2 February 2018

Why wealth inequality is nothing to worry about


The Office for National Statistics has published its latest analysis of Wealth in Great Britain. Much of the interest in such studies focuses on the distribution of wealth and how it has changed over time.

There is something potentially rather sinister about studying the distribution of wealth. Wealth is the property of people, not things people do. My property is mine, just as much as my hair or my eyesight or my sense of humour are mine. Suppose the government gathered statistics on the distribution of baldness or eyesight, and when figures were published, every year there were suggestions that it was unfair that some people were less bald or had less good eyesight, so those who were less bald should have their heads shaved or those with better eyesight should be denied eye health checks, so as to even things up. Would that not seem rather sinister?

The only legitimate questions about the distribution of wealth concern whether it is truly the property of those that possess it, as opposed to having stolen or extorted it.

Nonetheless, the statistics are published and people do indeed call (properly or improperly) for “something to be done” about some people having more property than others do. So, what do the latest statistics say?

Probably the key statistic on Great Britain’s distribution of wealth is that it has not changed over the past 10 years. The standard measure of inequality is called the “Gini coefficient”. That is defined such that if the Gini coefficient is 0 everyone has the same wealth, whilst if it is 1 then one person has all the wealth and all others have none. In Great Britain in July 2006 to June 2008, the Gini coefficient was 0.61. In the next two years it was 0.61. Then 0.61 and 0.63, before being 0.62 over the past two years. In other words, it simply isn’t true that there has been some large increase in wealth inequality in recent years. The current distribution is almost precisely what it was before the Great Recession of 2008/09.

There has been a bit of a change in the forms of wealth held at different parts of the wealth distribution. Financial assets have become a bit more unequally distributed (with the Gini rising from 0.81 in 2006-08 to 0.91 in 2014-16) whilst private pension wealth has become a bit more equally distributed (with the Gini falling from 0.77 in 2006-08 to 0.72 in 2014-16). But overall there has been no change. The common claim of the hard left that there has been a huge rise in wealth inequality in recent years is simply not borne out by the facts (not that it would necessarily be a “problem” even if such a rise had in fact occurred).

Some commentators suggest that the issue isn’t really that the proportionate distribution of wealth is becoming more unequal. The “problem”, they claim, is that wealth inequality was already very “high” and if the proportionate distribution does not become more equal as incomes rise, the absolute gap between rich and poor is rising over time.

Torsten Bell, Director of the Resolution Foundation, went so far as to assert that “As wealth grows vs income (as it has since the 80s) absolute wealth gaps between rich & poor grow. You can’t earn or save your way into being really wealthy — you’ll have to be born with it, marry or inherit it.”

Let’s set aside whether that would matter (it’s less obvious than you might think), and instead focus on whether it is actually true. From the Forbes list of British billionaires in 2017, in third comes James Ratcliffe (son of a joiner), in fourth the Livingstone brothers (sons of a dentist), in fifth Joe Lewis (son of a caterer), seventh the Barclay Brothers (sons of a travelling salesman), and ninth Laurence Graff (son of a suit maker). So half of the ten richest Britons were not born into money.

And what applies to the super-wealthy billionaire set also applies to thousands of lawyers, bond traders, surgeons and small businessmen who have become wealthy without being born into it, marrying it or inheriting it. Britain simply isn’t a place where people from humble backgrounds cannot get ahead. There are all kinds of issues with social mobility in Britain today, but they are not the result of wealth inequalities.

Wealth is property. If it has been innocently acquired, people should be able to enjoy their property without censure or the (quite incorrect) suggestion that their flourishing causes others harm. Wealth inequality is not, contrary to hard Left claims, rising. And wealth inequality does not prevent people from humble backgrounds from becoming wealthy. There are issues with social mobility in Britain, but they do not lie here.

Andrew Lilico is an economist and political writer.