Inequality in Britain is of developing world level

Inequality in Britain is of developing world level

By Edmund Conway Economics Last updated: November 25th, 2009

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I missed this report yesterday but it’s an interesting one. According to consultants AT Kearney, the richest 1pc in the UK hold some 70pc of the country’s wealth. That there is this divide between rich and poor is not exactly new – but the scale of it, and the likelihood that it is not being narrowed by the financial crisis, is a big worry. Indeed, according to the report, in the US the amount of financial assets owned by the richest 1pc in the US is far, far lower at 48pc, and only 34pc in Australia.

This must, to a large degree, be due to the fact that the UK set itself up in recent years as a haven for the super-rich, with its relatively generous rules on capital gains tax, because the income tax system itself is rather more redistributive than in the US. But the Kearney report is interesting because, unlike the traditional measure of inequality, the gini coefficient, it focuses not on income (the flow of money) but on actual substantive wealth (the stack of it that sits beneath us).

Says Penney Frohling, a partner at AT Kearney: “To understand the impact of the market crash, though, you need to look at wealth – not just how much people hold, but how it is held across different asset types. This is harder to do but drives quite different insights about how deeply and how widely the market crash and subsequent recovery have affected investors across age and wealth bands.”

“On an income basis, the UK and Australia have similar levels of equality according to the UN, with the US having proportionately more very high- and very low-earners. But in terms of the distribution of what people own rather than what they earn, the UK picture is more like an emerging market – though of course at a higher level.”

In the latest UN report on the gini coefficient (in which a score of 0 means absolutely equal income across the population and 100 means one person has all the income), the UK scored 36.0, Australia 35.2, USA: 40.8.

In part the poor score for the UK is due to its relatively ungenerous pension provision, compared with Australia where there is a compulsory pension savings scheme.

But what I find particularly intriguing (and this is something which won’t be clear for another year or more) is the question of whether this crisis has levelled out those inequality gaps. The Great Depression and its aftermath most certainly did, but despite the fact that the gini coefficient (certainly in the US, probably in the UK) are at levels comparable with the late 1920s and early 1930s, we haven’t yet seen any kind of dramatic social backlash as a result.

http://blogs.telegraph.co.uk/finance/edmundconway/100002243/inequality-in-britain-is-of-developing-world-level/