Scotland, Wales and the North of England experience biggest falls in wealth since the pandemic

30 October 2023

Total household wealth in Britain has dipped dramatically since the pandemic, falling from 840 per cent of GDP in 2021 to around 630 per cent of GDP in early 2023 – but the impact of this fall has not been distributed evenly across the country, with Scotland, Wales and the North of England seeing the biggest wealth drops so far, according to new research published today [Monday] by the Resolution Foundation.

In its new report A wealth of variety – part of a partnership with the abrdn Financial Fairness Trust –the Foundation examines the effects of rising interest rates on household wealth in different regions and nations, and the extent to which this fall has impacted pre-existing regional wealth gaps.

A wealth of variety notes that pensions and housing make up the overwhelming majority of household wealth in Britain: together they account for almost £4 in every £5 of total household wealth, and played a major part in Britain’s four-decades-long pre-pandemic wealth boom. But house prices, at least so far, have not been affected as much by rising interest rates as pension valuations.

This means that while all areas of Britain have seen a substantial fall in wealth since the pandemic, it is lower-wealth nations and regions like Scotland, Wales and the North of England where lower house prices typically mean that a higher proportion of total wealth is held in pensions rather than in housing – that have seen the biggest drops.

Higher house price areas like the South and East of England, in contrast, have been impacted much less severely by the £2.2 trillion drop in wealth across the past year than other parts of Britain.

For example, while households in the South and East of England have so far seen a reduction in total household wealth of 19 per cent, and London a reduction of 17 per cent, the report finds Scottish household wealth has fallen by 26 per cent since the start of 2022.

However, the Foundation calculates that this situation may change in future: house prices have fallen by 7 per cent in real terms since September 2021, but, if interest rates have moved to a permanently higher level, it is likely that prices have further to fall. This would level out of some of the regional disparities in household wealth falls.

Falls in total wealth tend to be good news for younger people looking to save for retirement, as cheaper asset prices and higher rates of return mean having to save less to build up a decent pension. But there is also cause for concern here, the Foundation says, because while large proportionate drops in the value of pension wealth in Scotland, Wales and the North of England are unlikely to have major implications on the everyday incomes or living standards of people at or near retirement, falls in housing wealth could put some households at risk of falling into negative equity.

Should this happen, there will be significant regional differences in how people are impacted: a higher number of homeowners in the North East of England and in Scotland would be at risk compared to other areas: households are more likely to fall into negative equity when their mortgage balance is high compared to the value of their home (a high loan-to-value, or LTV, ratio).

Prior to the pandemic, the share of mortgaged households with LTV ratios of more than 75 per cent was 27 per cent in the North East and 21 per cent in Scotland, compared to just 7 per cent in the South East, East of England and London.

Looking ahead, the Foundation says that high levels of fluctuation in Britain’s total household wealth and in varied regional wealth patterns bring home the need for fairer, more effective wealth taxation across the country. Measures including ending Capital Gains Tax loopholes and reforming Inheritance Tax could help address some wealth inequalities.

The report notes that Council Tax, Britain’s largest wealth tax, remains an especially important target for reform: currently it is both highly regressive (in England, houses valued at £100,000 pay Council Tax equivalent to around 1.2 per cent of the property’s value each year, while houses worth £1 million typically pay just over 0.2 per cent) and inefficiently administered (Council Tax banding is based on house values in 1991 in Scotland and England, and 2003 in Wales).

Wales and Scotland have already taken some steps towards resolving these issues – although Scotland has recently chose to freeze Council Tax in 2024-25, rather than implement further reforms. The Foundation says it is high time England began reforms of its own.

Ian Mulheirn, Research Associate at the Resolution Foundation, said:

“Rapid interest rate rises have ended Britain’s wealth boom and caused total household wealth to plummet since the pandemic – but the impact of this fall has not been spread evenly across the country, with less -wealthy areas like Scotland, Wales and the North of England seeing the biggest wealth falls, and high-house-price areas like the South and East of England the lowest.

“While the situation may change in the future, these regional disparities again highlight the need for a range of reforms to insulate households against wealth volatility that transfers resources between generations based on luck. Fairer and more effective taxation of wealth is a critical part of that agenda – with Britain’s biggest wealth tax, Council Tax, in particular need of reform to make it more fairly targeted and less regressive.”

Mubin Haq, CEO of abrdn Financial Fairness Trust, said:

“Wealth is becoming even more divided across Britain. Those parts of the country with lower levels of wealth Scotland, Wales and the North of England have seen the largest falls in wealth. Increasingly we are becoming more polarised. Within all the regions and nations, wealth inequalities have grown over the last decade. There are ways governments can make this fairer, which is essential if we are to provide the economic security and safety net that millions need.”

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