Britain is a wealthy country, but the gap between our richest and poorest 10% is now, the US excepted, the highest in the developed world. Accelerating since the financial crisis, wealth inequality casts a shadow over all our lives, affecting health, housing, education, productivity, enterprise, the media and even the vitality of our democracy.
It has reached the point, a Fairness Foundation report last week argued, that the threat to our collective wellbeing means it should join climate change and terrorism on the government’s national risk register.
It is an eye-catching claim – as dramatic in its way as the “wealth defence industry’s” counterclaims that taxing wealth more will lead to an exodus of the rich overseas, a collapse of enterprise and the loss of valuable sources of philanthropy. The great merit of the Wealth Gap Risk Register report (full declaration: I chair its editorial advisory board) is that it makes the case for a more equitable distribution of wealth – not in terms of socialism or the superior morality of collective action; instead, it invokes the much more powerful and unarguable principle: fairness.
A fair society is one where the distribution of income, wealth, opportunity and risk is such that it would not matter where and to whom you were born. It is one where the quality of all our lives is closely and proportionally linked to the economic and societal contribution we make. Undermine those principles, and the ties that bind society into a functioning whole start to unravel. Britain is at that point, although few understand just how vast the wealth gap has become.
Chancellor Rachel Reeves has to raise taxes, in particular on wealth, on 30 October of course to plug a fiscal gap. But she should frame the argument more fundamentally. The bigger reason is to promote fairness in a very unfair society – in terms of whose taxes she will raise, the public services she wants to protect and improve and the growth she wants to engineer. The public understand fairness intuitively: they smell a rat if there is too much political blame-shifting.
Wealth distribution in Britain reeks of unfairness. One of the truths about wealth since time immemorial is that the more you have, the more you will accumulate: wealth begets wealth. Thus the decision to inject cumulatively £895bn in cash (quantitative easing) into the banking system between 2009 and 2021, to keep the credit system and the economy afloat after the financial crisis, was certain to increase house prices and unfairly. Homeowners in London and the south-east would do better than homeowners elsewhere because their homes were more highly priced – and the middle-aged and elderly would do better than the young, who have yet to buy, along with ethnic minorities, who own very little. So it has proved.
Half of British wealth is in property, so unsurprisingly the wealth gap between the top and bottom 10% grew from £7.5tn to £11tn between 2011 and 2019 as house prices increased. The north of England, home to 30% of the population but only 20% of wealth, has fallen even further behind.
There are other factors driving the wealth gap. “A typical person from a Bangladeshi, black Caribbean or black African background has no significant wealth,” says the report, “in contrast to the typical white Briton who has a household net worth of £140,000.” That gap has widened over the past 15 years too, as has the average division of £100,000 between men and women – even wider in older age groups. Gifts and rewards from inheritance have climbed to run at £100bn a year: they are projected to double again to £200bn by 2040.
This degree of unfairness has consequences for everyone. The absolute level of house prices and how they are distributed around the country is a ball and chain not just on economic growth, but also a healthy value system. Finite capital in the banking system underwrites not lending to young or growing enterprises but instead the credit to sustain incredible house prices, the highest relative to income in London since the 1880s.
This grotesque misallocation of resources reflects itself in the young being priced out of the property market; people outside London and the south-east being unable to migrate in for jobs; and ghetto neighbourhoods of rich and poor. As damagingly, it sends a signal that the route to wealth is not the gruelling business of starting and growing a value-creating company, it is to buy and sell property,; the quintessential example, buy-to-let empires. Wealth inequality is the handmaiden of rent-seeking, extractive, low productivity capitalism.
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It is also entrenches the already strong British tendency to hoard opportunity. Britain’s unfair education system, educating more students in expensive private schools as an avenue to high-status universities than any other developed country, is only sustainable because there is theextravagant excess of wealth to pay the fees. Again, there is a spillover on cultural values and priorities; vocational training has a permanent Cinderella status.
Even democracy is threatened. Wealth finances the capacity to lobby and generate knowledge and ideas that favour the rich rather than common interest outcomes. Very little of our media is particularly profitable; it is much easier to recruit rich individuals from the pool of the wealthy prepared to underwrite an otherwise uncommercial media to make wealth defence arguments than it is to support a more liberal media. Media bias is not a law of nature, it is an outgrowth of wealth inequality.
What is to be done? First, reframe the argument. It is not wealth itself that is the problem, rather it is disproportionate wealth and the way it has been won. Dial down talk about growth in the abstract: dial up the need for Britain to build the next generation of great, consequential companies, and their value to all of us, and acknowledge the deserved personal fortunes that might be made in the process.
That then creates the space to differentiate between value-generating and extractive wealth, and the dangers of an economy and society over-reliant on high property prices. The former should be encouraged, the latter discouraged – hence the case for tougher inheritance tax, introducing a proportional tax on all residential property instead of regressive council tax, and aggressively taxing the gains from land development.
Beyond that, invest in everything that advances opportunity for citizens who don’t have assets behind them – education, profit-sharing, employee share ownership, child trust funds, social housing – and do everything possible to make our shared public square less the preserve of the rich. Fund political parties with public money; advance public service broadcasting and journalism. And never forget Francis Bacon’s 400-year-old epic line: “Money is like muck, not good except it be spread.” When it is in a budget speech, we’ll know the times are changing.