These FAQs cover wealth inequality - what it looks like, why it matters, and what we can do about it. For more about the Fairness Foundation, see who we are and find out how you can get involved. For how we define fairness, see The Fair Necessities, and for how fair Britain is today, see The Fairness Index.
The size and shape of wealth inequality Why does wealth inequality matter? What can we do about wealth inequality?
The size and shape of wealth inequality
How big is wealth inequality in the UK?
Wealth inequality (understood in relative terms) has remained high but relatively stable over recent decades, with the richest 10% of families owning over half of all national wealth. Measured by the Gini coefficient (where zero represents perfect equality and 100 perfect inequality), income inequality in the UK hovers around 35 on the scale, but wealth inequality often surpasses 70.
What’s more, rising levels of private wealth have led to the absolute difference in wealth between rich and poor households (what we call the wealth gap) increasing by 54% between 2011 and 2021. The size of the absolute wealth gap in the UK is second only to the US among OECD countries, and it is likely to continue to grow over the coming decades.
Differences in wealth between generations are also at unprecedented levels. While most of the 20th century saw each generation accumulating more wealth than their predecessors, this trend has stagnated or reversed since the baby boomers and is gathering speed in the wrong direction.
How does wealth inequality relate to other forms of inequality?
Wealth inequality drives and magnifies other forms of inequality. Many minority ethnic households own substantially less wealth than their white British counterparts; a typical person from a Bangladeshi, black Caribbean or black African background has no significant wealth, in contrast to the typical white Briton, who has a household net worth of £140,000. This stark divide highlights deep-rooted historical and ongoing inequalities and discrimination, including (but by no means limited to) opportunities to accumulate wealth through home ownership.
There is also an average wealth gap of over £100,000 between men and women, with an even larger divide among older age groups. Furthermore, wealth entrenches longstanding regional divides in England; the North is home to 30% of the population but only 20% of its wealth. These imbalances not only reflect historical inequalities but also perpetuate and deepen them over time.
What is driving increasing wealth inequality in the UK?
Much wealth in UK is unearned, flying in the face of the dominant meritocratic political and media narrative that justifies the accumulation of wealth as a consequence of effort and talent. There has been a huge increase in asset prices, and thus in the wealth gap, over recent decades, while inheritances and gifts have doubled over the past two decades to £100 billion, and are expected to double again by 2040.
Meanwhile, the transformation of the UK economy towards asset control and rent-seeking behaviour – away from wealth creation towards wealth extraction – has consolidated resources into fewer hands and shifted economic activity away from productive enterprise. This has concentrated UK markets, restricted innovation and technological progress, reduced economic dynamism, and severely limited economic growth and the prospects for future growth. Whereas wealth creation increases the size of the cake, wealth extraction simply gives more of the existing cake to those who already have the biggest slice (upwards rather than downwards redistribution), and sometimes it makes the cake smaller at the same time.
Why does wealth inequality matter?
Is wealth inequality good or bad for growth?
The same factors that are holding back economic growth are also pushing up wealth inequality, with the result that people’s life chances now owe more to what they own than to what they earn. We provisionally identify five mechanisms by which wealth inequality harms growth:
- Reducing demand: The concentration of wealth in few hands reduces consumer spending power, increases poverty, and drives up household debt, weakening demand and stalling growth.
- Wasting talent: Inequality is a barrier to good grades and good jobs for millions of people, blocking the flow of talent and ideas, and so damaging innovation and productivity in our economy.
- Extracting wealth: Some companies and individuals control huge assets and charge others ‘rents’ to use them, extracting wealth at the expense of genuine wealth creation.
- Skewing investment: When too much investment flows to one sector (such as real estate) at the expense of more productive sectors, genuine wealth creation and economic growth suffers.
- Undermining competition: Wealth inequality increases market concentration. Oligopolies reduce competition, increase prices, and suppress innovation and growth.
How does wealth inequality affect our democracy and social cohesion?
The fraying social contract in Britain has been stretched to breaking point by persistent and widening wealth inequality. The stark gap between the wealthy and those struggling to get by has eroded the basic promise that effort and contribution are fairly rewarded with a decent standard of living and economic security, leaving millions of people feeling abandoned by mainstream politics. Recent research highlights just how deep and wide this anger at the status quo has spread across the UK.
High levels of wealth inequality feed the not unfounded perception that the economy is rigged against the interests of ordinary citizens. This in turn undermines community cohesion, diminishes trust in institutions, and drives resentment, pessimism and zero-sum thinking.
