Debates about income inequality can throw up some surprising figures. But wealth inequality – the subject of Professor Karen Rowlingson’s (University of Birmingham) ESRC sponsored Chalk + Talk session here at the SMF today – is even higher. The top 10 per cent of the population own 100 times more than the bottom 10 per cent, and while people in the top 1% have an average net wealth of £2.6 million those in the bottom 1% actually have negative wealth.
Part of the reason for this is the fact that those who are older will have had longer to accumulate assets – to buy a home and pay off the mortgage, to save up and to contribute into a pension scheme. If this was the only factor driving wealth inequality, perhaps there would be little to worry about: those who are younger may currently have no or even negative wealth (i.e. be in debt), but they could look forward to sailing up to the top echelons of the wealth distribution as they age. But in fact this can only explain part of the wealth inequality issue. Even among those aged 55-64, there is significant inequality: a tenth had net wealth of less than £28,000; but the top tenth had wealth of more than £1.3 million. And whilst some wealth may be earned – and seen as a just reward for working hard, coming up with a new innovation or simply saving more – much wealth is unearned.
Professor Rowlingson argued that this is problematic for several reasons. From a financial perspective, it means that some have significant savings to rely on in retirement and in case of a rainy day; others have almost nothing. Evidence also suggests a link between wealth and health and wellbeing; and between the wealth of parents and the educational and employment opportunities of their children.
And the potential damage to society of wealth inequality could go beyond this. It could, for example, pose a threat to the current political system, if the wealthier are able to gain greater influence over politics and politicians. And indeed, polling by the University of Birmingham finds that over 70% of people think that large differences in people’s wealth give come people too much political power. And a similar number also think it makes Britain a more divided country.
Given the size of the gap between rich and poor, there is a surprising lack of political – or even public- outcry. The Occupy movement has gone quiet. Astonishingly, the poorest in the society are the ones who would least favour redistribution of wealth in the form of inheritance taxes. One reason for this apathy could be the fact that a significant amount of the inequality in wealth has been driven by home ownership and the housing market. And the British public has a somewhat love-hate relationship with house prices.
An even more likely explanation is the huge difference between perceptions and reality. As shown in the chart below from a report co-authored by Professor Rowlingson, wealth inequality is far higher than most people realise. In fact, most people think that wealth distribution is pretty close to what the ideal distribution should be. As in so many cases, perceptions is what drives politics.