On Monday, families across the country will be feeling a mix of excitement, anxiety and relief as kids go back to school (with Scotland having already gone through it). Experiences that unite every corner of the UK feel rarer these days, with talk of division and left-behind places common. Differences between South Shields and South Kensington obviously matter. But those we notice every day at the school gate or in nearby towns and cities are just as likely to determine how we feel about inequality, social mobility and the opportunities the country offers people. And when it comes to wealth within places, strikingly different trends are visible.
Wealth – including property, pensions and financial wealth like savings, as well as possessions – plays a major role in society. It determines where people can live, their ability to deal with unexpected expenses, the risks they can take and what they can pass onto the next generation. If the wealthy are pulling away from the rest of the population, or those with the least are struggling to build up assets, this has important and long-lasting consequences.
To better understand the scale of these differences, within each region we can look at what is known as the p75/p25 ratio. This compares low-wealth households – those who are wealthier than 25 per cent of households but less wealthy than the remaining 75 per cent – with high-wealth households – those wealthier than 75 per cent of households.
The biggest gap between the two groups exists in London, where high-wealth households in the capital have 24 times more than low-wealth Londoners. This partially reflects the fact that wealthy Londoners are, by any measure, very wealthy. London’s young population also plays a role too. Younger people are less likely to have built up wealth and 24 per cent of Londoners are aged 25-34 compared to 17 per cent across the UK. Nonetheless, this dwarfs the gap visible at the same points in the income distribution, with those at the 75th percentile with an income of roughly three times more than those at the 25th percentile.
Beyond London, the pattern is less predictable. The next largest gap is in the East Midlands, with high-wealth households 12 times more wealthy. The divide in the North East is only a little narrower at 11 times, with the smallest gap – 6 times – in the South West. Though far from straightforward, this is driven by low-wealth households being comparatively worse off in the East Midlands and North East, and better off in the South West.
These relative gaps tell us a lot about the scale of divides. But absolute differences, that is, the size of the gap in pounds and pence, shine an alternative light. For instance, a wealthy person who sells up in the South East is likely to result in a bigger pot of cash, and a wider array of options on how that’s used, than selling a wealthy person in Wales. These gaps are widest in the wealthier parts of the country – London (high-wealth households have £821,000 more than low-wealth households) and the South East (a £729,000 gap). And despite the South West being the most equal in relative terms, in cash terms the difference between low-wealth and high-wealth is wider there (a £579,000 gap) than in, for instance, the North East (a £355,000 gap). The takeaway being you need to consider both relative and absolute gaps to get a handle on inequality.
Of course, these inequalities aren’t static. Total household wealth has grown strongly in recent years, rising from £10.1 trillion in 2006-08 to £12.8 trillion in 2014-16. But that growth has not been uniform geographically or across the distribution. The chart below illustrates real-terms change since 2006-08. Two main trends jump out. First, everywhere bar the North East, wealthier households are now better off than they were pre-crisis. Second, and of greater concern from a living standards perspective, the picture for low-wealth families is more mixed. In some nations/regions – Scotland and the South East – the change for low-wealth households has outpaced that of high-wealth households, serving to narrow the gap. In contrast, in London, even though both low-wealth and high-wealth households are wealthier now than pre-crisis, the assets of the wealthiest have grown far faster, widening the gap.
Notes: ‘Low-wealth’ households are defined as those at the 25th percentile of the total household wealth distribution within each nation/region. ‘High-wealth’ households are those at the 75th percentile of the total household wealth distribution within each nation/region.
Source: RF analysis based on ONS, Wealth and Assets Survey
At the other end of the chart, however, are the places where low-wealth households are still worse off than in 2006-08. This is particularly striking in the East Midlands, with the wealth of low-wealth households 42 per cent below where it was in 2006-08 in real terms. While the exact causes are likely to vary, falling homeownership, a softer house price recovery in some places and weaker local economies may all have played a role.
As the chart shows, widening inequality is a risk but far from inevitable. Although a variety of factors – some of which are beyond the control of politicians – influence this, policy can and should be used to narrow these gaps. The Industrial Strategy, with its eye on regional inequalities and encouraging higher-productivity jobs, could help to revitalise local economies if growth is shared. On property, introducing a progressive property tax with surcharges on second and empty properties could help more young people to buy their own home. On pensions, the success of auto-enrolment has shown what can be achieved, but more thought should be given to how the self-employed– typically with low pension wealth – can be encouraged to save for retirement. And in order to limit parental wealth’s influence on a person’s life chances, inheritance tax should be replaced with a lifetime receipts tax with lower tax rates but a lower threshold and fewer exemptions.
Some differences in wealth may be as inevitable as kids moaning about going back to school, but the gaps within areas can be narrowed and opportunities can be more equally shared.