‘Wealth inequality threatens all of us – what can Labour do about it in the Budget?’

Periods of egalitarianism are the exception and not the rule in British history. Throughout its long and storied existence, powerful mechanisms have worked to concentrate Britain’s resources, rather than share them.

That most people had nothing, while some had fortunes, was entirely usual. Against this, the Labour Party was conceived as a vehicle to organise against the idea that inequality is inevitable, and to make the ethical case that things should and could be very different. A commitment to equality, argued one of Labour’s foremost thinkers, Anthony Crosland, was ‘its most characteristic feature’.

Helped by war, Labour eventually delivered on this promise. The Labour government of 1945-1951 ushered in a pro-equality agenda, broadly maintained by subsequent Conservative governments (until the 1980s). This slowly narrowed wealth differences. After a decline from 70% in 1910 to around 50% in 1945, the wealthiest 1% saw their share of total wealth fall even further to below 20% in 1970 – a high point for egalitarianism. Since then, wealth inequality, as measured by the Gini coefficient, has increased slightly, but has remained mostly stable.

Looking through history

Compared with the excesses of the early 20^th Century, this might lead some to conclude that wealth disparities are not a pressing concern. Statistics, however, can sometimes obscure rather than inform. A rapid rise in asset prices (driven by passive factors), combined with large inequalities in asset ownership, has created large and growing differences, in absolute terms, between those with the most wealth and those with the least.

Between 2011 and 2019, there was a 48% increase in the absolute gap between the total wealth of those in the bottom 10% in the wealth distribution and those in the top 10%, and a 49% increase in the absolute gap between the total wealth of the middle 10% in the wealth distribution and the top 10%.

These breathtaking divergences, as well as growing over time, are also high by international standards; the size of the absolute gap between the wealthiest 10% in the UK and the bottom 40% is second only to the US, among OECD countries.

Wealth, or its absence, is increasingly shaping everyday life in Britain, conferring massive advantages on to those who have it, and severely limiting those who do not. This isn’t just unfair, but, as the Fairness Foundation shows in a new report, it also fundamentally undermines the stability of our society. The Wealth Gap Risk Register is an evidence resource that for the first time brings together research from across various sectors on the impacts and risks of the wealth gap in the UK, what people think about it, and how to fix it.

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When we think about risk, we typically think of immediate symptoms rather than underlying causes. Structural factors are often overlooked. The report makes the case that the growing wealth gap between groups, and its spillover effects, are a significant driver of strategic risk in the UK.

From economic stagnation to the undermining of democracy, wealth stratification is a profound threat that is underpriced by politicians and civil servants.

Moreover, these risks and impacts interact with and reinforce each other, leading to the not unrealistic speculation that, unchecked, wealth disparities could eventually trigger social breakdown. Peter Turchin’s ‘cliodynamics’ approach examines historical patterns to show that popular immiseration and extreme wealth often lead to the collapse of societies, if unchecked.

Finding a purpose

Despite limited public understanding of the nature and impacts of wealth inequality, multiple policy interventions exist that can either reduce wealth differences or mitigate its impacts. Labour’s impending budget could start by rebalancing the tax burden between wealth and income. Moves to increase capital gains tax rates are long overdue. Likewise, updating the council tax regime would involve not just reevaluating property prices but also reforming rates.

And closing loopholes and exemptions for inheritance tax would prevent the super-rich from passing down large fortunes untaxed. In total, according to the Taxing Wealth report, wealth is undertaxed by £170 billion each year in the UK.[5] Where does that money go? Put simply, instead of funding vital public services, it sits in the pockets of those with the most.

As Stewart Lansley puts it, in The Richer, The Poorer: How Britain Enriched the Few and Failed the Poor, wealth concentration in the UK has also been facilitated ‘via mechanisms that extract an excessive share of the gains from existing corporate and financial wealth and from the creation of new wealth.’ This upward transfer of wealth has been used by the super-rich to claim an excessive slice of the national cake, with severe consequences for economic dynamism and growth.

The much-anticipated public wealth fund, and other strategies that share wealth such as cooperative economic models, would ensure that income-generating assets are distributed more equitably across the country, giving people a stake in wealth creation.

Some have asked, reasonably, what the point of this Labour government is. In tackling this problem, they can combine purpose – perhaps the Party’s original purpose – with the practical urgency of addressing wealth inequalities. If they don’t, they risk not only alienating potential voters but also having to contend with an increasingly disfigured and unstable Britain, made more and more ungovernable by wealth differences.

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