Sadly, the IFS is wrong here


The IDS has a report out talking about how wealth is unequally distributed in the UK. And it's a good report, ticks all of the procedural boxes and emphasies one very important point. It's also entirely wrong.

The full extent of the wealth gap between Britain’s rich and poor has been laid bare by a thinktank report showing that 9% of households have no assets while 5% are worth in excess of £1.2m.

The study by the Institute for Fiscal Studies shows that the UK is a more unequal country when measured by wealth – the value of assets such as housing, pensions and shares – than it is when measured by income.

Obviously wealth inequality is higher than income: it's possible to have that negative wealth and we don't ever measure negative incomes. And the report (here) does emphasise an important point, that there's a life cycle to wealth. Generally, the young have no wealth, those on the verge of retirement are at the wealthiest they will be and then wealth declines as pensions are drawn down.

Except the report is still wrong. Because it doesn't include any of the things that we do to reduce the effects of wealth inequality. On pensions, for example, a private pension, or a public one earned from a job, is wealth: which it is. But the state pension is not wealth. and yet it's wealth in just the same sense that the other pension rights are.

Similarly, we count housing equity: but a lifetime tenancy at below market rents, like a council house, is also wealth and we don't count it.

The net effect of this is that all such reports (and we must emphasise that all such reports do work this way) measure the gross wealth inequality. It's as if we measured income inequality only by market incomes. And we don't, we measure income inequality after the influence of the tax and benefit systems. We ought to measure wealth inequality the same way but we don't.

After all, what we want to know is, should we be doing more here? And we cannot possibly even think about that until w know the situation after what we do do.