The ONS’ main data on wealth misses almost £800 billion of assets held by the wealthiest 1 per cent of UK households and correcting for this oversight means UK wealth inequality is higher than previously thought, according to new Resolution Foundation research.
The Missing Billions examines the scale and distribution of wealth across the UK, and finds that official measures miss around 5 per cent of the total wealth in the UK, held by the very wealthiest households, which conservatively amounts to around £800 billion and could easily exceed this.
How did it go unnoticed?
The Foundation reported that it has uncovered this missing wealth by merging the official ONS Wealth and Assets Survey (WAS), which traditionally struggles to capture the assets of very wealthy households, with data published in the Sunday Times Rich list.
By taking this missing wealth into account significantly increases measures of wealth inequality, raising the Top 1 per cent of household’s share of total wealth by over a quarter – from 18 per cent to 23 per cent.
The Foundation notes that even without this £800 billion, wealth across the UK is very unequally distributed – with total wealth inequality around twice as high as income inequality (the Gini coefficients are 0.63 and 0.34 respectively).
Wealth tax reform
The Foundation is calling on the Chancellor to embark on the biggest reforms to wealth taxation in a generation – including via the restriction of capital gains and inheritance tax reliefs (together raising several billion), and adding a Council Tax Supplement of 1 per cent on properties worth over £2 million (raising over £1 billion).
Passive accumulation: the new way to save
Focusing on how wealth has grown since the financial crisis – a period marked by an unprecedented lack of pay and income growth – the report notes that wealth gains have largely come about through changes in asset prices.
“The vast majority (between 76 and 93 per cent) of financial wealth gains over this period have come through such passive accumulation, rather than saving,” said the report.
The Foundation says that with rising asset prices driven in part by falling interest rates, which are likely to remain low for the foreseeable future, these huge wealth gains are likely to be long lasting.
With the UK entering a decade of mounting fiscal pressures – both due to the cost of the pandemic and an ageing population causing health and welfare spending to rise by £38bn a year by 2030 decade – the Foundation says that wealth taxation will need to play a bigger role in the UK economy over the course of the 2020s.
“With the country facing a decade of mounting fiscal pressures, now is the time for Britain to do a better job of taxing its record levels of wealth by reforming our capital gains, inheritance and property taxes,” said Jack Leslie, Economist at the Resolution Foundation.
Leslie puts down the fact that the UK has undergone a “wealth boom” in recent decades, which has continued even while earnings and incomes have stagnated as the reason why the taxman’s coffers have not been heftier.
“Official data has struggled to capture these gains, and misses £800 billion of assets held by the very wealthiest households in Britain,” said Leslie.
The report’s release comes at a time when the Chancellor Rishi Sunak will be preparing for tax policies in the upcoming March 2021 Budget, which could include higher taxes for the self-employed. Read our in-depth report here.
