One of  the missions that Labour committed to was to break down the barriers to opportunity for young people. Tom Clark argues that won’t be possible if the Labour Government doesn’t tackle the UK’s vast and vastly unequal wealth. 

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In the early years of this century, homeowning Londoners would joke with each other that they didn’t know why they bothered trudging out to work: you could put in all the hours you liked, but over the year your house would always “earn” more. Runaway property prices were regarded as an almost amusing absurdity. Only since the financial crisis have we come to understand prolonged house price inflation as a disturbing sign of the growing weight of wealth in our society — a development that has steadily reorder society so that one’s fortunes turn ever-less on “what you earn” and ever-more on “what you own.”

Over the years since 1980, the ratio of private wealth (accrued stocks of assets) to the ongoing flow of national income has steadily doubled, from about 3:1 to 6:1 or more. Recent interest rate rises may have dented the value of some assets, but new official data has just confirmed that the growth of (particularly unequal) financial wealth has continued through the period of the pandemic and beyond.

The new official figures showed the wealthiest 1 per cent of households held at least £3.1 million individually, and collectively as many assets as the whole bottom half combined.

In a recent paper for IPPR, I explain why Labour’s “mission” to “break down the barriers to opportunity… and shatter the class ceiling” will be mission impossible without some sort of reckoning with the wealth question. For one thing, wealth tends to be inherited. For another, it is always and everywhere much more unequal than earnings: a few sit on unimaginable fortunes, while others own less than nothing. The new official figures showed the wealthiest 1 per cent of households held at least £3.1 million individually, and collectively as many assets as the whole bottom half combined. For yet another, it ends up distorting who owns what.

Wealth creates opportunities, but for who?

Big Wealth creates what ­– at first blush – might look like big opportunities. If, in particular, it unlocks deep investment in education, then the standard neoclassical economic account promises enhanced “human capital,” productivity and, before long, wages. That should give us a story not of wealth displacing work, but wealth facilitating better work.

There has been a 55 per cent real-terms increase in British private school fees over the last 20 years, a contrast with 15 years of stagnation in spending on state school pupils.

An awful lot turns, however, on the question about better work for whom. There are a range of channels – outstanding kindergartens, home tuition, “enriching” activities, private schools, elite universities – by which the burgeoning financial resources of well-to-do parents are channelled into the attainment of their offspring. One marker is the 55 per cent real-terms increase in British private school fees over the last 20 years, a contrast with 15 years of stagnation in spending on state school pupils.

Irrespective of whether parental wealth is truly stretching ability or merely entrenching advantage, its effects over the course of individual lives are apparent.

Even as he marvels at the effectiveness of all such “investment” in the US, Daniel Markovits fears it is creating a “meritocracy trap,” in which privileged youngsters can perform with spectacular efficiency, although only at the price of them working with a “crushing intensity” that renders them miserable. In Know Your Place the LSE’s own Faiza Shaheen takes an even bleaker view. She doesn’t see any productivity boon from all the costly grooming, instead stressing its role in merely “signalling” suitability for top jobs, introducing youngsters to privileged social circles, and inculcating a confidence in their own abilities, which – even when misplaced – is alluring to employers.

Irrespective of whether parental wealth is truly stretching ability or merely entrenching advantage, its effects over the course of individual lives are apparent. Investment at one step on the ladder of learning helps with reaching the next. Top universities including St Andrews, Imperial College, Edinburgh and Oxford take over 30 per cent of their UK students from private schools, around double the 17 per cent private-school share of all sixth-formers.

Wealth begets wealth

All this investment in education contributes towards another twist – Big Wealth is enabling a lucky minority to enjoy more income, earned as well as unearned. Yonatan Berman and Branko Milanovic have coined an ugly new word – “homoploutia” – to describe the same people enjoying an abundance of both capital and labour income. Looking ahead, if the wealthy can ensure their children don’t merely inherit more, but also earn ever-more than their peers, we can expect social sclerosis.

