More on the inequality report

One technical point and a surmise.

The technical point:

Researchers analysed the total wealth accrued by households over a lifetime. The top 10%, led by higher professionals, had amassed wealth of £2.2m, including property and pension assets, by the time they drew close to retirement (aged 55-64), while the bottom 10% of households, led by routine manual workers, had amassed less than £8,000.

This includes housing and pensions as they say. And that latter figure is simply wrong.

For routine manual workers will have accrued a right to a State pension (as does everyone of course). Yes, the right to a State pension is an asset just as much as a private pension plan is. That pension is worth around £5,000 a year or so (ignoring the minimum pension guarantee etc) and life expectancy at age 65 is something like 15 years or so, isn\’t it? Ignoring discounting (simply because I cannot be bothered to work it out) that gives us a capital value of that pension of £75,000 (obviously less if I\’ve over estimated lifespan there).

So, anyone who has reached retirement age after even the most menial of working lives has an asset worth £75,000.

(If we include the minimum guarantee, even after not working all their lives too).

Now I\’m a little hazy on how housing benefit works for pensioners but I asssume that pensioners are eligible. And of course, of that bottom 10% a number will be living in subsidised social housing. Which again means that we\’re not comparing like with like. That £8,000 figure is simply wrong.

We\’re comparing the fully visible cost of housing (as in, it\’s bought and paid for) without looking at the value of housing subsidy on offer for those who have not bought and paid for it.

That latter value is of course the net present value of either the rent subsidy they receive through housing benefit or the housing subsidy they receive through social housing. That they can\’t sell these income flows and go and whoop it up down the pub as those with their own house can doesn\’t mean that they\’re not assets.

So technically the numbers used here are wrong. For they are not including the assets that the poor have.

Now the surmise: council housing produces wealth inequality.

For, as above, a goodly chunk of the wealth inequality as measured is ownership of property. If you cannot purchase housing, which if you live in a council place you cannot, this is going to lead to wealth inequality at the end of life. The one policy which would reduce this inequality most effectively would be….umm, well, to do what Maggie did, sell council housing to tenants.

So, who is up for that? Come on, all you peeps who will no doubt be using this report to bemoan wealth inequality, which of you is willing to argue for the simplest and most obvious policy which will reduce it?

Bueller?

7 thoughts on “More on the inequality report”

  1. Brian, follower of Deornoth

    You forgot their ‘entitlement’ to health care; even at the average cost, that’s 15 years * £2,000 per annum, which makes a tidy piece of change.

    We know the healthcare must be worth at least that, because that’s what the Government spends on it.

  2. IIRC that £8k of assets that the poor have when they retire is the level at which housing benefit is withdrawn, which would mean it doesn’t make sense for the poor to accumulate assets over £8k.

  3. Your number are irrefutable, but to include Old Age pension as an asset is only valid if they own it, which they don’t.

    All they actually have is a claim on the state for those assets, and the state as we know will weasel out of any implied contract without even blushing.

    You might as well say that my assets at age 60 will include the notional capital value of providing my bus-pass and winter fuel allowance; but the State is about to renege on its promise to provide those. I don’t own them, I only have a claim – which may be (and will be) denied.

    So I don’t think the figures are as wrong as you claim. Maybe the State plans to renege on ALL its promises to pay pensions – by continuously putting back the date payable, without changing the contributions extorted. Would you put it past them?

  4. Brian, follower of Deornoth

    Andrew,

    You are quite likely to be correct. But it isn’t only notional benefits the state steal. After all, Britain was doing quite well with pensions savings until Brown looted them, and your continued residence in your own house is conditional on your paying council tax for the privilege.

  5. Andrew, if you are correct that we shouldn’t include private savings either. I am currently watching the value of my savings and pensions being inflated away by this incompetent bunch of thieves.

  6. wot Andrew said

    I think the point is about ownership of assets. You can put a cash value on a private pension very easily because there is an actual pot of savings in existence. Not so with state pension entitlement.

    Also the value of the state pension will vary by person because of differences in longevity (which would presumably further skew inequality given that the less well off die younger) and the fact that when you can claim it varies by when you were born (SPA is going up over time remember).

    That’s not to say you can’t/shouldn’t put a vaue on it but it’s not a simple as doing it for a private pension.

    And in the report itself, rather than the press coverage, they do make clear when they are including pensions and whay type and when not. John Hills has written quite a bit on pensions, demography etc (and was one of the members of the Pensions Commission) so I’d be surprised if he’d made a basic error.

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