Britain’s wealth is ever more concentrated in the hands of the few. Besides being grossly unfair, the sheer size of the wealth gap poses major risks to our economy, our society, our democracy and our environment, argues Will Snell of the Fairness Foundation. How should policymakers respond to such a multifaceted and strategic risk?

Between 2011 and 2019, the average UK household’s wealth grew by about £4,000, according to new analysis of official statistics that we at the Fairness Foundation commissioned recently. Those in the poorest 10% of households continue to have no wealth at all – many are in debt. By contrast, the average person in the top 10% of households was £280,000 wealthier over this period. It’s a stark contrast and we found that, overall, the wealth gap in the UK has grown by 50% over these eight years.

Wealth in the UK from a fairness perspective

Despite being an increasingly wealthy country, Britain’s wealth is ever more concentrated in fewer (private) hands, at the expense of millions of people and the public realm more generally.

The value of assets has grown enormously in recent years, and this factor alone accounts for more than half of all wealth accumulated since 2008. This is intrinsically unfair, in part because most wealth increases have been “passive”, rather than being earned through hard work or entrepreneurial brilliance. But it is also unfair because, while rising housing prices have benefited millions of Britons, those who are locked out of asset ownership have seen themselves falling even further behind. The lion’s share of the gains has gone to those who were already in the top 10%. Those in the top 1% have done especially well, and those in the top 0.1% even better.

Most wealth increases have been “passive”, rather than being earned through hard work or entrepreneurial brilliance – and the lion’s share of the gains has gone to those who were already in the top 10%

In today’s Britain, wealth – or its absence – has a much bigger impact on people’s lives and life chances than it did in the past. Young people from disadvantaged backgrounds who have overcome the odds to get into top universities and land coveted high-paying jobs are discovering that they still cannot afford to buy a house. They find themselves much further back in the queue than peers who may be less talented and less hardworking, but whose prospects have been transformed by a gift from the “Bank of Mum and Dad”.

Liam Byrne MP has written in his book The Inequality of Wealth about how unequal inheritances will make Gen Z the most unequal generation for decades. He tells the Guardian: “If you don’t have assets now, you’re screwed. You’ll never be able to afford them… The baby boomers are about to die. Five and a half trillion pounds of wealth is going to get transferred down the generations. Some people are going to inherit millions, and others are going to inherit care bills.”

The risks to society posed by the wealth gap

This isn’t just a moral outrage, however. The sheer size of the wealth gap in Britain, combined with its abject and obvious unfairness, has demonstrably negative impacts on our economy, society, democracy and environment. We recently published a Wealth Gap Risk Register, which assembles a broad body of evidence that catalogues these impacts – 41 in total.

The evidence base is still nascent – and we are looking for more of it, as outlined in the report’s methodology section – but it is increasing in size and scope every month. Among other things, it suggests that wealth inequality undermines productivity and growth, in direct opposition to the standard arguments wheeled out by the “wealth defence industry” that inequality is both a precondition for, and an inevitable side-effect of, a prosperous economy. This is because our economy has been disfigured: it’s been transformed from productive enterprise that creates wealth to a rent-seeking model that merely extracts wealth, redistributing it upwards. The evidence also shows how the wealth gap reduces social cohesion, damages faith in democracy (and undermines democracy itself, since the wealthy can exert undue influence on both political decision-making and electoral outcomes), and makes it harder to reach net zero.

These negative impacts of wealth inequality are already with us. But with the size of the wealth gap forecast to grow over the coming decades, the risk is that these existing impacts, which exacerbate each other, will only get worse over time. It is not unrealistic to speculate that we could see the negative impacts of wealth inequality snowballing in the UK over the course of the next couple of decades, if action is not taken. In the report, we go as far as to argue that wealth inequality is a significant driver of strategic risk to the UK as a whole, and that this risk is seriously underpriced by politicians and commentators. It exacerbates a range of existential risks, such as social unrest, failure to act on the climate crisis, economic stagnation and the decline of democracy. And it is a major risk to the achievement of all five of the government’s stated missions.

Wealth inequality is a driver of strategic risk to the UK as a whole, and this risk is seriously underpriced by politicians… It exacerbates a range of existential risks, such as social unrest, the climate crisis and the decline of democracy

Unfortunately, there is limited public awareness of the scale and breadth of the negative impacts of wealth inequality. However, most people have an intuitive sense that the increasing wealth gap is unfair in terms of both its causes and its consequences. Growing popular disengagement with mainstream politics is partly driven by this intuition, and is already damaging our democracy and social cohesion, with a risk of much worse to come.

How to shrink the wealth gap and mitigate its ill effects

The good news is that the problem is solvable, and the Wealth Gap Risk Register details 29 evidence-based policy solutions.

Shifting the UK’s tax burden towards the stock and accumulation of wealth would over time curb today’s excessive levels of wealth concentration. Reforming existing taxes on wealth would be more politically feasible than introducing a new wealth tax, but less effective at tackling wealth inequality. However, taxing wealth is not the only means of reducing the wealth gap. The government could also share wealth more broadly at source, through mechanisms like sovereign wealth funds, or regulatory approaches such as requiring worker representation on company boards.

As well as reducing the size of the wealth gap, the government could adopt approaches taken in many European countries to mitigate the impacts of wealth inequality, reducing the impact that having or not having wealth has on people’s lives. This could include measures to provide everyone with good living standards and life chances, such as investing more in public services, reforming the housing market and strengthening the social safety net. It could also include restrictions on the ways in which the wealthy can exert political influence, such as cleaning up the rules around lobbying and reforming how political parties are funded.

Left untouched, the wealth gap and its negative impacts on our economy, society and environment are likely to intensify over the coming years, to the point where they could spiral out of control. This poses a strategic risk to the UK, and it requires a multifaceted response across the whole of government, alongside the private sector and civil society. There’s no time to lose.

You can access the Wealth Gap Risk Register here.

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All articles posted on this blog give the views of the author(s). They do not represent the position of LSE Inequalities, nor of the London School of Economics and Political Science. 

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