age tax’ to help fund adult social care.
The research suggests that the official statistics about wealth are missing around 5% of total wealth held by the richest households. They identified this missing wealth by comparing the official figures with data from the Sunday Times Rich List. The money is missing because official statistics find it hard to capture asset details for very wealthy families.
Once this missing wealth is added in, even on a conservative measure, it means the share of total wealth held by the top 1% rises from 18% to 23%.
Wealth inequality was actually in decline during most of the 20th century, as wealth distribution improved. The top 10% saw their share of total wealth decline from more than 90% at the turn of the century, to around 50% by the 1980s. However, levels of wealth inequality have been on the rise since.
Much of this rising wealth inequality is driven higher by rising asset prices. Since the recovery from the global financial crisis, the value of company shares and property has soared higher.
Estimates suggest that anywhere between 76% and 93% of wealth gains since the financial crisis have come from rising asset values, including property.
It’s these rising asset prices fueling wealth inequality that supports calls for wealth tax implementation. A one-off wealth tax levied on the net value of assets over a certain threshold, say £500,000 or £1,000,000, could raise a significant amount of money to help repay the national debt inflated by the Covid crisis.
We’ve also recently heard proposals from the Office for Tax Simplification to reform capital gains tax, doubling the rate of the tax and removing various exemptions, or removing allowances.
According to the Resolution Foundation, who carried out this research and identified missing wealth among the top 1%, wealth taxation “will need to play a bigger role in the economy over the course of the 2020s”.
Accordingly, the Foundation wants to see Chancellor Rishi Sunak embark on the biggest reforms to wealth taxation in a generation, including restricting capital gains and inheritance tax reliefs, as well as adding a council tax supplement of 1% on properties worth over £2 million.
Jack Leslie, an economist at the Foundation, said: “The UK has undergone a wealth boom in recent decades, which has continued even while earnings and incomes have stagnated. But official data has struggled to capture these gains, and misses £800bn of assets held by the very wealthiest households in Britain.”
Wealth inequality is an issue in many countries around the world. In the US last year, several billionaires called out the shocking level of wealth inequality there.
JPMorgan Chase & Co.’s CEO Jamie Dimon wrote in an article just before Christmas that, without addressing the underlying economic inequality in the U.S., capitalism could soon meet its demise.
Ray Dalio, founder of Bridgewater Associates, has said the American dream “does not exist” because of forces like extreme political polarization and wealth inequality.
Marc Benioff, CEO of Salesforce.com, wrote about “horrifying inequality” and the need for a new capitalism in October 2019.
The Great Reset
We’ve heard a lot about The Great Reset in the past twelve months. I’m not talking about the nutty conspiracy theory, but the proposal by the World Economic Forum to rebuild the global economy more sustainably following the Covid-19 pandemic.
This was an idea introduced by Prince Charles, who said the economic recovery post-Covid must put the world on a path to sustainability, with systems being redesigned to help. For example, carbon pricing could be a method used to help achieve sustainability. He also called for sustainable ideas to be made more profitable by reinvigorating innovations, science and technology.
The Great Reset is all about fairness. According to the World Economic Forum, we should also adapt to the current reality by directing the market to fairer results, ensure investments are aimed at mutual progress including accelerating ecologically friendly investments, and to start a fourth industrial revolution, creating digital economic and public infrastructure.
While the private sector would be the main drivers of the plan, which will be the main theme of this year’s World Economic Forum, they won’t apparently change the economic system, but rather improve it to create what some consider to be “responsible capitalism”.
Building back better
Rising levels of wealth inequality and this economic agenda to ‘build back better’ following Covid, I think are going to gradually tackle some of these issues in the future.
As advanced robotics and AI advances replace more jobs, it feels inevitable to me that we will see some form of Universal Basic Income introduced to compensate for lost earnings potential; and that UBI could well be funded by a wealth tax on those who most benefit from tech-led workforce efficiency.
However, there are some risks associated with wealth tax proposals and a rhetoric seeking to ‘tax the rich’.
When we looked recently at the one-off wealth tax proposals from the Wealth Tax Commission, it was clear that they would come with a series of unintended consequences. What about people who are considered wealthy, but cash poor? With rising wealth inequality since the global financial crisis largely the result of rising asset prices, the cash to pay a wealth tax is not always readily available.
We also need to take real care to avoid disincentivizing wealth creation in the UK. Tax the wealthy until the pips squeak and you risk forcing wealth creators out of the country.
I had this debate on Twitter the other day, after using Amazon to purchase a new camera lens (I dropped my camera on New Year’s Day and smashed my favourite lens). Someone suggested I instead look for an independent online retailer, one who pays tax. And I know a lot of people get very angry about Amazon’s alleged low level of corporation tax payments in the UK. But I think that misses a bigger picture.
From their own website: Amazon invests heavily in the UK – more than £23bn since 2010. The company employs 30,000 people across the country, and estimates show that Amazon’s investments have created nearly £45bn in value-added GDP since 2010. They recently announced a further 10,000 jobs in the UK, many targeted in parts of the UK with a history of higher unemployment and lower investment, for example in the North West of England.
I’m not saying for a moment that a giant business like Amazon is perfect, and I can appreciate the frustration when their corporation tax payments are compared to their UK revenues. But without a business like Amazon operating in the UK, there would be no Amazon jobs and no Amazon capital investment.
Going in too hard with wealth taxes is the equivalent of cutting off your nose to spite your face. With a truly global economy, wealthy individuals and business owners have a great deal of choice about where to live and base their business operations. Punitive taxation is unlikely to bode well for the future of wealth creation in the UK.
What do you think about rising levels of wealth inequality, about this ‘hidden wealth’ among the top 1%, and proposals for wealth taxes or a Great Reset to tackle these issues?