The Resolution Foundation (RF) has just published a useful summary of the latest evidence on wealth inequality in the UK, with a first look too at the impact of coronavirus. Unfortunately, as so often in discussions of inequality and poverty, there is a striking divergence between the spin and the facts.
The first point to stress is that UK wealth inequality – like income inequality – has barely changed over the last decade. Yes, wealth is distributed unevenly, and much more so than income (as you might expect). But this is nothing new. As the RF report notes, the shares of wealth held by the top one per cent and the top 10 per cent of UK households have been broadly stable since the mid-1980s. Other measures of inequality, such as the Gini coefficient, tell a similar story.
To support the narrative of ‘soaring wealth and damaging wealth gaps’, the RF therefore has to fall back on an absolute measure of inequality in ‘pounds and pence’. In particular, the report notes that the ‘wealth gap’ between the richest and poorest tenth of households has risen by nearly £400,000 between 2006-08 and 2016-18 (from £1 million to £1.4 million).
However, I’m struggling to see why this should matter – or at least why it should matter more than the usual measures. Obviously, a given percentage increase in wealth or income will be bigger in ‘pounds and pence’ for the rich than the poor. But shouldn’t we focus on whether or not the poor are better off in absolute terms?
The RF’s answer here relies heavily on survey evidence suggesting that many people think that UK wealth inequality is ‘higher than desirable’. But again, so what? I’m pretty confident that many people also think that both wealth and income inequality are much higher than they actually are, and have risen sharply. After all, isn’t this what large parts of the commentariat are always telling us? It would be good if more were being done to correct these misconceptions, rather than reinforce them.
Similarly, the UK is not the international outlier that many would have us believe. As the RF report acknowledges, the UK is in the middle of the pack in terms of the shares of wealth owned both by the top one per cent and the top 10 per cent. (The comparable OECD data shows the same is true of various measures of income inequality, including child poverty.)
The UK only stands out (with the US) on a more complicated measure that compares the gap between mean net household wealth for the wealthiest 10 and poorest 60 per cent of households as a multiple of median disposable income. I’d need to think further to get my head round the importance of that!
In the meantime, the RF’s analysis of the impact of the coronavirus crisis is inevitably incomplete, as we only have limited data. Ironically, it wouldn’t surprise me if overall wealth inequality has actually fallen on the RF’s preferred ‘pounds and pence’ measure, simply because the very richest had more to lose to begin with.
Equity prices are still well below their pre-crisis peaks, while ‘fat cat’ bonuses and dividend payments have typically been put on hold. It is harder to tell what is happening in the housing market, given the lack of transactions, but property values are widely expected to fall this year too.
Instead, the report has focused on the impact of the pandemic on household savings and debt. The RF does this sort of thing well, although the conclusions here are not surprising: lower-income households are less likely to have savings to fall back on and more likely to have taken on extra borrowing to cope during the crisis.
Finally, what are the implications for policy? In my view, this report puts too much emphasis on more state intervention as the solution to the problems that do undoubtedly exist. Like most commentators, the RF’s instincts are towards wealth redistribution. The emphasis is therefore on higher taxes (especially on wealth itself), higher public spending (especially on welfare benefits), and more state intervention generally (such as an extension of the job retention scheme).
In contrast, the RF has little to say on wealth creation, or other market-led measures that might tackle the problems of uneven wealth distribution at source. For example, a key driver of wealth differentials, particularly between regions, is the high level of house prices. Liberalisation of planning laws would go a long way towards solving the problem here. Similarly, lightening the tax and regulatory burden on employers would be more effective at protecting jobs in the long term than continuing to subsidise large numbers of workers to do nothing.
That’s a debate for another day. Overall, the RF report is a decent piece of work and well worth reading. But I’d still take the headlines – and conclusions – with a large pinch of salt.
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