UK wealth gap hits record £1.2million

High wealth disparity implies many households lack a financial buffer against income shocks and cost-of-living rises

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The wealth gap between the top and middle tenth of UK families has reached a record £1.2 million per adult, according to a new Resolution Foundation study published today (Wednesday).

‘Arrears Fears’ analyses the magnitude and repercussions of Britain’s recent wealth boom, which has generated large wealth inequalities across people, localities, and age groups.

However, despite allegations of growing wealth disparity, overall wealth inequality in the UK has been steady (albeit high) since the mid-1980s, with the richest 10% of households regularly possessing half of total wealth.

Total household wealth holdings have more than doubled from three times national income in the 1980s to almost eight times national income in the most recent data, with over 50% of total wealth accumulation (excluding defined benefit pensions and pensions-in-payment) since 2006-08 due to ‘passive’ factors, such as rising asset prices.

In 2006, the average family in the richest tenth of households had about £900,000 more per adult than a family in the middle (fifth) decile. By 2020, that disparity had grown to over £1.2 million per adult (even after accounting for inflation).

Wealth discrepancies are global. The wealth gap between the richest 10% and the poorest 40% of families in the UK was second only to the USA in 2017 at 107 times median disposable income.

The report’s authors claim this discrepancy indicates how household wealth has soared but salaries have stagnated.

High wealth disparities can affect people’s capacity to create money, own property, and improve their lifelong living standards, while a lack of wealth might restrict people’s ability to resist unanticipated shocks and growing costs.

Aspirations once attainable for some less-wealthy households, such as saving and becoming a homeowner, are increasingly out of reach. The amount of wealth needed to move up and buy a home has grown, but salaries have not.

While wealth inequality has stayed flat, this hides fundamental differences. The percentage of total wealth owned by individuals 65 and older climbed from 42% in 2006-08 to 51% in 2018-20, whereas younger cohorts are acquiring wealth considerably more slowly.

London and the South East are pushing away, therefore wealth isn’t ‘levelling’ South of England families’ proportion of total wealth climbed from 42% in 2006-08 to 46% in 2018-20. This tendency, paired with low property ownership, helps explain London’s wealth disparity.

Changes in private wealth accumulation accentuate these disparities. Increasing asset prices primarily benefit those who already possess assets; a typical family in the middle (fifth) wealth decile received a 7% two-year asset price return between 2016-18 and 2018-20, while those in the bottom wealth decile saw no returns.

‘Active’ accumulation, such as saving and paying off debt, is harder for less-wealthy households. A family in the 80th wealth percentile had a 37% growth in wealth between 2006-08 and 2018-20, whereas a family at the 40th wealth percentile saw no increase.

High wealth disparity implies many households lack a financial buffer against income shocks and cost-of-living rises.

Before the pandemic, the lowest-income tenth of households was four times more likely to have no savings than the top decile. 43% of families in the lowest wealth decile said 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.”

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