Politicians of all parties should respond to plummeting trust in mainstream politics by taking bold steps to share wealth more fairly across society, repair the social contract and restore faith in democracy, while boosting economic growth and improving living standards for all. This demands urgent action across a range of policy measures, including taxing wealth more fairly and effectively, sharing wealth more widely in the first place, and investing in stronger public services.
What does the public think about wealth inequality?
Polling shows that large majorities think inequality is a serious problem and feel angry about situations where ordinary people struggle while a few seem to play by different rules. When asked in their own words, people often talk about wanting everyone to have “a fair crack of the whip” and about their frustration with the perception that effort no longer reliably pays off. However, the public consistently underestimates the extent of economic inequality, especially wealth inequality.
The UK public has a high tolerance for wealth that has been earned through skill and hard work, and polling shows that people overplay the role of merit and undervalue the role of luck in influencing life outcomes. Wealth is often perceived as an ‘achieved’ and therefore legitimate attribute. Most people draw a sharp distinction between those who are wealthy through perceived hard work, innovation or socially useful entrepreneurship, and those seen as exploiting loopholes, avoiding tax or benefiting from unfair advantages. Anger tends to focus not on wealth itself, but on the sense that some people “take without giving back”, or that they can bend rules and buy influence denied to everyone else. However, while people have an intuitive understanding that the UK economic system is ‘rigged’, many lack a detailed understanding of the specific mechanisms and actions employed by wealthy elites to maintain and perpetuate this imbalanced system.
People on the left tend to prioritise reducing inequality of outcomes and guaranteeing basic rights, while those on the right emphasise equality of opportunity, reward for effort, and the importance of personal responsibility. Yet both groups see some forms or consequences of inequality as unacceptable, and both care about reciprocity – that people should contribute as well as receive.
What can we do about wealth inequality?
Should we be taxing wealth more?
Unless actively checked, wealth inequality is self-perpetuating and the absolute wealth gap will continue to grow, because wealth begets more wealth. This process is amplified by the UK’s tax system, which under-taxes income from wealth compared to income from work. This creates an unfair disadvantage for people in employment compared to people who generate income from assets, and significantly reduces the amount of revenue raised through taxation to fund public services. There are a range of straightforward ways to tax wealth more fairly and effectively, such as equalising tax rates on capital gains with tax rates on employment income. There is clear public support for tax increases to fall on wealth rather than income.
Other proposals that look to redress the under-taxing of wealth, and to tackle wealth inequality, include a separate tax on stocks of (as opposed to incomes from or transfers of) wealth. A new wealth tax has moved from the margins of economic debate to a serious proposal to raise revenue and/or reduce wealth inequality. A one-off wealth tax could be justified as a response to a particular crisis, but would only temporarily reduce wealth inequality. An annual progressive wealth tax could be justified on the basis that it would permanently limit wealth inequality, but public and political support would need to be won, with a concerted effort to ensure that it was well designed and implemented (and not, as has happened in other European countries, watered down by successful lobbying to include loopholes that reduce the revenue raised and thus undermine its legitimacy).
How can we share wealth more broadly across society?
Wealth concentration in the UK has been facilitated by an economic system that often incentivises and rewards the extraction of value from existing financial and corporate wealth, rather than encouraging the creation of new economic value. Mechanisms to prevent this, such as public wealth funds, would ensure that income-generating assets are shared more equitably, allowing all citizens to benefit from economic development. These funds would provide access to excellent investment returns for everyone and mitigate the effects of differential returns, where the wealthy enjoy superior rates of return compared to average savers, exacerbating existing inequalities.
Other approaches to sharing wealth could include democratising our financial system with the aim of ensuring that a higher proportion of business profits end up in the hands of workers, such as by mandating worker representation on company boards. Sharing wealth broadly now can help to mitigate the impacts of future trends that are likely to intensify wealth inequality, such as the increasing power and impact of artificial intelligence.
How can we reduce the spillover impacts of wealth inequality?
Many European countries have substantial safeguards to reduce the salience and importance of wealth in everyday life, so that both owning wealth and not owning wealth have less of an impact on people’s life chances and living standards. At the bottom end, these include investing in stronger public services and in a more comprehensive and generous welfare state. At the top end, they include taking measures to reduce the influence of the wealthy on politics, such as more transparent lobbying regulations and stricter rules on donations to political parties.