Soaring levels of wealth across the UK, coupled with high levels of wealth inequality, mean that the wealth gap between the top and middle tenth of households in the UK has grown to a record £1.2 million per adult, according to new Resolution Foundation analysis published today (Wednesday).
Arrears Fears, the Foundation’s third annual wealth audit of Britain – in partnership with the abrdn Financial Fairness Trust – examines the scale and consequences of Britain’s recent wealth boom, which has created huge wealth gaps between people, places and age groups.
The audit notes that, despite widespread claims of rising wealth inequality, levels of overall wealth inequality across the UK have remained stable (but high) since the mid-1980s, with the richest tenth of families consistently owning around half of total wealth.
Instead, the big change over this period has been total household wealth holdings more than doubling – from around three times national income in the 1980s to almost eight times national income in the most recent data, with over 50 per cent of total wealth accumulation (excluding defined benefit pensions and pensions-in-payment) since 2006-08 occurring because of ‘passive’ factors, such as rises in asset prices over time.
As a result, while in 2006 the average family among the richest tenth of families held wealth of close to £900,000 more per adult than a family in the middle (fifth) decile, by the start of 2020 that gap had increased to over £1.2 million per adult (even after accounting for inflation).
These wealth gaps are also striking at an international level. Although the share of wealth owned by the richest 10 per cent in the UK is equal to the unweighted OECD average share, in 2017 the gap in wealth between the wealthiest tenth of households and the poorest 40 per cent of households in the UK was second only to the USA, at 107 times median disposable income.
This gap shows how household wealth across Britain has boomed even while household incomes have stagnated, say the report’s authors.
These gaps matter, the authors add, because persistently high wealth gaps can impact people’s ability to accumulate wealth, own property and boost their lifetime living standards, while a lack of wealth can limit people’s ability to withstand unexpected shocks and rising cost pressures.
Aspirations that used to be achievable for at least some less-wealthy households – such as moving up the wealth distribution through saving and becoming a homeowner – are increasingly out of reach. This is because the amount of accumulated wealth required to move upwards and purchase a home has increased, but incomes have not.
And while overall levels of wealth inequality have remained flat, this masks important underlying divides.
The report shows that the share of total wealth owned by those aged 65 and older rose from 42 per cent in 2006-08 to 51 per cent in 2018-20, while younger cohorts are now accumulating wealth at a much slower rate than older age groups were at the same age.
Wealth is also not being ‘levelled up’, as London and the South East are pulling further away. The share of wealth held by families living in the south of England, including London, rose from 42 per cent of total wealth in 2006-08 to 46 per cent in 2018-20. This trend, combined with low levels of home ownership in the capital, also helps to explain why wealth inequality within London is so high.
These divides are being exacerbated by changes in the way in which private wealth is accumulated. Increasing asset prices only benefit those who already own assets – meaning that the typical family in the middle (fifth) decile of the wealth distribution experienced a 7 per cent two-year asset price return between 2016-18 and 2018-20, while those in the bottom wealth decile saw no returns in the same period.
At the same time, ‘active’ accumulation – such as the building up of savings and the reduction of debts – has become increasingly difficult for households who are not already wealthy. A family at the 80th wealth percentile has seen wealth increase by 37 per cent between 2006-08 and 2018-20, while a family at the 40th wealth percentile has seen no real wealth increases.
Worryingly, high wealth inequality also means that many families do not have a financial buffer against income shocks and cost of living increases.
Before the pandemic, the lowest-income tenth of families were four times more likely to have no savings than families in the top income decile, while 43 per cent of families in the lowest wealth decile reported that they would run out of money within a week if they lost their main income source.
Jack Leslie, Senior Economist at the Resolution Foundation, said:
“Levels of wealth inequality in the UK have remained high but steady since the 1980s. But, thanks to a multi-decade wealth boom, the UK’s wealth gaps are now the highest on record. The UK is second only to the US when it comes to wealth gaps in advanced economies.
“Milestones such as building up savings and becoming a homeowner are increasingly out of reach for those who are not already wealthy, while the cost of living crisis is exposing families who have no financial buffer to cope with rising cost pressures.
“Policy makers must prioritise supporting these wealth-less households during the current crisis, as well as recognising how wealth is reshaping Britain, and not always in a positive way.”
Mubin Haq, Chief Executive of abrdn Financial Fairness Trust said:
“The nation’s wealth continues to grow, now nearly eight times national income. However, these gains are unequally shared, with wealth at the top soaring ahead of others.
“As the cost of living crisis deepens it’s those on lower incomes who are most in need of a savings buffer to help them through these hard times. Yet they are the ones who are less likely to have any assets and have seen little growth in any assets they do own. Increasingly the UK is becoming fragmented and divided with too many families facing a bleak future."