It’s about inequality, stupid! Inequaltiy is without a doubt the most pressing economic issue of our day, as is climate change for our planet.
This year, average wages are set to be flat. British households, meanwhile, are in the middle of a projected four-year income stagnation. And our productivity has barely risen since the 2008 financial crisis.
Pay, incomes, productivity – that all are flatlining is the defining feature of our economics and our politics today. There’s a reason calling a general election in 2017, as wages fell, was a risky choice by Theresa May.
But one economic number that we rarely discuss has been increasing for some time: wealth. The value of land, it was recently reported, has increased by 412 per cent since 1995; UK households have £12.8tn of wealth. Crucially, our wealth is growing much faster than our income. Between 1955 and the 1980s, wealth was steady at two and a half times national income. Today, it’s closer to seven.
Why does wealth growing much faster than income matter? Because it means that in 21st century Britain, it is no longer truly possible for someone to earn their way to wealth. The entry price to become one of the wealthiest 10 per cent of families is now £1.2m. A typical family, with an income of just over £28,000, obviously can’t expect to make it into that club – they’d have to bank every penny for 43 years. But even a family doing particularly well, with an income of £60,000, putting them in the top 10 per cent by annual income, would have to save everything for 20 years to reach the wealthiest 10 per cent. Or, to put it another way, they will never get there.
And that’s before the second trend – a wealth inequality tipping point. The 20th century delivered huge reductions in wealth inequality. You may have noticed there are fewer landed gentry about. By some estimates, the top 1 per cent had 70 per cent of all wealth in 1900. World Wars, progressive taxation and surging home ownership reduced that to less than 20 per cent by the 1980s. But there is no guarantee this trend will continue: property wealth is now becoming more unequally distributed with home ownership falling. That should trouble us all: inequality of wealth is almost twice as high as that of income.
If these two trends continue, only those born into money, or who marry into it, will constitute Britain’s wealthiest. That reality should alarm socialists on the left and meritocrats on the right. To paraphrase the French economist Thomas Piketty, who was born with what and who marries whom might make for a good Jane Austen novel, but it can’t be an acceptable answer to the kind of country we want to build.
What should all of this mean for politics and policy? Some of it is far from inevitable and reflects unambiguous policy failures. Building more homes and reducing incentives for people to demand second or third houses should be an immediate priority.
We also need to actively address wealth inequality by helping more people build some assets up. The success of pension auto-enrolment in enabling more women and low earners to save for retirement needs to be replicated for the self-employed. And we should revive the idea of asset-based welfare – because the state should help low-income families acquire assets, not merely subsidise their low incomes.
Inheritances, which are forecast to double over the next two decades, are crucial. Encouraging families to share that wealth around would help, so inheritance tax should be paid by recipients with an allowance, rather than by estates. Collective inheritances, such as social housing and decent infrastructure, are also a vital way to ensure that Britain has something to offer you even if your parents can’t write a cheque.
Though we can’t stop wealth playing a big role in society, we can make it pay its fair share. Wealth has more than doubled as a percentage of national income since the 1980s, but the amount of tax we collect from it has been frozen at around 4 per cent of GDP.
Poorly thought-through manifesto raids on wealth are unwise, but inaction on its taxation is not tenable given the strain on the public finances in the coming years, as Britain’s large baby boomer cohort (who hold a disproportionate amount of this wealth) move from paying taxes to receiving pensioner benefits. If wealth doesn’t take more of the strain, income or consumption taxes will have to – or our public services will deteriorate.
Wealth differences also risk bleeding into other areas of life where they do not belong. Wealth status could determine not only where you live, but the education you get, the risks you can take and the jobs you can do. Policy should aim to directly counter those pressures. And we must, at all costs, stop these wealth gaps infecting our politics by introducing further controls on election spending.
As a country, we find discussing wealth rather awkward. But that’s something our politics will have to overcome – because wealth is profoundly reshaping Britain.
This article originally appeared in The New Statesman