Quick, quick, change the system of measurement!
If the way we usually measure things doesn’t allow us to go and steal everything from the rich we must, of course, change the system of measurement in use:
From a historical perspective, wealth inequality in the UK is not particularly high now. Go back a century, and participants in the 1926 General Strike lived in a society where around 90% of all wealth was held by the richest 10%, and 60% of all wealth by the richest 1%. Today, a little less than 60% of wealth is held by the top 10%, and about 20% by the top 1%. Those numbers have barely budged since the mid-1980s.
Nor is UK wealth inequality particularly high by international standards: the top 1% share is lower here than in France, Germany, Sweden, Norway, Spain, Italy, Canada, Australia and the US, according to the World Inequality Database.
That’s very boring, isn’t it? No justification to dispossess the rich there! So, change the system of measurement:
But to focus solely on the headline statistics is to miss the more complicated, and more concerning, changes underneath.
For starters, household wealth – the value of houses, pension pots, bank accounts, financial investments and other assets – has soared in recent decades. It has consistently grown faster than the overall economy. In 1991, the wealth of all households in the UK amounted to roughly three and a half times annual GDP; it’s now more like seven times.
So, even if the richest households have a similar percentage share of the total as they did in the past, their level of wealth has shot up, and the absolute gaps (in pounds and pence) between the haves and have-nots (or between the haves and have-mores) are wider.
Ah, more complicated, we get to have those swingeing taxes now. Huzzah.
Financial investments isn’t, particularly, a part of the problem. The most recent set of household wealth statistics isn’t all that reliable - a change in how pensions are valued is to blame there - but going back a release or two UK household wealth was of the order of £16 trillion. Financial instruments about £2, £2,5 tr of that. Not the problem. We can never quite recall whether it’s housing equity is £6tr and pensions £7 tr or the other way around but it’s of that order. Around, you know, -ish.
One observation from this is that GDP is the income we gain from the society capital has at its disposal. If that multiple is falling then clearly we are becoming less efficient at sweating income out of capital. Perhaps that’s something we might want to take a look at. You know, free up the ability to invest, kill off some goodly portion of the lanyard classes and so on.
It’s also possible to consider this another way. From those 1990s to today is when the previous changes in pensions came to fruition. In that wealth number we do not count “unfunded” pensions, Pay As You Go and so on. So, the state pension and certain public sector ones - doctors say, civil servants - are not counted. All fully funded ones are. Further, this past 50 years has seen a considerable - like a many times multiple - extension of the years likely to be spent in retirement. People are, logically and rationally, saving more to fund their old age. It’s difficult to see this as a problem that requires swingeing taxation to reverse.
Housing equity, yes, that is a problem. House prices are much too high. They are falling - in real terms and even more as a multiple of incomes - but we should do very much more about this. Abolish the Town and Country Planning Act 1947 and successors, pave the green belt, this would do it. That is, an actual solution even if one that does not contain the desired swingeing taxation.
As is so common if the usual system of measurement doesn’t lead to the desired policies being recommended, then change the system of measurement. Thus this switch from inequality of wealth to levels of wealth. Sadly for the attempt here even that does not work. We want people to have pensions to tide them through those golden years and lowering house prices requires only the dismantling of the nationalisation of land use. No taxes required at all.
This is, that absence of taxing the rich until the pips squeak, not what is desired. Which is why so many decide to miss the more complicated, and more concerning, changes underneath.
Tim Worstall