There is burgeoning evidence from across the life-course that this is exactly what Big Wealth is delivering. Wealth is strongly persistent across generations, and compounds the traditional story of class advantage because it is more persistent than earnings, especially at the top end. Children of wealthy parents receive more higher education, earn more, save more, and receive vastly more in financial gifts.

Under-40s who were raised in rentals now have less than half the chance of their contemporaries whose parents were homeowners to own themselves.

Sure enough, all this determines who does – and who doesn’t – get to buy a house. The collapse in homeownership among younger cohorts is familiar; the incidence of that collapse across society is less understood. The absolute fall in owner-occupation under-40s raised in rented homes themselves has been twice the drop for those whose parents owned their homes, and from a lower base. All told, under-40s who were raised in rentals now have less than half the chance of their contemporaries whose parents were homeowners to own themselves. Housing wealth begets housing wealth.

All this plays out before we get to the typical age for inheritance. Inevitably, those at the top bag bigger bequests, and the value of the unequal windfalls have surged: whereas for those born in the 1960s, inheritances typically boosted lifetime consumption by 8 per cent, for the 1980s cohort that is 14 per cent. Those on the wrong side of this divide can no longer catch up by putting in longer shifts: between these same two generations, median inheritance is set to rise from four times to eight times average annual earnings.

The LSE’s Aaron Reeves and Sam Friedman have now very directly confirmed that children of the wealthiest 1 per cent are heavily over-represented right across the top echelons of British professional life.

Wealth affects what jobs you can go for

When some, but not all, enjoy a platform of material security from which to try risky things that skews everything, from who gets the chance to start their own business to the composition of the creative professions. Wealthy parents with spacious homes, for example, can offer board and lodgings through the long spells between acting jobs, which is invaluable for building a stellar career. A systematic sociological study quantitatively bears out this intuition — and explains the disproportionate number of old Etonians on our TV screens. It lays bare a gulf of experience between aspiring performers with wealthy parents, one of whom confides the importance of being able to “call mum,” and working-class hopefuls stuck in dead-end jobs to pay the bills in flats far from any theatre, a way of living which one describes as “skidiving without a parachute.” It’s not only the arts that are affected: a sociological probe into Britain’s scientific elite found “recruitment from working‐class families has declined and for most recent birth cohorts almost ceased.”

By crunching 130 years’ worth of entries in that great national bible of British snobbery Who’s Who, the LSE’s Aaron Reeves and Sam Friedman have now very directly confirmed that children of the wealthiest 1 per cent are heavily over-represented right across the top echelons of British professional life. Always strong, the “propulsive power of wealth” has not recently diminished but grown – the proportion of Who’s Who entrants with super-rich parents has actually risen since the 1990s.

In conclusion, the effects of Big Wealth is plain on all those gauges, of how far people travel from the station in life they were born into, that Labour’s mission statement admirably commits to monitoring.

Higher taxes on capital can be one part of the answer, but as I’ve written elsewhere, they are unlikely to be a complete one.

Free breakfast clubs and some extra teachers are important for ensuring decently-fed pupils in adequately-staffed classrooms. They may offer some social progress without ruffling too many feathers. But such steps can never overpower the logic by which wealth transforms itself into advantage. Higher taxes on capital can be one part of the answer, but as I’ve written elsewhere they are unlikely to be a complete one. A more comprehensive response must involve deploying the full raft of public policy decisions – from financial regulation to planning reform and defining the limits of intellectual property – to reduce the weight of assets that accrue at somebody else’s expense, while building those that can provide opportunities for those other than owners to earn more.

Many of the facts I quoted have been unearthed at the Institute for Fiscal Studies whose Director, Paul Johnson, suggests a dark mantra for our age: “choose your parents wisely.” No Labour government would want that to be the final word on its tenure.

All articles posted on this blog give the views of the author(s), and not the position of LSE British Politics and Policy, nor of the London School of Economics and Political Science.

Image credit: agsaz in Shutterstock

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