\”Wealth inequality is very much greater than income inequality, and widening,\” Clegg said. \”The bottom third of households hold just 3% of the nation\’s wealth. The top third hold three-quarters of it. This inequality of wealth then cascades down the generations, potentially widening the opportunity gap.\”
The specific piece that isn\’t is this:
The bottom third of households hold just 3% of the nation\’s wealth. The top third hold three-quarters of it.
It\’s a function of how wealth is calculated.
Sure, there\’s wealth inequality, but it isn\’t as stark as these numbers. Because we have something called the welfare state which attempts to balance these inequalities.
For example, private pension savings are counted as wealth. State pensions are not. Houses owned are counted as part of wealth. The right to live for life in subsidised housing is not.
Yes the state pension is indeed wealth, it\’s a right to an income flow. As is council or social housing wealth. That\’s why we subsidise it, so as to provide wealth to those who do not have it.
To ignore this is to commit, as Christie has called it, the Worstall Fallacy.
It\’s just fine to measure the wealth gap, or incomes, or disposable incomes, in fact measure anything you like, raw. It\’s also just fine to measure such things after whatever is done to remediate what is considered to be unacceptable.
But it isn\’t fine to use the raw measures to argue that more remediation must be done. You must measure after the remediation that is already done so that you can decide whether further is needed or desirable.
To use an entirely trivial example to make the point. Old folks feel the cold more than the younger. Die of it more often for example. Might be a good idea to ship a bit of extra money to the old folks each winter to pay for the heating bills that they incur in not dying.
So, do we measure how much should be sent by assuming that none is? Or do we measure future action by acknowledging that we already send £300 to each such oldie? Might be oldie household, dunno.
Quite. Only an idiot would measure how much more we should be sending without referring to how much we already do.
Yet, and it pains me to have to point this out, the wealth gap is approached as an idiot. It is measured without taking account of what is already done to mitigate it, policy is proposed without taking account of policies already in effect.
That is, from Danny Dorling through to Nick Clegg, they\’re idiots, lying or ignorant. Clegg as a politician is almost certainly guilty of a mix of one and three. Dorling\’s certainly not ignorant and it seems a bit much to be accusing a Professor of idiocy.
Also a couple of non welfare state things that I’ve wondered about before:
1) Is the value of final salary pension schemes included as wealth? With a personal pension there’s an identifiable fund of investments attached to an individual, but with a final salary scheme that’s much more difficult.
1b) Even if they allocate actual final salary pension funds between the members, what about unfunded public sector schemes? The right to a future pension is an asset, equivalent to the savings in a personal pension fund.
2) What happens when you retire? The pension fund assets are sold to pay for an annuity, but is the future value of that annuity counted as wealth of the individual?
2b) Is the answer to (2) different depending on the type of pension scheme (personal, funded final salary, unfunded final salary)?
These can make a huge difference:
– the total national wealth of the UK is £7.3 trillion
(www.ons.gov.uk/ons/rel/mro/news-release/non-financial-balance-sheets-2011/uk-worth–7-3-trillion.html)
– total value of funded pension funds is £2.3 tr
(www.abi.org.uk/Facts_and_Figures/58288.pdf)
– total value of unfunded public sector pension schemes is between £1.1 and £1.4 tr
(www.iea.org.uk/blog/true-level-of-uk-government-debt-exceeds-%C2%A35-trillion)
That’s around half the total wealth of the nation (OK, depends what’s included in the total, but against that I’ve not included the value of funds help by annuity companies for personal pensions in payment).
If they misallocate half the wealth of the nation, their calculations are going to be pretty meaningless.
On social housing, “non-marketable tenancy rights” are worth £0.6 tr, 8% of the total wealth of the nation (ONS figures, above).
Not as big as pensions, but still a pretty important chunk to miss out.
I once annoyed a socialist friend by pointing out that he was a millionaire. “What do you mean?” Well, says I, your pension must be worth well north of half a million, and your state pension more than £100,000, so unless you have no savings and plan to burn down your house uninsured, you’re a millionaire. He huffed and puffed a bit more. So I added for good measure “And when you retire next year you’ll be a rentier.” Aw bugger it: so on I went to guess at the value of his right to use the NHS, etc, etc. What fun.
The bottom third of households hold just 3% of the nation’s wealth. The top third hold three-quarters of it.
Would they include the baby-boomer middle classes who, having enjoyed seeing the value of their house inflated artifically by government policies and their mortgage paid off, intend to keep things that way?
I’m curious about Richard’s point 1) above, as it’s something I’ve mulled over while trying to understand my own finances.
I have a final salary pension from a previous employment.
When I sat down to work out my net worth, I decided the best way to account for it was to write to the pension scheme administrators and ask them to state the transfer value. As I understand it, that’s the £X that they woudl give me now in return for renouncing my right to the future income stream.
Is that the right way to look at it, or is there some apples-and-oranges going on?
Certainly if it’s incorrectly omitted from wealth comparisons, that’s a big distortion- in my (probably not untypical) case it’s about 30% of my net worth!
Agree with your analysis, but I would go further.
Clegg is trying to draw a distinction between “wealth” (capital) and “income” inequalities. But these are fungible.
I can reduce my income to zero by borrowing such that the interest payments knock out my total income (and using the borrowed amount to buy an asset). Income is now zero, and wealth is maximised.
On the other hand, I can sell all my assets and purchase an annuity – wealth is now zero, and income is now maximised.
Clegg’s goal to try to focus on just the wealth side will result in the financially agile simply moving over to the income side. As usual, it is the less financially literate middle classes who will pay the price.
@CJN: remember to add on a good bit to allow for the fact that transfer values tend to be pretty mean. If you are near enough to retirement to make a decent estimate of what your annual pension will be (plus lump sum, if any), then you can just estimate the cost of buying an equivalent annuity on Private Pension terms.
@CJN: or you can undertake that valuable substitute for thought “put it into a spreadsheet”.
dearieme – “or you can undertake that valuable substitute for thought “put it into a spreadsheet”.”
Not if you are Prof Phil Jones…:)
@dearime: don’t worry, I ask them for the transfer value, but I’m well aware that the income is worth considerably more to me than the figure they give.
That pension fund is in deficit, so the company has to throw best part of a million a day at it… and some of that’s for me! 😎
(And yes, of course, I have put ALL the gory little details on a spreadsheet so I can admire them! )
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There is a problem over the definition of “Wealth” and measurements of “Wealth” by ONS in the last dozen years have all been predicated on that definition which suited their political masters.
However it was clear from the data produced by HMRC (until someone told them to stop publishing it) that the distribution of wealth had become far more unequal under New Labour. The share of marketable wealth, excluding the house people lived in, owned by the bottom 50% had dropped from 6% under Mrs Thatcher and Mr Major to 2% under Blair and Brown.
If you regard “Wealth” as stuff you can spend then you have to exclude private sector pensions as well as state pensions (and in most cases I should exclude your dwelling). I don’t regard the basic state pension as wealth as in order to collect it you have to live and the cost of survival (food, rent, heating and lighting and occasionally replacing clothes that wear out) pretty much exhausts that income. So there is a case for excluding future conditional income from state pension from “Wealth”. The treatment of private sector pensions is less defensible because it appears to assume that no tax will be deducted from the pension although the law requires all pension providers to deduct income tax from anyone above the tax threshold and that one can, contrary to English Law assign the future receipts from one’s pension.
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