We need to spread capital ownership to build an economy that works for everyoneby Carys Roberts / October 26, 2017 / Leave a comment
Labour and the Conservatives are currently searching for an answer to different questions: how to transform the economy on the one hand, and restore support among the under-45s on the other. Surprisingly perhaps, part of the answer to both lies in the same approach: to get serious about reshaping the distribution of capital and wealth in the economy.
In a discussion paper for the IPPR’s Commission on Economic Justice, we have looked at the dimensions and drivers of increasing wealth inequality in the UK today. Our research shows that the wealthiest ten percent of households have in aggregate five times the wealth of the bottom half of households. What’s more, the share of total wealth of the top 10 per cent has been rising—from 46.7 per cent in 1984, to 51.9 per cent in 2013.
Understanding these inequalities and why they’re increasing requires looking at three different components of wealth: financial wealth, property wealth and pension wealth (we exclude other physical wealth as it is relatively evenly distributed, and data on its value is incomplete.)
The first of these is the most unequally distributed. One third of adults in the poorest fifth of households have no savings at all held for a ‘rainy day’ or unexpected expenses, and half of adults in this group have debts that are at least 83 per cent of their annual income. Household debt—negative financial wealth—is also rising. If recent trends in unsecured debt continue, the average household in ten years will have 39.8 per cent more unsecured debt than the average household today. By contrast, at the top end of the distribution, the 10 per cent wealthiest UK households directly own an estimated 77 per cent of all stocks and 64 per cent of bonds. This matters hugely, because equity returns have been higher than economic growth and wage growth in recent years: the average quarterly net rate of return for private non-financial corporations between 2007 and 2017 was 12.02 per cent, while wages are experiencing their longest period of sustained stagnation in 150 years.
The other major driver of rising inequality since the recession has been the property market. Home ownership grew among all regions and income groups during the 1990s and early 2000s, helping to compress wealth inequality. However, home ownership has been falling since…